In daily negotiations with shippers over transportation contract terms, carriers across the state of Tennessee are routinely required to indemnify shippers for all claims that might arise, even those involving the shipper's own negligence. In addition, shippers require that they be named as additional insureds on the carrier's liability policy. To make things even more complicated, shippers may also demand that the carrier's insurance company waive the right of subrogation against the shipper. Oftentimes, it is the lack of bargaining power or market pressures that force carriers to agree to such terms. The interplay between the small carrier and the big shipper can result in significant financial losses for carriers when these contract provisions come into play.
This month, thanks to the assistance of the Tennessee Trucking Association, Tennessee became one of a few states that prohibit the practice of shipper's forcing carriers to pay for the shipper's own negligence. The 2008 Tennessee General Assembly adopted an anti-indemnification statute which prohibits shippers from requiring carriers to indemnify them for all liability, including for the negligence of the shipper itself. The new law is on its way to Governor Bredesen for signing.
According to TTA president Dave Huneryager, the new law will benefit everyone. "This legislation is a great step towards leveling the playing field of contract negotiations between carriers and shippers", Huneryager said. House sponsor Henry Fincher also applauded the effort as a "move towards fairness and even-handedness in the transportation contract negotiating process".
Indiana and Nebraska recently enacted similar legislation, but only about ten to twelve states have passed anti-indemnification statutes. The American Trucking Association has, over the past few years, used its Insurance Task Force to step up the fight against the practice of using contract terms to insulate shippers from all claims, regardless of fault.
Carriers Still Need To Be Diligent and Cautious
Although of tremendous assistance to carriers in contract negotiations, the anti-indemnification statutes themselves do not fully solve the problems carriers face when negotiating with large shippers. Carriers still need to be careful in reviewing the language in their transportation contracts. The new anti-indemnification statute only protects carriers from being required to indemnify shippers for their own negligence. Senator Lowe Finney, Senate sponsor of the new law, added a word of caution: "In drafting contracts, trucking companies need to make certain that Tennessee law applies in order to get the benefit of the anti-indemnification statute."
Shippers, however, will try to take a "belt-and-suspenders" approach by requiring carriers to name them as additional insureds on the carrier's liability and workers' compensation policies. In this circumstance, the carrier may not be required to indemnify the shipper for the shipper's negligence, but the carrier's insurance company may have to foot the bill anyway. Another angle shippers may employ is to require the carrier's insurance company to waive its subrogation rights. In this fashion, a carrier's insurance company cannot come back against the shippers after the insurance company pays a claim that is the fault, in whole or in part, of the shipper.
The Tennessee General Assembly's approach is a step in the right direction towards evening the playing field in transportation contract negotiation. But carriers need to continue to be vigilant in looking for new and creative ways in which shippers may try to shift any liability to carriers. Read all proposed insurance and indemnification contract language carefully. Phrases like "any and all" and words like "solely" should be red flags. "Any and all" doesn't leave any wiggle room if a carrier agrees to "defend and hold harmless Shipper against any and all loss or damage claims on each shipment transported by Carrier pursuant to this Agreement." Likewise, shippers may graciously offer to indemnify a carrier for loss or damage caused "solely" by the act or omission of the shipper. This rarely, if ever, happens. As a result, the carrier pays the price.
In passing the legislation, the TTA was represented in the Tennessee General Assembly by TTA General Counsel Dale Allen of the Nashville office of Miller & Martin Pllc.
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