Louisiana Chemical Association Challenges Newly-Passed Freight Indemnity Law In Court

Yesterday, the Louisiana Chemical Association (LCA) filed suit in the 19th Judicial District Court in Baton Rouge, challenging the constitutionality of  Act 492 (Senate Bill 625), a bill passed in the 2010 legislative session to change the way freight and construction contracts can be insured.

“This law goes well beyond what the constitution allows and drastically changes how many contracts have been structured for decades. It will cost Louisiana jobs at a time when the state can ill afford it,” said Dan Borné, President of the LCA.

Act 492, authored by Sen. Denny Martiny (R-Metairie) and Rep. Anthony Ligi (R-Metairie), severely limits a company’s ability to enter into contracts, according to the LCA. It prohibits a company from requiring a motor carrier or a construction contractor to indemnify the company from its own or a third parties’ acts or omissions and obtain insurance to cover those risks.

Under the Act, two things motor carriers or contractors used to be able to do are no longer legally possible. First, obtaining liability insurance to protect a company from negligent acts of third parties over whom neither the company nor the motor carrier/contractor has any control are now prohibited. Second, such companies can no longer have their insurers name the company as an additional insured under its insurance policy, even where the company compensates the motor/carrier contractor for the additional costs, if any, of the required insurance coverage.

The LCA says that in this respect Act 492 primarily benefits insurance companies, who will be able to write multiple policies to cover the same risks, where previously they would only write one policy.

The suit says Martiny’s bill gets worse. under Act 492, the LCA says, Louisiana law applies to and governs all construction contracts to be performed in Louisiana and all motor carrier transportation contracts relative to loading or unloading activities, or any services incidental thereto, that occur in Louisiana. But contracting parties, who could well be out-of-state or national concerns, may desire to apply the law of another state to their contracts. Act 492 could well thus depress the desire of those companies to do business in the state.

The LCA also notes that selected industries like agriculture and timber have been excluded from the provisions of Act 492. Act 492 thus dictates which industries can effectively protect themselves and which ones cannot.

The legislature made no findings to support its declaration that the relevant indemnity/insurance provisions are against the public policy of Louisiana and thus unlawful. If the legislature is not required to make findings before it declares a previously lawful activity unlawful (as against public policy), there are little bounds on such legislative declarations in the future.

In its suit, LCA asserts, among other things, that Act 492 violates the following provisions of the state and/or federal constitutions:

  • Contract Clause (because Act 492 impairs the obligations of existing contracts);
  • Equal Protection Clause (because Act 492 impermissibly distinguishes between businesses that are subject to Act 492 and those that are not (e.g., agriculture and timber);
  • Commerce Clause (because Act 492 isolates Louisiana construction contracts and motor carrier transportation contracts from the national economy by requiring that only Louisiana laws shall govern all aspects of these contracts); and
  • Due Process Clause (because, e.g., Act 492’s provisions do not have a rational relationship to a legitimate state interest).



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