WorkCover WA has released a position statement on what it described as an "emerging demand by principals in large scale projects seeking broad workers' compensation policy extensions to the traditional 'upward indemnity' from contractor to principal" in major project contracts.

WorkCover WA was concerned at the proliferation of 'sideways indemnities' being demanded on such projects by way of mutual indemnity and hold harmless schemes, accompanied by waivers of rights of subrogation, where the intention was for each party to a contract to bear the cost and not seek recovery or contribution from the other parties.

It noted that the Workers' Compensation and Injury Management Act 1981 (WA) contained specific insurance obligations for common law rights and certain statutory rights of recovery and said it considered mutual indemnity agreements of the nature described above were not contemplated by the Act and so threatened the viability of the WA workers' compensation scheme.

According to the position statement "These arrangements should not be adopted in commercial contracts or endorsed via extensions to employers' indemnity contracts". WorkCover WA was concerned such arrangements might transfer liabilities from the public liability insurance market to the WA workers' compensation scheme and so adversely affect underwriters' risk and undermine statutory recovery provisions.

James Saunders, head of Construction at Kott Gunning, agreed and acknowledged that this particular issue is becoming an increasingly serious problem for contractors aiming to win work on major projects but being subject to onerous provisions in the head contract which may result in their being robbed of:

  • Protection they may otherwise have had under a policy of insurance;
  • Rights that they may otherwise have had against Third Parties

Vidal Hockless, head of Insurance, also notes that some insurers have expressed concern about the commercial pressure to provide such insurance and have welcomed Workcover's position.

Companies and businesses wishing to contract in the current market should bear in mind the warning published by WorkCover WA and seek advice in respect to any issue of concern.

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