There are many issues in modern transportation agreements, but “Indemnity”, is normally the most contentious issue in to negotiate. The indemnity clause is typically the part of the contract where most of the liability shifting occurs. Indemnity clauses are very complicated and the unwary can assume huge liability from seemingly harmless provisions. This article will focus on one key aspect of indemnity clauses found in transportation and logistics contracts, the importance of which is often overlooked.
Before revealing the culprit, I want to recite a misplaced quote that I often hear from people that I work with on transportation contracts. The quote:
“There is no penalty mentioned, so there should be not problem.”
It is a commonly mistaken belief that in transportation contracts the lack of a specific penalty language makes everything okay. Here is the problem:
Many indemnity provisions in transportation contracts require indemnity for “any breach of the agreement…….”
The effect of this, is that every duty and requirement in the contract suddenly has a penalty provision. This should give pause to anyone who has ever bought into the myth that the lack of a specific penalty makes everything okay. So, consider this. Suddenly an innocuous provision such as carrier shall comply with all applicable laws, can have a major impact. What if the carrier violates a city ordinance in the course of a collision? If a shipper or broker is sued in connection with the accident, the indemnity for any breach of contract may become a very important provision.