Judicial Reform

Oklahoma Supreme Court nullifies countless energy, construction contracts

October 23, 2024

Ryan Haynie

Visit www.OklaJudges.com to learn more about your Oklahoma Supreme Court justices.

It seems there’s nothing the Oklahoma Supreme Court won’t do to prop up its version of the workers’ compensation system. Based on a recent case, that includes nullifying an untold number of contracts—leaving many companies in industries like energy and construction with genuine questions about their legal liability.

In Knox v. Oklahoma Gas and Electric Co., the Oklahoma Supreme Court invalidated an indemnity contract—leaving a contractor (and presumably now countless other businesses) without a benefit it legally contracted for. An indemnity contract is “a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person.” These agreements are very common in the energy and construction industries, and for good reason. It makes sense for general contractors to want their subcontractors—those most likely to suffer or cause harm—to act prudently. The contractual assurance that, under the proper circumstances, you’ll hold the contractor harmless provides that incentive.

Why invalidate the contract? The Knox case involved the widow of a man killed at a construction site who filed a workers’ compensation claim against her deceased husband’s employer. After receiving the benefit due under the workers’ compensation law, she also sued the various contractors up the chain—three in total. One of those contractors had a contractual right of indemnity against the employer who had already paid out under the workers’ compensation system. The contractor sought to enforce its contractual right of indemnification against the employer.

The Oklahoma Supreme Court was asked to determine if the employer—who had already compensated the widow under workers’ comp—had to also indemnify the contractor who was the beneficiary of an indemnification agreement. The Court answered in the negative, claiming  a “win” for the Court’s version of the workers’ compensation system, but never explaining what workers’ compensation claims have to do with contractual rights of indemnity.

The Court and other champions of workers’ comp frequently refer to the advent of the workers’ compensation system as the “grand bargain.” As a part of the grand bargain, workers need not prove their employers were negligent—they will be compensated if they only prove they were hurt on the job. Furthermore, workers’ compensation benefits are the exclusive remedy for any claims by the employee against their employers, meaning that the employee may not file tort claims in district court. Courts see this as an enormous positive for businesses. 

There is good reason for workers’ compensation to be the exclusive benefit between employee and employer. But there is no reason to believe workers’ compensation was intended to prevent liability in contract between the employer and anyone else. But that is exactly what the Oklahoma Supreme Court said. Essentially, the Court held that the contractor could not enforce the indemnity agreement between it and the employer, because the employer had already paid a workers’ compensation benefit. 

The Court was split with two justices dissenting and another two concurring in part and dissenting in part. None of the four in the minority wrote separately to explain their reasoning, so it’s impossible to know if they agree with the reasoning above or rely on another argument.

It’s hard to see how this decision doesn’t nullify every indemnity agreement regarding personal injury. These clauses are so ubiquitous in the energy and construction fields that contractors must be scratching their heads wondering what kind of liability they now face in light of this case. One thing is certain—the Court cares more about propping up an unpopular workers’ compensation system than it does about the contractual rights of businesses.