Law needed to protect carriers from shipper indemnification clauses in freight contracts

by David Bradley

There has been a growing trend, particularly amongst large shippers, to include an indemnification clause in their freight contracts with carriers.

The purpose and intent of these clauses is to transfer all liabilities for damage to property or persons to the motor carrier – even where the incident occurs as a result of the shipper’s negligence.

Initially, this trend started in the United States where historically, and as a matter of law, the negligent operator of a commercial motor vehicle has always been responsible for injury, loss of life, and damages arising from the negligent operation of the commercial motor vehicle by the driver and/or operator.

For as long as the industry has existed, carriers have had to carry general liability insurance to protect not only those injured, or the property damages incurred as a result of the carrier’s negligent operation of the vehicle, but as well to protect the carrier itself from damages claimed against it and its own losses.

Over time, most particularly with respect to personal injury and/or loss of life arising out of a crash, damages that have been awarded have continued to escalate and now regularly run into the millions of dollars.

Some carriers with their basic insurance in place – and including their umbrella insurance to cover substantial claims arising out of catastrophic events – have faced situations where the motor carrier does not have in place the level of coverage required to meet a claim.

One reaction has been the expansion of the number of parties against whom the claim might be made with a view to finding sufficiently deep pockets.

Those additional parties now regularly added as defendants in claims against a motor carrier include the shipper or load broker who selected the carrier, the vehicle manufacturer, the party responsible for maintaining those vehicles, the government, etc.

Naturally, shippers in the US began to concern themselves with liability risks arising out of a claim against their selected carriers and sought options for managing those risks.

Freight contracts had for many years provided for indemnification of the shipper by the motor carrier where a claim was brought against the shipper, and where the claim was the result of negligent operation of the motor vehicle by the carrier.
The game changed.

Shippers began to expand coverage of the carrier’s indemnification covenant to protect the shipper against any and all claims brought against the shipper arising out of and during the course of the motor carrier’s performance of its transportation contract.

In more recent years, that indemnity has expanded so as to protect the shipper against all claims, even though the claim might have arisen out of the sole negligence of the shipper itself.

This trend has moved north into Canada.

Risk management through indemnification by the carrier has arrived in Canada, and is increasingly saddling Canadian carriers with new and onerous risk of additional litigation and significant claims.

The most obvious solution to this problem for a carrier would be to simply refuse to sign a freight contract containing an indemnification clause.

That is easier said than done. The shipper is virtually always a huge business enterprise compared to the carrier.

The reality of the freight market, with so much competition, is that carriers are given a “take it or leave it” proposition. If you won’t move the freight someone else will.

Going to court is not the answer either.

The US experience demonstrates that the only protection carriers can usefully obtain against the onerous indemnification obligations was through legislation.

The US federal government does not have jurisdiction in this area of law but the states have stepped in to fill the breach.
The wave of unfettered indemnification sought by shippers against motor carriers became a matter of public policy, state legislatures were requested to take action and as of today, 30 US states have passed “anti-indemnification” legislation nullifying clauses, which indemnify shippers against liability for their own negligence.

There is no similar law anywhere in Canada, although the Canadian Trcuking Alliance and the provincial associations want to change that.

The Canadian legal landscape is, of course, different from the US and in order to address this matter, coordinated action is required by both the federal government and the provinces.

The provinces have their own statutes governing intra-provincial transport where this can be dealt with.

The federal government has legislative jurisdiction over extra-provincial trucking through the Motor Vehicle Transport Act and its regulations including the federal conditions of carriage.

CTA has no illusions that simultaneous federal and provincial action on this issue will be easy to achieve, but it is an issue well worth pursuing.

Stay tuned.

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