In the first two parts of this contract review series, we discussed the state-specific anti-indemnity laws affecting Texas construction and oilfield contracts. As we explained, the Lone Star State has specific anti-indemnity laws for the commercial construction, oilfield and motor carrier transportation industries. It’s important to understand these laws before your company signs a contract so you can avoid unexpected costs and litigation in the event of a claim.
In this edition of the three-part series, we’ll unpack the act affecting Texas motor carrier contracts, which is probably the most straightforward of all Texas anti-indemnity acts. But first, be sure you understand the three basic types of indemnity (limited form, intermediate form and broad form) by referencing the first edition of this series for a review.
Indemnification in Texas Motor Carrier Contracts
In 1997, the Texas Transportation Anti-Indemnity Act (the Act) was passed to prohibit broad and intermediate form indemnities in motor carrier contracts.
The Act says a contract cannot require a motor carrier to indemnify claims caused by another person’s acts or negligence as a condition to:
- transport property for compensation or hire;
- enter property for the purpose of loading, unloading or transporting property; or
- services incidental to activities in 1 or 2 (e.g. storage).
Unlike other anti-indemnity acts in Texas, there are no exceptions to this act that might allow a contract to require a motor carrier to assume the liability of another person.
Contracts Covered by the Act
To determine which contracts this law applies to, it’s necessary to know that the Act defines a motor carrier as “a common carrier, specialized carrier or contract carrier that transports property for hire.” This means the Act only applies to contracts with “motor carriers” – people or businesses whose primary purpose or function is the transportation of property for compensation.
The Act doesn’t apply to transportation brokers (middle-men between a shipper that needs property transported and a motor carrier who provides the transportation) because a transportation broker doesn’t transport property for compensation; they simply arrange transportation. Many transportation broker contracts shift all liability to the shipper or the motor carrier, and most states honor this shift of liability because the broker rarely, if ever, actually handles the property getting transported.
Contracts Not Covered by the Act
The Act specifically doesn’t apply to contracts with people or businesses that transport property as an incidental activity to their non-transportation business, even if a fee is charged for this transportation. For example, a furniture store that provides an incidental delivery service for the furniture sold by the store is likely not a “motor carrier,” even if a fee is charged because the store’s primary business is the sale of furniture, not the transportation of property.
Additionally, remember that the Texas Oilfield Anti-Indemnity Act (TOAIA) governs the transportation of oil, petroleum products or other liquid commodities and water used in fracking operations (e.g. brine water, fresh water, produced water, etc.). Even though the Act doesn’t mention how it might interact with other laws, courts apply TOAIA to indemnity obligations in contracts for the transportation of these types of products.
Navigating the Complexities
Being unaware of the industry and state-specific statues affecting your contracts can lead to unexpected costs and litigation in the event of a claim. When you partner with the risk management experts at Higginbotham for your contract review process, you’ll get the tools you need to make smart decisions about controlling your contractual risks. We can help you avoid the pitfalls so your Texas business thrives.