The transportation industry continues to follow in the footsteps of the construction industry with respect to the enactment of legislation prohibiting contractual indemnification that attempts to shift risk to one party, regardless of fault. This is our latest update.
2015 has seen the number of states that have some type of anti-indemnity statute in place with respect to the transportation industry increase to forty-two (42), closing in on the forty-five (45) states that have enacted such statutes with respect to the construction industry. New Jersey’s governor signed the latest anti-indemnity law on October 1, 2015. The law comes into effect on November 1, 2016. The rationale behind statutes like these in the transportation industry is to protect individuals and entities from entering into contracts requiring them to assume all liability for accidents, regardless of who is to blame, and to protect motor carriers from bearing the liability of a shipper's own negligence.
While admirable in theory, in practice these statutes greatly impact the ability to contractually protect, manage and transfer risk throughout many aspects of the transportation industry where there is any claim or allegation of a party's own negligence. The effect of anti-indemnity statutes can, however, usually be managed by properly securing additional insured coverage, although insureds and insurers alike are becoming increasingly savvy in their attempts to limit this exposure.
The bottom line is that anti-indemnification statutes applicable to transportation contracts are here to stay and entities and their insurers must be cognizant of the effect of such statutes on litigation. The statutes generally fall into one of four categories, depending on the statute's language. The categories and the particular states that fall into each are as follows:
- Statutes that prohibit motor carriers and shippers from contracting to indemnify the shipper against the shipper’s negligence-based and intentional-based liability:
- New Mexico
- Statutes that prohibit unspecified third parties (i.e. shipper, broker, etc.) from requiring motor carriers to indemnify the third party for any negligence-based or intentional-act based liability:
- South Dakota
- Statutes that use boilerplate promisor and promisee language to prohibit indemnification for negligence-based or intentional-act based liability in any provision that affects a motor carrier agreement/contract:
- New Jersey
- Statutes that use boilerplate promisor and promisee language to prohibit any non-motor carrier from requiring motor carriers to indemnify the non-motor carrier for its negligence-based and intentional-based liability:
- North Carolina
- South Carolina
- West Virginia
Additionally, five (5) states, Alabama, Arizona, North Dakota, Texas and Washington have idiosyncratic statutes that address motor carrier indemnification, but in a manner that does not align with other state statutes.
Notably, most state's statutes include certain exceptions to the general ban on motor carrier indemnification. Please refer to each individual state's statute to account for any variation from this broad summary.
Only eight states are currently without anti-indemnification laws for transportation: Delaware, Mississippi, New Hampshire, New York, Ohio, Rhode Island, and Vermont. Currently, Ohio has a bill pending in the legislature.