United States: Shipper Protected By Indemnification Language In Transportation Agreement

Carriers and shippers alike these days continue to be inundated with proposed transportation contracts for shipments of goods which used to be governed by the tariff and/or bill of lading. Since passage of the Interstate Commerce Commission Termination Act ("ICCTA"), which became effective January 1, 1996, the shipment of goods and interstate commerce have increasingly become governed by contracts between the parties. With the exception of safety and fitness requirements, parties to a transportation contract for shipment of goods by motor carrier can adopt or waive any of the provisions of ICCTA. However, this only applies if the parties have actually entered into and executed an agreement which governs their relationship. In a recent pre-ICCTA decision by the Surface Transportation Board ("STB"), the importance of executing such contracts is illustrated in the context of indemnification language.

In Triple E Transport, Inc.-Petition for Declaratory Order (STB No. MC-C-35000, April 5, 2000), the Board considered a dispute surrounding the indemnification clause in an agreement between the shipper, U.S. Pipe and the carrier, Triple E Transport. Like most such clauses, the provision at issue granted U.S. Pipe the right to indemnification for expenses it incurred arising out of the carrier's performance under the agreement.

While transporting a load of steel for U.S. Pipe, Triple E was involved in a highway accident involving a fatality. As a result of impending litigation, U.S. Pipe incurred $250,000.00 in legal fees and damages above and beyond what its insurance carrier paid. U.S. Pipe sued Triple E in Alabama state court under the indemnification provision in the transportation contract which it argued governed the shipment at issue. Triple E argued that the movement was governed by a published tariff and a bill of lading, neither of which contained an indemnification provision. Essentially, Triple E argued that the goods were moving in "common" carriage rather than "contract" carriage. The case ultimately found its way to the STB which held that the requirements of contract carriage were met and that the shipment was indeed covered by the agreement executed by the parties.

It is important to remember that Triple E is a pre-ICCTA case. There is no longer a requirement that tariffs be filed for such shipments of goods. In addition, there is no longer a distinction between contract and common carriage under ICCTA. However, as a practical matter, the Federal Highway Administration still issues separate authorities for common and contract carriage. Therefore, a carrier and shipper could still find themselves in an argument over the terms of their relationship. Since ICCTA now presumes that shippers and carriers may choose to enter into an agreement describing their relationship, it is more important than ever for carriers and shippers alike to define the terms and conditions of contract carriage in an agreement which meets applicable legal standards.

In Triple E, the STB described those pre-ICCTA standards as follows: (1) the carrier held contract carrier authority, (2) the carrier and the shipper had entered into an agreement for contract carriage, and (3) the shipment of goods was consistent with the statutory definition of contract carriage. Those factors are obviously still important today. In addition, as referenced above, ICCTA provides a specific provision (42 U.S.C. §14101 (b)(1)) setting forth the rights of the parties to enter into an agreement for the transport of goods in interstate commerce. Citing this provision in an agreement provides further evidence of the parties’ intent to have a binding contract which governs their relationship with regard to the shipment of goods.

Unfortunately, many carriers and shippers today are still flying by the seat of their pants with regard to contractual relationships. It makes good legal sense for both parties to define their relationship in a contract so there are no surprises down the road. If your company is moving goods by motor carrier and interstate commerce, as a carrier or a shipper, all such movements should be governed by an executed contract governed by ICCTA. If you don't have such an agreement, get one. If you have one, make sure it is executed and updated as necessary. It may save you from an unwanted surprise.