Hold Harmless clauses can be detrimental to carriers
December 1, 2007
Hold Harmless clauses in shipper/carrier contracts are the subject of much debate in the US, as carrier associations gain momentum in their drive to outlaw those clauses assigning 100% liability to ca...
Hold Harmless clauses in shipper/carrier contracts are the subject of much debate in the US, as carrier associations gain momentum in their drive to outlaw those clauses assigning 100% liability to carriers.
In February, a committee of the Maryland House of Delegates heard submissions on the clauses from the Maryland Motor Truck Association. The hope was that Maryland would enact a bill to remove all Hold Harmless clauses from shipper/carrier contracts. On April 10, that bill was passed and signed into law. It took effect Oct. 1 of this year.
Maryland is the latest state to enact an “anti-indemnification” law – others include Virginia, West Virginia, Indiana, Nebraska, North Carolina and South Carolina. Still, many states have yet to enact similar legislation, and in the meantime, many carriers still face the necessary evil of signing shipper contracts with Hold Harmless clauses if they hope to get the shipper’s business.
So how can a Hold Harmless clause affect your business?
Liability can vary
The first thing you need to know is that some Hold Harmless clauses can be more damaging than others.
Take for example the following Hold Harmless clause:
“(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.”
The words to watch out for here are “any and all.” As quoted by the Michigan Court of Appeals during a case involving a carrier and General Motors (Laudano vs. General Motors Corp, 1977): “There cannot be any broader classification than the word ‘all.’ In its ordinary and natural meaning, the word ‘all’ leaves no room for exceptions.”
If a carrier signs an agreement containing this clause, with no subsequent clause limiting the time during which the carrier is assuming liability (for example, from the time the load is picked up to the time it is dropped off) the carrier may be held responsible for anything that happens to the cargo, at any time in the future, even after the load has been delivered.
Carriers should also watch out for Hold Harmless clauses in which the carrier agrees to “hold harmless the shipper for any and all costs incurred from loss or damage not caused solely by the shipper.”
Again the devil is in the details. In the above clause, the word to watch out for is “solely,” because it can make a world of difference to you, the carrier, when a loss occurs.
Imagine the following scenario: Your driver tips a trailer after swerving to avoid a collision with another vehicle. The loss of cargo is attributed to two factors: the shifting cargo that is found to have been incorrectly loaded by the shipper, and a moving violation by the other driver. Your driver is in no way at fault. And yet, because the load loss is at least in part attributable to the other driver, the shipper is not “solely” responsible, and therefore you are on the hook.
Few carriers are aware that they are not necessarily insured to cover the kind of unlimited liability implied by some Hold Harmless clauses.
So what’s the solution given that most, if not all, carriers are expected to sign shipper/carrier contracts containing Hold Harmless clauses on a regular basis?
First, pay close attention to the language used in any Hold Harmless clause. If you must have a Hold Harmless clause, make sure there’s a clause limiting your liability to the time during which you are actually transporting the load. Treat “any and all” language in a Hold Harmless clause as a big red flag. If you’re not sure about how much liability you’re taking on, don’t sign the contract. Have a lawyer who specializes in transportation law look at it first.
Second, understand your coverage. Speak to your insurance broker about what liability you can assume. Your insurance provider may be able to include your shipper as an additional covered party under your policy, covering you for a loss during shipment caused by the shipper and not by you. Of course, the cost of increasing your coverage for someone else’s liability should be weighed against the value of the contract.
Third, and perhaps most importantly, don’t sign just anything. Consider the long-term implications of the agreement you’re signing. Is this an occasional customer, or someone who will provide continuing business? What kind of coverage does the shipper carry? And is the shipper willing to pay you more to cover the cost of insuring his cargo for all circumstances?
Chances are, your shipper doesn’t truly understand the implications of what he’s asking you to sign. It’s up to you, the carrier, to make sure your shippers understand your limitations when it comes to coverage and your ongoing ability to provide service.
– Please send your questions, feedback and commentary about this column to firstname.lastname@example.org. Silvy Wright is president and CEO of Markel Insurance Company of Canada, the country’s largest trucking insurer.
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