Don’t rely on anti-indemnity law

By Henry Seaton on

Worldwide Moving & Storage failed to convince a federal appeals court to block a surety bond requirement imposed by the District of Columbia Superior Court. The U.S. Court of Appeals for the District of Columbia said the moving company’s argument that the imposition of a surety bond requirement was preempted by federal law was not “facially conclusive.”

U.S. Court of Appeals for the Eighth Circuit ruled that the terminated manager of FedEx Ground Package System’s St. Paul, Minn., terminal does not qualify for whistleblower status under state law because she did not show that she had reported alleged illegalities to management in order to blow the whistle and because she failed to support her claim that she informed FedEx Ground that she refused an order because she believed it was illegal.

Ronald Wolf, former owner of RBL Enterprises of Port Treverton, Pa., was sentenced in federal court to three years’ probation and a $2,500 fine on felony charges related to falsification of commercial truck drivers’ logbooks. Kenneth Heneisen, a driver/dispatcher for the now-defunct firm, received two years’ probation. Eight RBL drivers also were sentenced on related charges.

Ahmed Abdul Moiz, a former Maryland state driver’s license examiner and owner of a third-party driver testing facility in Baltimore, pled guilty in federal court to conspiracy to commit identification document fraud by helping more than 500 individuals fraudulently obtain Maryland driver’s licenses, CDLs and related documents in exchange for payments totaling more than $200,000.

Q Our state, Virginia, has passed a statute that makes an indemnity provision in a motor carrier contract unenforceable to the extent it requires indemnity for loss or damage resulting from the negligence or intentional acts or omission of the indemnitee. What effect, if any, do such anti-indemnification statutes have on provisions requiring that a shipper be named as an additional insured on general liability and auto liability policies?

A There is no easy answer to your question. By statute and by common law, a number of states find indemnity provisions that allow a shipper to escape responsibility for its own negligence to be contrary to public policy. When and how anti-indemnity statutes apply is not clear, however.

For example, if your shipper-carrier contract provides that it is governed by the law of Virginia or Texas, where anti-indemnity statutes exist, a provision in a contract requiring such indemnification clearly would be void. Also, it is quite possible that Virginia, enforcing the law of the forum, might be unwilling to enforce an anti-indemnity provision in a suit brought there, even though the contract was made in another state. So you really can’t fully depend on the protection of state laws. Accordingly, your best approach is to refuse to sign any indemnity provision to the extent it requires you to hold another party harmless for any damage or claim for which they are otherwise legally liable.

With respect to your question, ordinarily shippers gain access to coverage afforded under your policies pursuant to the automatic insured contract provision when you offer indemnity. If the indemnity requirement now is unenforceable because of the state statute, it might follow that obligation also would be extinguished, but don’t count on it. The possible enforcement of a state anti-indemnification statute standing alone cannot protect you against improvidently signed “additional insured” provisions.

One expert has compared indemnity and “additional insured” provisions to a pickpocket using two hands. One hand transfers risk by the indemnity clause, and the other transfers risk by the insurance provision. If you focus on one hand, you lose your wallet to the other. As I reported in October 2001 (“Signed, sealed and delivered,” CCJ, page 23), courts that find indemnification against one’s own negligence repugnant still may find it proper to bind the carrier to a separate obligation to purchase insurance providing coverage for the shipper.

Shipper-drafted contracts often contain insurance provisions that specify that the carrier’s insurer will waive the right of subrogation and will extend coverage to all claim or loss “arising out of” the transportation contract or the services provided. As I pointed out last October (“Troubled indemnity,” CCJ, page 32), no motor carrier can merely name the shipper as an “additional insured” and assume that the shipper is covered for all loss “arising out of” the carrier’s service.

While I applaud Virginia for recognizing that each party to the transportation contract should bear responsibility for its own negligence, carriers should still adopt best practices. Except as to cargo, which is covered under Carmack, each party should indemnify the other to the extent a loss or claim is “caused by” their respective negligent act or omission. If asked to provide insurance coverage beyond the issuance of a certificate that a policy exists, the motor carrier should turn the requested provisions over to its underwriter for a coverage opinion. If you ultimately make the shipper an “additional insured,” be sure any additional premium costs are built into the price for your service and that you are assuming no uninsured risk due to a policy exclusion or overly broad insurance warranty.

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