Paul Stewart BBA, MA, JD
Logistics and Transportation Law/Commercial Transactions- Representing National Logistics Companies, Shippers and Carriers; Mergers and Acquisitions; General Corporate Counsel
Are you prepared for their future consequences?
How are you handling this issue?
1. Originally, fair indemnity agreements only required that each party indemnify the other for their own negligence. Recent decisions on vicarious liability and other issues have spawned over broad drafting of indemnity clauses which inequitably shift risk of liability from shippers to carriers/brokers/3PLs. This trend usually results in the weaker party assuming most of the liability, unless there is comprehensive review and push for a more balanced approach. (Hint, believing that you have properly addressed this exposure by passing it along to a small party who cannot afford to provide defense or indemnity is not a real effective method. The obligation will find its way back up the chain to you.)
2. Such clauses vary from “broad form”, wherein the indemnitor assumes UNQUALIFIED obligations to defend and indemnify the shipper (or other party) for all risks, regardless of fault; to, “intermediate form”, wherein the indemnitor assumes all risk of liability, except that caused by the “sole negligence” of the other parties; to, “limited form” (preferred and fair) wherein the parties agree to indemnify each other for their own negligence. Agreeing to a limited form of indemnity by contract is no more exposure than that party would have without a contract, if properly drafted.
3. If faced with customer who will not agree to limited form indemnity, seek counsel and insurance advice as to how to protect your position. Never assume that a contract is “just our standard draft and cannot be changed”, or accept a verbal representation that “we would never try to enforce such an obligation on you”…or, more likely, never accept your organization’s sales side argument that we “have to sign this agreement without any modification”. Many times, if you cannot change it or insure it, the revenue acquired by agreeing to broad form indemnity will not be nearly sufficient to pay your ultimate cost of defense and indemnity.