Knock-for-knock: rethinking liability and coverage for on-site worker injuries

On 29 July 2017, three workers were performing maintenance on a bulldozer at a NSW coal mine owned and operated by Mt Owen Pty Ltd.

All three were employed by Titan Technicians Enterprise and were working under the supervision of a Mt Owen employee.

One of the three, Glen Parkes, was injured when another, Mitchell Kemp, dropped the blade of the bulldozer, crushing his leg. Parkes claimed damages for personal injuries. Who was found liable for damages?

Parkes claimed damages for personal injuries against both Mt Owen and Titan. The court found that Kemp became the employee of Mt Owen pro hac vice ("for this occasion”), and that Mt Owen was vicariously liable for his negligence.

It found that both Mt Owen and Titan had breached their own duties of care to Parkes and apportioned 60 per cent of the liability to Mt Owen, while the remaining 40 per cent was shared equally by Mt Owen and Titan.

While Titan successfully cross-appealed the attribution of liability, Mt Owen’s appeal was dismissed in 2023.

This case, known as Mt Owen Pty Ltd v Parkes [2023] NSWCA 77, highlights the complexities of liability and coverage in the modern labour hire environment, where attention on workplace injury claims involving multiple parties is gaining greater attention.

It is a topic to be explored at the upcoming  ANZIIF Australian Liability Conference, which will also examine the challenges of knock-for-knock contractual clauses, which require each party to take responsibility for its own people and property, regardless of fault. 

The knock-for-knock challenge

Once a neat solution to contractual liability, knock-for-knock clauses may expose insurers and insureds to coverage gaps, litigation risks, and inconsistent state interpretations. 

Melanie Quixley, Principal at law firm Barry Nilsson, says that in the Australian market, these provisions can present a range of challenges, particularly for workplace claims. 

“Firstly, we see a large workforce that are ‘labour hire employees’ such that they may not in fact be the employee of the contracting party, and their employer potentially has not agreed to this indemnity,” she says. 

“That might mean that the knock-for-knock agreement becomes irrelevant to injuries to those workers.” 

Quixley adds that a host employer may become vicariously liable for the actions of a labour hire worker, citing the case of Mt Owen Pty Ltd v Parkes [2023] NSWCA 77.  This can change the employment landscape in which the knock-for-knock provisions were drafted. 

Adding to the complexity is that Australian states operate their own workers compensation schemes with different rules, benefit levels and employer obligations. Victoria has WorkSafe, NSW has SIRA, while Queensland has the WorkCover scheme. 

“For example, in Queensland, the Workers’ Compensation & Rehabilitation Act 2003 contains the statutory workers’ compensation policy and makes void a term in a contract whereby an employer is required to indemnify another party for its negligence,” says Quixley.

“That would mean that an employer in Queensland would still be pursuing a right of recovery against those other parties, making the knock-for-knock of little value.”

“There may also be, depending on the circumstances and the jurisdiction of the agreement and the loss, restrictions on indemnities with respect to liability for statutory breaches of workplace health and safety legislation or for breaches of the Australian Consumer Law,” adds Quixley. “These would need to be considered and addressed in any agreement.” 

Insurance mismatch

Scott Jordan, casualty claims manager, Markel Australia, says the effectiveness of knock-for-knock clauses, and whether litigation and claims are reduced, can be impacted by factors such as how they are drafted. 

“If poorly worded, indemnities may be interpreted as ambiguous or deemed to be exclusion clauses, which courts scrutinise closely,” he says. 

“If the language is vague or overly broad, it can lead to differing interpretations of the clauses and confusion as to the operation.

"Those who draft such clauses must be mindful of reflecting the intention in clear terms, whilst being compliant with relevant legislations such as the Unfair Contract Terms (UCT) reforms.” 

Jordan adds that the issue of misalignment can also impact the effectiveness of knock-for-knock clauses. 

“If the insurance policy wording does not reflect the indemnity arrangements in the contract, particularly in relation to waivers of subrogation or other defined contractual terms, insurers may find themselves exposed to liabilities they did not intend to cover,” he says.

“This is especially problematic in multi-party projects, where the contractual structure can be complex and legal liability unclear.” 

Jordan adds that knock-for-knock provisions can also create challenges in the reinsurance space.

“Reinsurers may interpret these clauses differently, particularly if they are not expressly incorporated into a reinsurance treaty,” he says.

“This could result in coverage disputes or even denial of recovery, leaving the primary insurer to retain more risk than anticipated.”

Knock-for-knock arrangements that involve broad indemnities or waiver of subrogation could also result in additional disclosure obligations in line with Section 21 of the Insurance Contacts Act, which requires disclosure of material information. 

Furthermore, if there is misalignment between a reinsurer’s limitations and a primary insurer’s exposure, Jordan says it could complicate claims recoveries and aggregation management. 

Due diligence and risk mitigation

Clear coordination of contract and insurance language around knock-for-knock provisions may help to mitigate risks.

“Claim analysis and assessment of exposure can be a complex task when there are multi-party nuanced contractual arrangements in place,” says Jordan.

“The task can become clearer when there is co-ordination and alignment between the material stakeholders. 

“Co-ordination in an open manner between those parties should be promoted to ensure that any contractual or policy arrangements are fully considered by all,” adds Jordan.

“The desired claims outcome being a quicker and clearer route to a decision with a reduction in disputes, litigation and ultimately claims exposure being mitigated to the benefit of the client.” 

Quixley says that the drafting of any knock-for-knock agreement should not be done in isolation from insurance arrangements.  

“Involving insurers, with the help of a broker, before agreeing to a project contract with these types of arrangements will help to avoid coverage gaps and disputes,” she says.

“We are generally looking at large projects requiring sophisticated insurance arrangements.” 

Quixley adds that knock-for-knock agreements generally work best with project insurances, where there is one policy covering the project. 

“If that is the case, then the insurer and its underwriters are able to better assess and price the project insurances,” she says.

“Insurers might need to tailor a specific wording for where there is a knock-for-knock agreement intended to apply and look carefully at the subrogation clauses in the policies. 

"Generally, the way subrogation clauses are drafted in Australia, where there is one insurer for a project, a similar intent to a knock-for-knock agreement may be able to be achieved in any event.”

As there has been increasing focus from courts when interpreting policy wordings on drafting, Quixley argues that insurers should be particularly careful on points of clarity and consistency, particularly across defined terms and exclusions.

“As with drafting any contractual term, it’s all about precision,” she says.

“Ultimately, the courts will be determining what the contract meant and its application to any given fact, so clarity is key, and the contract needs to be carefully drafted to ensure that the parties’ intention is carried out and that it will be enforceable. 

“The agreement cannot be made in isolation, it needs to be done in concert with insurers to ensure that insurance aligns and to avoid gaps in cover, and your broker and lawyer will be key in that process,” Quixley says.

“Similarly, the agreement should contemplate how claims will be managed including notification, investigation, dispute resolution and communication.”

When it comes to pre-contract due diligence, Quixley advises all parties to “be realistic”.

“These types of agreements are not a cure all for workplace claims,” she says. “They are fraught with risk and uncertainty and need a careful hand to ensure that the drafting of both the agreement and any corresponding insurances are effective.”

Learn more about the Australian Liability Conference