LCA Sues To Have Recently Passed Anti-Indemnity Legislation Declared Unconstitutional

December 30, 2010

BATON ROUGE, La. (December 30, 2010) – The Louisiana Chemical Association (LCA) filed suit yesterday in local state court to have the Louisiana Legislature’s recently passed Act 492 (Senate Bill 625) declared unconstitutional.

“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 severely limits a company’s ability to enter into contracts. 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.

Act 492, which enacts La. R.S. 9:2780.1, prohibits certain indemnity/insurance provisions commonly found in Louisiana freight contracts and construction contracts. Under Act 492?, a motor carrier/contractor can no longer agree to (a) obtain 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, and (b) have its insurer 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. (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.)

Moreover, under Act 492, 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, even where the contracting parties desire to apply the law of another state to their contracts.

Selected industries (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).

LCA is the trade association for the Louisiana chemical industry and is dedicated to securing a more prosperous economy and a higher standard of living for the people of Louisiana through the growth of that industry. LCA is composed of approximately 60 companies with over 90 chemical manufacturing plant sites in Louisiana.

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