HB 366-MOTOR CARRIER INDEMNIFICATION AGREEMENTS  1:53:53 PM CHAIR P. WILSON announced that the next order of business would be HOUSE BILL NO. 366, "An Act relating to indemnification agreements that relate to motor carrier transportation contracts." 1:54:12 PM REPRESENTATIVE JOHNSON as prime sponsor of the bill presented HB 366. He provided a brief history of the genesis of HB 366. The need for this bill came from within the trucking and shipping industry. He characterized the indemnification contained in HB 366 as similar to indemnification language the legislature considered last year that applied to government and university agencies. He related that some large transportation companies are forcing small transportation companies to take complete responsibility and liability for transporting goods. This bill basically says, "You are responsible for yourself and your own mistakes and you cannot hold someone else responsible for your mistakes and enter that into a contract." REPRESENTATIVE JOHNSON paraphrased from the sponsor statement which read as follows: The purpose of this legislation is to promote safety in the carriage of goods by motor carrier. A motor carrier must generally comply with the Federal Motor Carrier Safety Regulations while it is transporting goods, and is also subject to additional common law or statutory duties or responsibilities. Likewise, shippers or other parties frequently have legal duties and responsibilities to fulfill when they provide goods for transportation. More and more frequently, however, shippers are pressuring motor carriers to provide transportation under contracts in which the motor carrier contractually agrees to indemnify and hold harmless the shipper for the shipper's own failure to meet its legal duties and responsibilities. The effect of these indemnification clauses is to eliminate the incentive for the shipper to meet its responsibilities and duties in a prudent and reasonable manner. In essence, such a clause makes the motor carrier the shipper's insurer. Such a shifting of liability through contract completely contradicts sound public policy. One of the primary reasons for assigning legal liability is to persuade the offending party to regulate its behavior. However, where the shipper is at fault but is nevertheless indemnified by the motor carrier, there is nothing the motor carrier can do to change its own behavior to make things safer. That ability lies solely with the shipper. A similar problem with respect to public construction contracts has already been addressed by the legislature in AS 45.45.900. This legislation voids contractual provisions in motor carrier transportation contracts that indemnify a shipper for the shipper's own negligent or intentional acts or omissions which lead to claims. It maintains the incentive for a shipper that is a party to a motor carrier transportation contract to perform its legal obligations and duties in a prudent and reasonably safe manner. This legislation now includes an indemnification clause for the shippers and excludes the parties to the Uniform Intermodal Interchange and Facilities Access Agreements. 1:55:09 PM JEANNE OSTNES, Staff, Representative Craig Johnson, Alaska State Legislature, on behalf of the prime sponsor, Representative Craig Johnson, stated the shippers agreed to the bill with an amendment that was handed out in committee today. 1:55:51 PM REPRESENTATIVE JOHNSON made a motion to adopt Amendment 1, labeled 26-LS1434\R.2, Bannister, 3/10/10, which read as follows: Page 1, line 5: Delete "by motor carrier" Page 1, line 7, following "that": Insert "(1)" Page 1, line 10, following "person": Insert "; or (2) the shipping person will indemnify, defend, or hold the motor carrier harmless, or agree to a provision that has the effect of indemnifying, defending, or holding a motor carrier harmless, from claims or liability for the negligence, intentional acts, or intentional omissions of the motor carrier" Page 2, line 2, following "carrier": Insert "if the agent, employee, servant, or independent contractor provides services in connection with the particular transportation services contract to which (a) of this section is being applied" Page 2, line 8, following "person": Insert "if the agent, employee, servant, or independent contractor provides services in connection with the particular transportation services contract to which (a) is being applied" Page 2, line 17, following "person": Insert "or a motor carrier" Page 2, line 18: Delete "has the meaning" Insert "and "motor carrier" have the meanings" REPRESENTATIVE GRUENBERG objected for the purpose of discussion. 1:56:15 PM MS. OSTNES characterized Amendment 1 as a "win-win situation" which represents an agreement between shipping and motor carriers that will indemnify and hold harmless actions that happen during transportation. In response to Chair P. Wilson, she related a scenario in which a person transports china that was appropriately packed by the shipper and was broken during transport. The question arises who is the responsible party to pay the damages and whether it would be the shipper/packer who may not have improperly packed the item or if the truck rolled over due to the driver. Since the shipper and trucker is held harmless under the bill, deciding the responsible party depends on what actually happened. 1:57:41 PM CHAIR P. WILSON asked whether the matter would be decided by the courts. She commented that the person in possession would likely be held responsible. MS. OSTNES answered no. She stated that the party who created the problem is responsible for the damage. MS. OSTNES restated that Amendment 1 is a "win win" situation since both parties' actions are evaluated to determine the responsible party. 1:58:56 PM AVES THOMPSON, Executive Director, Alaska Trucking Association, related another scenario for members to illustrate responsible parties. In his scenario, a motor carrier has agreed to transport fuel. If the fuel truck pulled in to the loading dock and the shipper's employee turned the wrong valve and spilled the fuel, the shipper would be held responsible for any damages. He pointed out the issue the bill addresses is because some contracts are being written to indemnify the shipper and require the carrier to pay for the damages. He described an instance in which a piece of equipment is shipped, but must be offloaded by forklift. He related that the carrier pulled into the shipper's yard and the shipper used his/her employee and forklift to transfer the equipment and the load broke free and was damaged. Currently, some contracts are written that the carrier is responsible if the freight breaks free, regardless of fault. This bill would place the responsibility on the employee who is negligent, whether the negligent employee is the motor carrier's employee or the shipper's employee. 2:00:41 PM REPRESENTATIVE JOHANSEN related a scenario in which the warehouseman takes the pallet off the truck and the pallet tips and breaks the pallet contents. The warehouseman may say the load was not secure, but the trucker may insist the load was a secure load. He asked who would make the determination of fault. MR. THOMPSON offered his belief that the matter would be adjudicated and the respective insurance companies would review the situation. He related that HB 366 would not change the system of assigning responsibility, acknowledging that often a mishap is not solely due to the negligence of one party. However, one party cannot contractually demand the other party must assume liability for issues that arise outside of his/her responsibility. 2:02:54 PM REPRESENTATIVE GRUENBERG referred to page 2, line 12 of HB 366. He suggested that language could be added to include storage since a third party could also be involved. Third parties should not be allowed to escape from negligence if the third party did not properly pack the item, he stated. REPRESENTATIVE JOHNSON offered his support for Amendment 1. He offered his belief that the intent of the bill and Amendment 1 is "to do what is fair." He related instances in which trucking companies are often required to sign contracts in order to obtain work. These contracts shift the responsibility for liability solely to the truckers, which could also result in increased insurance and shipping costs. The purpose of this bill is to protect both the transporter and the shipper since neither should be held liable for damage that he/she did not cause to happen. The result of Amendment 1 is that when goods are damaged, the person who caused the damage would be held liable for the damage. 2:07:25 PM CHAIR P. WILSON related her understanding that Amendment 1 is the result of an agreement between the trucking industry and the shipper. REPRESENTATIVE JOHNSON answered that the language is an attempt to share the joint and several liability. 2:07:56 PM REPRESENTATIVE GRUENBERG removed his objection. There being no further objection, Amendment 1 was adopted. 2:08:17 PM REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 2, to add language on page 2, line 12, after, "the" to add "packing and storage." Thus, subparagraph (C) would read, "providing a service, including the packing and storage of property, incidental to (A) or (B) of this paragraph." CHAIR P. WILSON objected for the purpose of discussion. REPRESENTATIVE JOHNSON said he did not think he had a problem with the intent of Amendment 2, but he asked for clarification on third parties. He related a scenario in which a person shipping antlers took the antlers to a packing store, but the packing store subsequently contracted with yet another company to pack the antlers. CHAIR P. WILSON related her understanding that HB 366 relates to transportation services and not to packaging services. REPRESENTATIVE GRUENBERG clarified that the process would begin at the time the goods are loaded until the goods are delivered. He stated that packing is an integral part of the shipping process. The purpose of Amendment 2 is to ensure that each party is only responsible for his/her own negligence, but not for anyone else's negligence. In this context, "including means including, but not limited to." He related that if a situation arose in which an intermediate packer was involved, that the third party would also be held responsible. He reported that this responsibility is called comparative negligence and can be apportioned so each party is held responsible, and may be held responsible for a portion of the damage. He characterized Amendment 2 as a "clear and simple amendment" to ensure that each party is responsible for only his/her own negligence. 2:11:26 PM MS. OSTNES referred again to page 2, line 12 and to the placement of the "," after "service." Thus, packing could be considered part of the service. REPRESENTATIVE GRUENBERG agreed. 2:12:01 PM REPRESENTATIVE JOHNSON stated that he did not currently have a problem with Amendment 2. He asked to work with the maker of the amendment in the next committee of referral if any additional issue arises. REPRESENTATIVE GRUENBERG committed to work with the sponsor if an issue was discovered. 2:12:37 PM CHAIR WILSON removed her objection. There being no further objection, Amendment 2 was adopted. 2:12:57 PM CHUCK ONSTOTT, General Manager; Midnight Sun Transportation, President, Alaska Trucking Association, stated that he had not yet reviewed the amendments being discussed, but the from the discussions, he thought that is what is needed. He said, "In a nutshell the legislation is to help protect the small trucking companies from the larger businesses that are not willing to take on their responsibilities." 2:14:20 PM JAMES DOYLE, Owner, Weaver Brothers Trucking, stated that he has been in business 50 years. He offered his wholehearted support for the bill. He stated that he personally has been asked to sign agreements to take on other people's responsibilities. He must have insurance, but did not believe that he should have to supply insurance for his company as well as someone else's company. 2:15:26 PM MR. DOYLE recalled an instance in which a trucking company delivered fuel to a gas station. Several days later a customer came in filled up a small gas can and static electricity caused a fire, which caused damage to the vehicle and the person. The trucking company had signed one of the previously mentioned agreements and was held liable for the damages in the amount of $1 million. This bill will "make things right" so that each party takes care of their own liability. He urged the committee to vote yes. 2:16:48 PM CHAIR P. WILSON, after first determining no one else wished to testify, closed public testimony on HB 366. 2:17:02 PM REPRESENTATIVE JOHANSEN recalled the original bill as introduced and the issues. He asked if the issues had been resolved. MS. OSTNES stated that HB 366 was initiated at the request of the motor carriers. She related that within the last several days the shippers discussed the bill. She surmised that some large oil companies are interested in the bill and British Petroleum reviewed the language. In further response to Representative Johansen, she agreed that the truckers worked with the shippers and the issues have been resolved in the bill. 2:19:14 PM REPRESENTATIVE JOHNSON thought the attorneys would not have problems with the bill since they will always try to protect their clients. 2:19:51 PM REPRESENTATIVE T. WILSON moved to report HB 366, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, the CSHB 366(TRA) was reported from the House Transportation Standing Committee. 2:20:14 PM The committee took a brief at-ease from 2:20 p.m. to 2:26 p.m.