More States Banning Indemnification Contract Clauses

This story appears in the March 30 print edition of Transport Topics.

Spurred by trucking industry leaders, more states this year are banning contracts that shift liability for any incident that occurs on a shipper’s premises to freight carriers, joining more than a dozen other states that have acted to protect carriers from what they say are unfair contracts.

Wyoming Gov. Dave Freudenthal (D) signed a new law protecting truckers on March 12, and in New Mexico, a similar bill awaits the signature of Gov. Bill Richardson (D).

In North Dakota, a measure to protect truckers from indemnification clauses in contracts has passed the lower house. In each case, the legislation bars “hold harmless” or indemnification clauses in shipping contracts that make the truckers liable.

What companies that require indemnifications clauses are “saying is: ‘No matter what happens on our property, whether it’s our fault or your fault, it’s your responsibility,’ ” said John Conley, president of the National Tank Truck Carriers.

“When you go to the different states, it really comes down to David and Goliath,” Conley said of the battle to enact laws that prohibit those clauses.

Indemnification provisions are particularly common in the oil and gas industry, trucking officials said, but also are showing up in other areas.

“We were seeing more and more of them over the past couple years,” said Sheila Foertsch, managing director of the Wyoming Trucking Association.

“All of a sudden, every contract that a carrier was seeing had some language in there that was making them liable for everything,” she said.

In Wyoming’s legislature, both the Senate and the House voted unanimously to pass the anti-indemnification law, Foertsch said.

Truckers, she said, convinced legislators that the law would “level the playing field” for firms facing large business interests that tried to shift liability to truckers via “hold harmless” provisions in contracts.

Two years ago in Maryland, truckers turned to their legislators when indemnification provisions began showing up in shipping contracts, said Anne Ferro, president of the Maryland Motor Truck Association.

“While it was primarily the tank-truck industry, it also is a dry van issue,” Ferro said. She said such contracts also began showing up in the intermodal drayage contracts at Baltimore’s port.

MMTA showed state legislators examples of such contracts, persuading them to ban the indemnification provisions in Maryland, Ferro said.

Indiana, Nebraska, Virginia and West Virginia all passed anti-indemnification legislation in 2006. A year earlier, North Carolina adopted such legislation at the behest of carriers there.

While truckers cannot be forced to sign the contracts, indemnification clauses place trucking firms in a difficult economic position, according to industry experts.

“It is forced to an extent, because if you don’t sign that kind of a contract, you don’t get the business,” said Robert Pitcher, American Trucking Associations vice president for state laws.

“If you’re, say, a tank truck carrier, it might take a good deal of your business in certain parts of the country,” Pitcher said.

At the request of trucking associations around the country, ATA has been supporting the state-by-state effort to win passage of anti-indemnification laws, Pitcher said.

Other state legislatures, among them Illinois and Connecticut, also are considering anti-indemnification legislation this year.

Colorado truckers, however, suffered a setback this month when the state Senate Transportation Committee there killed an anti-indemnification bill on a 6-0 vote.

“A tremendous amount of re-sources were expended on the other side of the effort,” said Greg Fulton, president of the Colorado Motor Carriers Association.

However, the association will continue pressing the issue, despite heavy opposition from oil and gas interests, Fulton said.

In Kansas, it took three legislative sessions before truckers overcame opposition and secured an anti-indemnification law last year, said Thomas Whitaker, executive director of the Kansas Motor Carriers Association.

“When you’re persistent, you eventually come to an agreement,” Whitaker said.

Indemnification provisions do more than shift safety responsibility to trucking firms, Fulton said. They also take away the incentive for shippers to take precautions.

“You find that many of our members who are affected by this are small companies,” said Fulton, “and on the other side, we have some of the largest and wealthiest companies, if not in the state, in the country and the world, maybe.”

Some trucking industry experts said the indemnification provisions in contracts weigh most heavily on small trucking firms because they don’t have the leverage to negotiate such provisions out of the contracts.