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United States District Court, Northern District of Illinois, E.D

July 5, 1974


The opinion of the court was delivered by: Austin, District Judge.


This is an action for recovery under an indemnification clause of a truck leasing agreement. Federal jurisdiction is predicated upon the diversity of the parties' citizenship and an amount in controversy in excess of $10,000.00. The case is presently before the court to resolve the issue presented by defendant's motion pursuant to Fed.R.Civ.P. 12(c) for judgment on the pleadings.

The facts set forth in the pleadings are as follows:

Plaintiff General Expressways, Inc. ("General") and defendant Schreiber Freight Lines, Inc. ("Schreiber") are common carriers in interstate commerce. On June 27, 1973, the parties entered into a written "trip lease" agreement whereby Schreiber leased to General some tractor-trailer trucks for a particular trip General intended to make. Shortly thereafter, General gained possession of the trucks, inspected them, loaded them and embarked with the cargo. Before the cargo reached its destination and while it was being transported in the Schreiber trucks, it was damaged, causing General to become liable in the amount of $16,031.00 to the owner of the shipment. Significantly, no personal injury is involved in this case. General has paid the owner's claim.

The trip lease agreement between the parties provides, in pertinent part:

  "It is understood that the leased equipment under
  this agreement is in the exclusive possession,
  control and use of the authorized carrier Lessee and
  that the Lessee assumes full responsibility in
  respect to the equipment it is operating to the
  public, the shippers, and the INTERSTATE COMMERCE
  COMMISSION. It is agreed that Lessor will carry
  acceptable Public Liability and Property Damage
  Insurance. Lessor agrees to reimburse and otherwise
  indemnify Lessee for any and all losses sustained by
  Lessee resulting from the use of the aforesaid
  equipment. * * * * * The lessor shall indenify the
  Lessee from any loss, damage or happening giving rise
  to claims on the part of the shippers, and the Lessee
  shall withhold payment of any and all sums then or
  thereafter due the Lessor, to the extent of such
  expenses and claims until the determination of such
  expense and valid claims, which amounts shall then be
  deducted to the satisfaction thereof. Lessee shall
  not be liable for the loss of, or damage to, the
  aforesaid equipment, however caused, while in use
  under the terms of this lease. * * * * * Lessor
  hereby agrees further to maintain his equipment in a
  good and efficient manner, observe all safety and
  other requirements of the I.C.C. and all other
  regulatory bodies having jurisdiction and to
  indemnify carrier against any losses in connection
  with this operation."

Thus, General claims it should be indemnified by Schreiber, pursuant to the terms of the contract, for the loss it has incurred.

Schreiber, on the other hand, contends the indemnity provision is contrary to the public policy embodied in the regulations of the Interstate Commerce Commission and is therefore unenforceable.*fn1 Accordingly, Schreiber moves for entry of judgment on the pleadings in its favor. For the reasons that follow, that motion must be denied.

It is now established in the Fourth and Fifth Circuits that indemnification agreements similar to the one here are enforceable, despite the public policy objections raised by Schreiber. Carolina Freight Carriers Corp. v. Pitt County Transportation Co., 492 F.2d 243 (4th Cir. 1974); Allstate Insurance Co. v. Alterman Transportation Lines, Inc., 465 F.2d 710 (5th Cir. 1972). As stated in the Allstate case:

  "Turning to the indemnification clause itself we find
  nothing in the language of 49 C.F.R. § 1057.4(a)(4)
  which would prohibit two freely contracting parties
  from determining, as

  between themselves, which party will ultimately bear
  the cost of damages done to a third person. The only
  conceivable argument against such an arrangement
  would be that the regulation seeks to prevent
  indemnification on the theory that a trucking
  company, knowing it does not have to pay damages,
  might tend to be less careful in supervising and
  controlling the actions of its truck drivers.
  However, the same can be said of insurance coverage
  which the regulations obviously do not prohibit. We
  are of the opinion that had the I.C.C. intended to
  prevent indemnification between trucking companies it
  would have said so in precise terms." Id. at 713.

I find this reasoning inescapable and therefore adopt it as the law of this case.

In opposition to this conclusion, defendant points to Alford v. Major, 470 F.2d 132 (7th Cir. 1972), where a conclusion contrary to that reached by the Fourth and Fifth Circuits was reached. However, the Alford decision was based upon different facts and therefore must be distinguished. In the first place, in Alford, there was a prima facie violation of 49 C.F.R. § 1057.4 (a)(4) in that the lessee allowed the lessor to retain full control over the truck and driver during the term of the lease. Accordingly, the indemnity provision was rightfully held unenforceable. In the present case, however, there is no such violation of the regulation.

Secondly, the public policy of protecting the personal safety of the public on our highways is not compromised here. For the claim is based upon damage to the shipment itself, not personal injury of third persons.

Furthermore, I believe the reasoning of the Court in Chicago, R.I. & P.R. Co. v. Chicago B. & Q.R. Co., 437 F.2d 6, (7th Cir. 1971) should control here. In that case, the Burlington Railroad sought indemnification from the Rock Island Railroad for damages it paid to passengers injured in a train wreck. The Rock Island train was travelling on Burlington tracks under an agreement which required the former to hold the latter harmless for any claims arising from the former's use of the tracks. Apparently, the switching signal system on the Burlington line was defective, causing the train crash. The Rock Island resisted Burlington's claims on the ground that the public policy in the Federal Safety Appliance Act of ensuring passenger safety would be compromised if the negligent party (Burlington) were permitted to recover under the indemnification clause. The Court rejected Rock Island's argument, saying:

  "(T)he distribution of risks undertaken by this
  contract does not impair the policies or force of the
  Federal Safety Appliance Act. . . .

  (T)hese provisions of the contract represented an
  adjustment of the private relations between the two
  carriers but did not alter their duties to the public
  as common carriers." 437 F.2d at 9-10. (citations

The opinion in Alford apparently overlooks the decision in Chicago, R.I. & P.R. Co. v. Chicago B. & Q.R. Co., supra. I consider the latter decision to be more correct under the facts of the present case.

Any lingering doubt created by Schreiber's public policy argument is dispelled by the public policy of fostering freedom of contract. In Baltimore & Ohio Southwestern Railway Company v. Voigt, 176 U.S. 498, 20 S.Ct. 385, 44 L.Ed. 560 (1900), the Court said it must not be forgotten that,

  "the right of private contract is no small part of
  the liberty of the citizen, and that the usual and
  most important function of courts of justice is
  rather to maintain and enforce contracts than to
  enable parties thereto to escape from their
  obligation on the pretext of public policy, unless it
  clearly appears that they clearly contravene public
  right or public welfare."

The defendant's motion for judgment on the pleadings is therefore denied.

It is so ordered.

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