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A decision handed down in May by the Oklahoma Supreme Court may increase the liability of many businesses when sued in cases involving subcontractors, including many oil-and-gas companies.

Under the court’s ruling in Knox v. Oklahoma Gas and Electric Co., a business cannot avoid liability if an employee of a subcontractor is injured on the job and collects workers’ compensation benefits, even in cases where contracts contain an indemnity clause to protect companies from the negligence of their subcontractors.

The law firm of McAfee & Taft noted the decision in a recent post, warning, “We recommend that companies review the current indemnity structure in active service contracts to determine whether amendments are necessary.”

The case focused on David Knox, an employee of BJ’s Oilfield Construction, who died as the result of an on-the-job accident. 

At the job site, Oklahoma Gas and Electric (OG&E) contracted with SunPower Corporation Systems to develop the property for a solar power facility. SunPower contracted with Moss & Associates to construct the facility. And Moss contracted with BJ’s to prepare this construction site.

Knox’s spouse sought and received workers’ compensation benefits and also brought a wrongful death claim against all four companies in Oklahoma County District Court.

SunPower argued that Moss had, in writing, agreed to defend and indemnify SunPower for claims arising from the job site. The contract between BJ’s Oilfield Construction and Moss similarly contained an indemnity clause that expressly included SunPower as a beneficiary of the indemnity clause.

On May 21, the Oklahoma Supreme Court ruled that “common-law negligence basis of liability was substituted by the workers' compensation remedy for the same physical injury pled in both the workers’ compensation proceeding and in the District Court as one basis for the indemnity,” and that BJ’s Oilfield, “as an employer, may not create an additional capacity or role for common-law negligence liability for the same physical injury used for a compensable workers' compensation award.”

It is not known how many businesses may be impacted by the ruling, although the impact is expected to be widespread with the state’s energy producers potentially among those feeling the most significant repercussions.