Laws Limiting Anti-Indemnification Clauses to Be Trucking’s Primary Focus, Officials Say

This story appears in the Nov. 29 print edition of Transport Topics.

Trucking officials said efforts to enact federal legislation protecting carriers from overreaching indemnification provisions in shipper contracts were likely to be the industry’s primary tort reform push in the coming year.

“This is an active area,” Bob Pitcher, vice president for state laws at American Trucking Associations and staffer for the federation’s insurance task force, said of efforts to enact anti-indemnification legislation at the state level.

“There were six states that passed such laws in 2009 and seven in 2010,” Pitcher said, adding that nearly a dozen other states were looking at or pursuing their own laws.

Currently, 25 states have enacted anti-indemnification laws.

Duane Long, chairman of Longistics, Research Triangle Park, N.C., and head of the insurance task force, said the anti-indemnification push “has really gotten momentum.”

“It mainly has to do with the fact that there are a number of large shippers who have a very extensive habit of having contracts with their motor carriers that have clauses in them that hold the shipper harmless for any type of negligence, even their own,” Long told Transport Topics.

At issue, Pitcher said, are clauses in contracts that require carriers to pay for any negligence or accident that occurs on the shipper’s property.

“It’s like asking the motor carrier to insure for something that could go wrong on the shipper’s end of things, but the shipper doesn’t want to take any responsibility for it,” said Karen Rasmussen, president of the Arizona Trucking Association. “That can range from . . . improper load securement to accidents on the loading dock.”

Rasmussen said the state group’s board approved a 2011 push to pass a law to protect carriers.

“Like everywhere else, our members are seeing shipper and broker contracts that have really unfair indemnification language in them,” she said. “There are certain organizations and certain large shippers that really abuse the carrier in that way, that say: ‘You’re responsible for your negligence — and you’re responsible for my negligence.’ ”

“It’s coercion,” Rasmussen said.

Dave Creer, executive director of the Utah Trucking Association, called the contract language “predatory.”

“It’s big business versus small business,” he said. “It’s one of those situations where someone is trying to take advantage of their circumstances  and their power . . . and every one of [my members] has dealt with something like this in a contract.”

Bob Voltmann, president of the Transportation Intermediaries Association, said the broker group has seen an increase in this type of contract language.

“We know that shippers want to be indemnified against everything, including their own actions,” he said. “They like to live by the golden rule: ‘The one with the gold makes the rules.’ So you have to be very careful when signing any contract.”

John Cutler Jr., general counsel for shippers’ group Nasstrac Inc., said he has “seen shipper contracts where shippers have wanted to indemnify a carrier for anything.”

Cutler also said he wouldn’t be surprised if the language grew more widespread during the recession “because, when the market shifts from a buyers’ market to a sellers’ market for anything, there are going to be demands by whoever’s up to have more advantageous contractual provisions governing the relationship. It is the same thing as with prices.”

However, Cutler said there were legitimate reasons for carriers and shippers to indemnify each other for negligence.

“For many shippers [indemnification is] the big concern, and the most practical application of these . . . clauses in contracts is traffic accidents,” he said.

“The thinking is that the carriers have lawyers who deal with these incidents frequently [and] they’re well-equipped to defend themselves. If there’s a fender-bender, and the plaintiff’s lawyer sues the carrier and whoever has freight in the trailer, it’s a nuisance for shippers to have to defend themselves from those lawsuits, and it’s convenient to have the carriers, who are in a better position to deal with those issues, [to] deal with them for everybody,” Cutler explained.

Long told TT that the recent midterm election results, in which Republicans increased control of state legislatures and governorships, likely will improve the chances for indemnification reform.

“As a general rule, if you look at the election across the country at the state level, the atmosphere will be better for the efforts that we’re taking,” he said.

In Minnesota, however, the state association likely will face the opposite issue — convincing a Democratic governor to sign legislation his Republican predecessor vetoed.

“We were successful in getting it through both bodies — the House and the Senate — with unanimous votes, but Gov. Tim Pawlenty vetoed it,” Minnesota Trucking Association President John Hausladen said of the association’s futile push earlier this year.

“Our odds of passing it through the legislative bodies are as good next year as this year,” Hausladen said of a planned new effort. “The wild card is, if the governor is Mark Dayton, we don’t know what he thinks about this at all.”

Dayton is the likely winner of the Minnesota governor’s race, pending a recount, Hausladen said. (The recount had not begun by the time Transport Topics went to press.)

“We would like to think that, since this is a bipartisan bill, he would sign it, and we think that the principles of equity contained in the bill should resonate with him,” he said.

Both Creer and Rasmussen predicted wins in Utah and Arizona, noting the election did little change the balance of power in their states.