Oregon Likely to Adopt Anti-Indemnification Law

Kevin Anderson Contracts, Regulations, Transportation

The Oregon legislature likely will adopt an anti-indemnification law applicable to “motor carrier transportation contracts.” Anti-indemnification laws have been adopted in 26 states* to date and are being considered in seven other states, with more to come.

Indemnity provisions in motor carrier transportation contracts (e.g., Shipper-Carrier, Broker-Carrier, Equipment Leases, etc.) have become commonplace in recent years. Shippers routinely demand that motor carriers and brokers hold harmless and indemnify them for any losses, damages, claims and the like arising in any way out of the service provided regardless of fault. Since shippers routinely require brokers to indemnify them, brokers, in turn, generally require their carriers to indemnify them. This means that the motor carrier, often an owner-operator or small fleet carrier with no negotiating power, must assume potential liabilities even if it did not cause the loss. Indemnity and hold harmless provisions allow the indemnitee (the one getting the benefit, most commonly the shipper) to transfer the risk of liability for losses, damages and claims to another even if it was at fault in causing the loss, damage or claim.

Anti-indemnification laws seek to correct this inequity by making such provisions void and requiring each party to be liable to the extent it was at fault in causing the loss. Thus, if passed in its present form, Oregon’s law generally would declare void any provision in a motor carrier transportation contract that requires a party (the indemnitor) to indemnify the other party (the indemnitee) for a liability caused in whole or in part by the negligence or intentional acts or omissions of that other party (the indemnitee). However, (a) the law would not void indemnification provisions that require the indemnitor to indemnify the indemnitee for losses that arise out of the indemnitor’s fault or the fault of its agents, representative or subcontractors, and (b) would not void indemnity provisions in interchange agreements relating to intermodal chassis, intermodal containers or other intermodal equipment.

Since these laws are new, they have not yet been interpreted by the courts. Further, there is no uniformity in the laws being enacted by the states. The interpretation of the laws certainly will be an issue in the future. For example, under the proposed law, indemnity provisions remain valid if the indemnitor or its agents, representative or subcontractors are at fault. This exception is vague. Does the continued validity of the provision require that the indemnitor be solely (100%) at fault? Or will the provision continue to be valid if the indemnitor is only partially at fault? Will the indemnity provision remain valid even if the indemnitor is only 1% at fault and the indemnitee is 99% at fault? This seems to be what the exception states but, if that is the case, then it appears that the proposed law would only partially cure the existing problem.

It is important to note that the new law, if passed, will only apply to motor carrier transportation contracts entered into on or after the effective date of the 2011 Act, which will be when the Governor signs the bill into law.

We have prepared many motor carrier transportation contracts which contain indemnification provisions. Although those contracts will remain valid and unaffected by the new law, any contract executed after the effective date of the new law will need to comply with the new law. All parties to motor carrier transportation contracts need to review their contracts (a) to determine if the contracts need to be updated, (b) to determine which state law applies to the contracts, (c) to determine if the applicable state’s statutes contain an anti-indemnification law, and (d) to determine the impact of the applicable state’s anti-indemnification law has on the contract.

* Anti-Indemnification laws have currently been adopted in the following states: Alaska, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Missouri, Nebraska, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming.