RISK MANAGEMENT EDUCATIONAL SESSION: CONTRACT CHECKLISTS

RISK MANAGEMENT EDUCATIONAL SESSION: CONTRACT CHECKLISTS

PRESENTERS • Robert Moore, Chief Legal Officer, NBIS • Dave Wittwer, CIC, CRM, The Buckner Company • Billy Smith, EVP, Claims and Risk Management, NBIS • Jeff Haynes, USI EVP National Construction Practice Leader • Randy Proos, USI VP National Construction Accounts

TRANSPORTATION CONTRACTS PART I: TRANSPORTATION CONTRACTS

THROUGH BILL OF LADING • Carriage of Goods by Sea Act (COGSA) • Should be incorporated by reference into every through bill of lading (bill of lading for the foreign transport of goods to or from the US) • Contains a list of causes of loss for which the carrier or vessel is not liable as long as the carrier exercised reasonable steps to make the ship seaworthy and to handle/stow goods responsibly • COGSA also limits liability to $500/package or customary freight unit, unless another amount is specifically mentioned in the bill of lading – that amount however can never be greater than the actual loss incurred

THROUGH BILL OF LADING • Defenses under COGSA • Pursuant to 46 U.S.C.A. 30706, a carrier and the vessel are not liable for loss or damage arising from: • Dangers of the sea or other navigable waters • Acts of God • Public enemies • Seizure under legal process • Inherent defect, quality, or vice of the goods • Insufficiency of package • Act or omission of the shipper or owner of the goods or their agent, or • Saving or attempting to save life or property at sea, including a deviation in rendering such a service

BILLS OF LADING • Contractual Provisions • “received subject to individually determined rates” language • Section 7 language • Declaration of Value • No consequential, punitive, or special damages • Shipper load and count • Time period for filing claims/suit • Liability for dangerous or explosive goods

“Received subject to…” • Old language: “received subject to the classifications and tariffs in effect on the date of the issue of this shipping order” • This language should be taken out because according to case law, it gives the shipper the argument that the bill of lading did not incorporate the carrier’s tariff and the carrier can be held liable for substantially more • New language: replace with new, modern, carrier favored language “received, subject to individually determined rates or contracts that have been agreed upon in writing between the carrier and shipper, if applicable, otherwise to the rates, classifications and rules that have been established by the carrier and are available to the shipper, on request” (*make sure you have a rate schedule with limitation of liability in it or a separate contract between shipper and your company*)

BILL OF LADING SECTION 7 TERMS AND CONDITIONS LANGUAGE • “Subject to Section 7 of Conditions, if this shipment is to be delivered to the consignee without recourse on the consignor, the consignor shall sign the following statement: The carrier shall not make delivery of this shipment without payment of freight and all other lawful charges.” • Execution of this can arguably preclude your company from collecting from the consignor/shipper unless the shipment is also marked “prepaid”; this becomes problematic when the shipment was to be paid by the shipper, but this section is executed, and the shipper goes bankrupt

DECLARATION OF VALUE • If a value is declared on the property, it is important to also include the following language: “Declaring a value does not, by itself, increase carrier liability above the default limitation listed below” • Also, make sure you have a default limitation. Including these two things can significantly reduce your level of liability.

NO CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES • As a carrier, you can further limit your liability exposure by including language that states under no circumstances will you be liable for consequential, punitive, or special damages.

SHIPPER LOAD AND COUNT • SLC is addressed in the Bill of Lading Act, 49 U.S.C. §80113 • “A common carrier issuing a bill of lading is not liable for non-receipt, misdescription or improper loading when (1) the goods are loaded by the shipper, and (2) the bill contains the words ‘shipper’s weight, load, and count,” – language indicative of the shipper having loaded the goods • Statute is intended to shield a carrier from responsibility for delivered goods when the carrier and driver had no opportunity to inspect, correct or approve the manner in which the load was loaded or secured

SHIPPER LOAD AND COUNT • You must consistently ensure the phrase “shipper’s weight, load, and count” are stated on the bill of lading prior to execution. In absence of the language on the original BOL, drivers should be instructed to place “SLC” on every bill of lading in which they were denied the opportunity to observe the loading of freight • Claims example: You have been hired to transport a load of widgets. You load the wrapped widgets onto your truck, transport them to their destination, and offload them. Upon offloading, water damage is discovered. **IF SLC is on the BOL, then you have a defense that the water damage is not your responsibility.

SLC AND SPENCE V. ESAB GROUP INC. • In 2010 3rd Circuit Court of Appeals rejected the argument that federal trucking regulations preclude Pennsylvania from imposing historically carrier-related safety obligations on shippers • In Spence the shipper packaged the load into boxes, stacked them on to pallets, stretch-wrapped the pallets, and loaded them with a forklift onto the truck. The shipper allowed the driver to secure the cargo, but with load star cleats furnished by the shipper. Once secured, the driver drove a short distance and upon rounding a corner lost control of the tractor-trailer as it overturned. The driver claimed the accident and his injuries were caused by the shipper’s failure to prevent the load from laterally shifting on the bed of the truck.

SPENCE SAYS SHIPPER HAS DUTY OF CARE • The 3rd Circuit Court of Appeals reversed a decision by the U.S. District Court, holding that the FMCSA regulations that require the Carrier to safely secure cargo to prevent shifting during transit should not be interpreted so broadly as to ignore that shippers my share responsibilities for shifting loads under certain circumstances • “Where there is evidence that a shipper undertook to load and secure the cargo being transported by a third-party carrier, the shipper also bears an obligation to exercise reasonable care” • SLC on the bill of lading greatly bolsters this argument • Spence v. ESAB Group, Inc., 623 F.2d 212 (3rd Cir. 2010).

TIME PERIOD FOR FILING CLAIMS/SUIT • Include language that there are 9 months from the date of loss to file claims; and, 2 years from denial of a claim to file suit.

LIABILITY FOR DANGEROUS OR EXPLOSIVE GOODS • You should always know what the shipper’s freight contains, particularly if it is dangerous or explosive • Include the following language in your bill of lading to further protect you: “Every party, whether principal or agent, shipping explosives or dangerous goods without previous full written disclosure to the carrier of their nature, shall be liable for and indemnify the carrier against all loss or damage caused by such goods, and such goods may be warehoused at owner’s risk and expense or destroyed without compensation

WIND FARM TRANSPORTATION CONTRACTS • Contractual Provisions • Shipper Obligations • Carrier Obligations • Carrier Drivers and Equipment • Indemnity and Defense • Form of Receipt • Billing payment and claims • Liability • Detention • Insurance • Waiver of Subrogation • Termination • Confidentiality • Force Majeure • Representations and Warranties

SHIPPER OBLIGATIONS • Tender freight to Carrier • All dims and weights must be accurate • Schedule must be accurate; all changes must be made within reasonable period of time for carrier to replace and reschedule its own business • Warrants suitable ingress and egress to and from origin and destination to allow for safe transportation of wind components

CARRIER OBLIGATIONS • Deliver goods safely • Subcontract allowed – as a Carrier, are you allowed under the agreement to subcontract your obligations? • Securement – explicitly outline your obligations for securing the load • Follow all applicable rules/regulations • Hours of service • Load regulations • Company policies/procedures • DOT rating

CARRIER DRIVERS AND EQUIPMENT • Have equipment necessary to do the job • Have competent drivers to do the job • Pay for operating costs of transportation such as fuel, tires, maintenance, etc. (unless such maintenance is caused by poor site conditions, in which case the shipper pays)

INDEMNITY AND DEFENSE • Must be reciprocal • Cannot defend and indemnify for shipper’s own negligence and wrongdoing (this is now the law in many states) • Will agree to defend and indemnify for claims resulting from carriers negligence or willful misconduct arising from contractual obligation to shipper

INDEMNIFICATION • The following states have enacted motor carrier anti-indemnification laws: • Alaska • Arizona • California • Connecticut • Florida • Georgia • Illinois • Indiana • Iowa • Louisiana • Maine • Maryland • Missouri • Nebraska • New Mexico • North Carolina • Oregon • Pennsylvania • Utah • Washington

FORM OF RECEIPT • Uniform bill of lading • Signed by both Carrier and Shipper

BILLING PAYMENT AND CLAIMS • 30 days from receipt of Bill of Lading • 1% late fee/month after 30 days

LIABILITY • $2.50 per pound of lading • In rare cases, agree to insure for actual loss as measured by manufactured cost of goods sold (not full replacement value) • Carrier not responsible nor liable for loading and unloading; securement is only responsibility • Salvage – if carrier is liable for full value, they get salvage or a fair market value salvage credit • Shipper has 90 days from receipt of BOL to file claim • Not set offs against freight charges owed to carrier • No liability for consequential, incidental, indirect, or liquidated damages

LOSS DAMAGE • This becomes a huge issue in energy/wind farm trucking claims • If a substantial piece of equipment is damaged during transportation, the risk is present that the warranty on the equipment may be voided by the manufacturer • Make sure you have favorable language present to avoid this risk, as well as consequential damages, loss of use, etc.

DETENTION • 2 free hours at loading and unloading. For wind – 6 free hours at loading and unloading • Starts when the truck arrives • Only in cases where there is a schedule that governs detention – the schedule cannot be changed unreasonably. If changes, it must be done so in an adequate amount of time for carrier to adjust its schedule without suffering economic loss (extra permits, escorts, sitting an extra day) such loss must be paid by shipper that changed schedule unreasonably

INSURANCE • Property damage and cargo to cover liability amount • Employers Liability, Workers Comp, Comprehensive General Liability • Can add shipper as additional insured in rare cases, but only if requested and not for Workers Comp or Employer’s liability

WAIVER OF SUBROGATION • Cannot waive insurers rights of subrogation • In rare cases, may agree to waive it with the following language added “unless claim is caused by shipper’s negligence or willful misconduct”

TERMINATION • Must be reciprocal • Either party has the right to terminate for material breach of contract immediately • Either party has right for no reason at all, with 30 days notice • Automatic right to cure breach – deal with on a case by case basis

CONFIDENTIALITY • Allowed to disclose the existence of the contract, but not the contents of the contract

FORCE MAJEURE • An event out of the control of the parties occurs that causes a breach of the contract • Relieves parties from obligations under the contract while condition exists, including cargo liability while loaded on carrier’s trailer • Include 24 hour notice requirement

REPRESENTATIONS AND WARRANTIES • Can include that shipper and carrier represent and warrant that they are able and qualified to do those things outlined in shipper obligations, carrier obligations, and carrier driver and equipment

INDEPENDENT CONTRACTOR ESCORT AGREEMENT • Contractual Provisions • Independent Contractor Relationship • Payment Process • Obligations of Contractor • Indemnification • Insurance • Primary non-contributory general liability insurance • Excess/umbrella • Inland marine insurance • Worker’s Compensation Insurance • Additional Insured Status • Waiver of Subrogation

INDEPENDENT CONTRACTOR RELATIONSHIP • Independent contractors have the potential to cause your company significant liability; the independent contractor has your company’s logo and info displayed on the tractor and therefore represents your company any time its on the road • Include language that recognizes the relationship is that of a company and an independent contractor, and not as an employer-employee relationship

PAYMENT PROCESS • It is important for both parties, especially in the independent contractor situation, to outline how the contractor is to be paid • This is also the place to outline any fringe benefits that may or may not be included, as well as how any advances from the company are to be handled and deducted from the contractors pay

OBLIGATIONS OF CONTRACTOR • Included in this section should be which party is responsible for operating expenses of the equipment, fuel, oil, maintenance, repairs, taxes, fines, violations, etc • This is also the place to outline contractors required compliance with all applicable laws; maintaining a valid driver’s license; requirement that contractor operate in a safe and prudent manner, etc.

INDEMNIFICATION • Many states have started to enact anti-indemnification statutes for the transportation industry, like those for construction contracts that relate to crane and rigging • These statutes bar indemnity for sole or partial fault, so that each party can only indemnify the other for their own negligence

MOTOR CARRIER/SHIPPER AGREEMENT • Contractual Provisions • Scope of Agreement/DOT Rating • Rates/Charges/Payment Terms • Freight Documentation • Insurance • Indemnity • Cargo Liability • Sealed Shipment

SCOPE OF AGREEMENT/DOT RATING • This section should clearly outline how long the agreement is in effect, and whether each party may terminate the agreement with or without cause • This section should also define the Carrier as a motor carrier under 49 U.S.C. 12102, so that all rights and duties of the federal law govern the contract, unless otherwise excluded • It is also helpful to clearly state the Carrier’s DOT rating in the contract

RATES/CHARGES/PAYMENT TERMS • This section is important, particularly if you are dealing with billings to 3rd parties. • The best practice, is to state that the Shipper is still held responsible for all freight and related transportation charges under the Agreement, even if the Carrier is to bill a 3rd party. This ensures your company will be paid for the work performed. Even if you agree to bill a 3rd party, it is important for the Shipper to agree to guarantee payment and stand as the primary debtor

FREIGHT DOCUMENTATION • This provision should clearly state that the Parties may use another document for the purpose of documenting pick-up and delivery of freight, either a uniform freight documentation form, or bill of lading, but that the master agreement shall prevail over anything appearing in those forms • The Uniform Freight Documentation Form should contain: • Carrier’s contact information • Shipper’s contact information • Where and when the freight was received • That the property was in good order except as noted • Who it was consigned to/destination address • Who is paying • The weight/class/type of freight and whether it is hazardous

INSURANCE AND INDEMNITY • The insurance and indemnity provisions should be tailored, as previously discussed, to be valid under any applicable state anti-indemnification laws • Any additional insured endorsements shall also be provided, as previously discussed

CARGO LIABILITY • This provision relieves carrier from liability in certain instances that are out of their control (i.e. Acts of God, etc) • It should clearly cap liability and define how liability is to be determined based on loss or physical damage to the cargo • This section should also clearly state the time period in which the Shipper may file a claim for loss or damage • Of utmost importance is language stating that the Carrier shall not be liable to Shipper or any 3rd party for special, incidental, or consequential damages that relate to loss, damage, or delay to a shipment

SEALED SHIPMENT • Having the proper “sealed shipment” and “shipper load and count” language in your contract can save you from significant liability • SLC is addressed in the Bill of Lading Act, 49 U.S.C. §80113 • “A common carrier issuing a bill of lading is not liable for non-receipt, misdescription or improper loading when (1) the goods are loaded by the shipper, and (2) the bill contains the words ‘shipper’s weight, load, and count,” – language indicative of the shipper having loaded the goods • Statute is intended to shield a carrier from responsibility for delivered goods when the carrier and driver had no opportunity to inspect, correct or approve the manner in which the load was loaded or secured

SEALED SHIPMENT • Chain of custody for seal • Along with the SLC language in the bill of lading, the chain of custody for the seal continues to offer the strongest evidence that at a minimum, the load was not disturbed prior to removal by the consignees or consignee's witness • Continuation of the shipment under seal makes it more difficult for the shipper to reverse the presumption and how the carrier was negligent • When the bill of lading contains SLC language and there is evidence the seal remained intact during transit, the burden is on the shipper to establish that an event occurred in transit that adversely impacted the condition of the load as transferred by the shipper

BROKER-CARRIER CONTRACTS • Contractual Provisions • Relationship of Parties • Term of Agreement • Payment/Cargo Liens • Responsibility for Personnel/Safety Rating • Loss/Damage/Delay of Goods • Insurance • Indemnity • Non-Solicitation

RELATIONSHIP OF PARTIES • This provision should explain the relationship between the Carrier and the Broker; the Carrier’s safety rating, license number; and, a statement that the broker is hiring the carrier to perform contract carrier services, and there is no employer/employee relationship

TERM OF AGREEMENT • Again, it is important to clearly state how long the agreement is in effect, and any termination rights of either part • It is also helpful to state what services the carrier will be providing and whether there is a “minimum shipment guarantee” on the part of the broker, or a minimum capacity guarantee on the part of the carrier • Rates and charges relevant to the agreement can also be included here

PAYMENT AND CARGO LIENS • The contract should clearly state how and when the broker will pay the carrier. It should also include whether the broker will be liable for any late payment fees or collection costs, and whether carrier may contact broker’s customers regarding payment • Depending on whether you are operating as the carrier or broker, you may also want to have, or waive, the right to any lien on cargo or other property

RISK MANAGEMENT EDUCATIONAL SESSION: CONTRACT CHECKLISTS