Hope of Indemnity

The False Hope of Indemnity & Joint and Several Liability

Many shippers believe that rigorous indemnity provisions found in shipper-carrier, shipper-broker, or broker-carrier agreements will provide all the protection the shipper needs. This is not the case, for at least two reasons.

First, more often than not, a carrier's liability insurance will exclude indemnity for independent claims against the shipper. Although it may be termed differently by different courts, the legal doctrine that sprung from the 2004 federal court decision in Schramm v. Foster, and has been growing sharper in courts around the country, may usefully be called Negligent Hiring. In the eyes of the law, Negligent Hiring is an independent tort. It provides a plaintiff an independent claim against a shipper, where a shipper fails to exercise reasonable care and perform due diligence. In cases where a plaintiff brings claim against the shipper for negligent hiring (a claim independent of all claims against the carrier), more often than not, the carrier's insurance policy will deny indemnity.

Second, even where a carrier's liability insurance is available to a shipper, the protection it affords may provide little more than cold comfort.

Here is an example:
Let us say, the Smith Family is injured in a highway accident caused by a motor carrier. The Smith Family brings an action against Driver, Carrier and Shipper. The Smith Family carries its burden, and secures a judgment for $25 Million.

The jurisdiction where the Smith Family brought suit (like virtually every jurisdiction in the United States) recognizes the doctrine of Joint and Several Liability. Under Joint and Several Liability, each individual defendant is independently responsible for the entire $25 Million judgment. Driver is liable for $25 Million. Carrier is liable for $25 Million. Shipper is liable for $25 Million. One way or another, the court will ensure that the Smith Family's entire $25 Million judgment will be satisfied.

Let us say, further, that all of driver's insurance and other assets have been exhausted, and nets $5 Million. Further, all of carrier's insurance and other assets have been exhausted, and nets $10 Million. In this scenario, even if Shipper has a right of indemnity against Carrier, Carrier's assets are no longer available and the right of indemnity is of no moment. Here, Shipper stands alone as the party responsible for satisfying the Smith Family's outstanding $10 Million judgment.

The only protection available to Shipper is preemptive & that is, proof that Shipper not liable to the Smith Family, under a theory of Negligent Hiring, because Shipper exercised reasonable care and performed due diligence when it screened, vetted and selected Carrier to move its freight.