Troubled indemnity

U.S. Court of Appeals for the Ninth Circuit on Sept. 8 reversed injunctions granted by a federal district court against four separate motor carriers related to compliance with the federal truth-in-leasing regulations. The appeals court concluded that the plaintiffs lacked standing because (1) the regulatory violations for which they sought injunctive relief caused them no injury, and (2) the Interstate Commerce Commission Termination Act “would have an impermissible retroactive effect if it conferred standing to bring claims for damages on the basis of contracts executed before the ICCTA’s effective date.”

The Ninth Circuit ruled that a group of employees with monocular vision denied driving positions by UPS qualified as disabled under California’s Fair Employment and Housing Act. The decision does not necessarily mean, however, that UPS will be forced to grant these employees driving jobs. In the same opinion, the appeals court ruled that UPS had demonstrated that another group of drivers covered by FEHA would “endanger the health or safety of others to a greater extent than if an individual without a disability performed the job.”

National Private Truck Council and J.J. Keller & Associates recently presented a free webcast on how trucking operations can protect themselves from the risks associated with negligent hiring decisions. A free download of the presentation is available at this site.

The owner and two foremen of Nationwide Moving Systems, Woodinville, Va., were ordered by a federal court in Tacoma, Wash., to pay a total of $670,000 in restitution for their parts in a scheme to defraud Nationwide customers by providing low-ball moving estimates and then holding goods hostage until customers paid inflated prices.

Q We are a broker that hired a carrier to provide service for a contract shipper. The carrier had a multi-fatality wreck, and now a claim is being made by the family of the deceased against our shipper. The shipper has turned the claim over to us under a contract provision we signed agreeing to indemnify it against all claims “arising out of” the contract. We have a commercial general liability policy, and the motor carrier we hired has the required $1 million in third-party liability coverage. Are we in trouble?

A Most truck accident suits against shippers and brokers are dismissed or settled for the motor carrier’s policy limits because of the difficulty in proving shipper or broker liability. Hopefully, you are not in trouble, but your question poses several issues.

In the absence of their own negligence, shippers have remote exposure to lawsuits of this type, yet they favor broadly worded indemnity in contracts because they frequently are viewed as deep pockets and are named in lawsuits simply because their freight was on the truck. Shippers face the same suit risk and cost of defense regardless of whether the carrier involved in the wreck was retained by it or through you. There are enough runaway jury verdicts and bad case law out there to counsel the need for future prudence in this area of contract indemnification.

In your case, you were fortunate to have commercial general liability insurance, and you need to immediately turn over the shipper’s demand for indemnity under the contract over to your insurer. Hopefully, you will be covered, and your cost of providing a defense to the shipper will be paid.

While this type of policy traditionally provided broad contractual indemnity coverage, there is a caveat. The standard insurance form used by many insurers is being changed to delete the broader “arising out of” language and to limit coverage to losses caused by the insured’s own negligent acts or omissions. This means a broker no longer can assume it is automatically covered for indemnification offered to shippers for third-party liability “caused by” the negligence of the carriers they hire.

I discourage brokers and carriers from indemnity agreements with broad “arising out of” indemnity language because it can put them in the middle of a lawsuit in which they did absolutely nothing wrong. With the change in insurance policy language, it will be increasingly difficult for small brokers to obtain adequate, affordable coverage in a sufficient amount to have complete assurance of indemnity when signing contract provisions of this type.

The risk, if remote, is very real.

Volvo wins appeal of PFT Roberson ruling
The U.S. Court of Appeals for the Seventh Circuit threw out a jury verdict that had ordered Volvo Trucks North America to pay $5 million to PFT Roberson for breach of contract. The dispute should have been resolved in Volvo’s favor, the appeals court ruled Aug. 25.

The litigation stemmed from discussions between Roberson and Volvo in late 2001 and early 2002 after Freightliner sought to terminate its agreement to supply, maintain and repair Roberson’s trucks. Ultimately, Freightliner and Roberson resolved their differences, and Roberson sued Volvo for breach of contract on the basis of a 572-word e-mail message stating that the parties had “come to agreement on” the number of new Volvo trucks that Roberson would purchase, the cost per mile of servicing trucks, and an outline of an exit clause.

The appeals court noted Roberson and Volvo had not agreed on the price per truck, on the cost per mile for all of the older trucks, on the repurchase and trade-in terms for older trucks, or on details of the exit clause. “Roberson had not bound itself to buy a single truck; it wants to treat the e-mail as granting it a unilateral option,” the court said. “No reasonable jury could conclude the items covered in the e-mail were independent bargains to which Volvo had bound itself.”

The parties were negotiating a comprehensive arrangement, not a series of stand-alone contracts, the Seventh Circuit said. “The e-mail was not something to which Roberson could respond ‘I accept’ and move from the negotiation to the performance stage. Nor did Roberson say ‘I accept’ or any equivalent; the parties negotiated for another two months, and when Volvo submitted its comprehensive proposal (at least 100 times longer than the e-mail), Roberson refused to sign.”

(PFT Roberson vs. Volvo Trucks North America; Case Nos. 04-3100, 04-3232, 04-3841 & 04-3877)