Carmack Amendment Lessons: Limiting Your Company’s Liability

A seemingly constant theme that enters the legal world of the Carmack Amendment is limiting liability of lost or damaged cargo. Of course this is an important aspect of trucking law because of the nature of the business. Trucking companies transport millions of dollars of cargo everyday, and if that cargo is lost or damaged, it is the trucking company that is responsible for replacing it.

The Carmack Amendment, without being modified, requires a carrier to basically insure the loss or damage of a shipper’s cargo in most instances. To make a case against a carrier a shipper must simply show three things:

  1. that the shipper delivers the goods to be transported free of damages;
  2. that the goods were damaged in some way prior to delivery; and,
  3. the amount of damages that the goods suffered.

Because the threshold for proving a case under the Carmack Amendment is so low, companies understandably seek to limit their liability on the goods they deliver as part of their business.

Federal Judge Rules on Limiting Liability

It is in this environment that a federal judge recently clarified the rules on limiting liability under the Carmack Amendment. The basic rules for limiting liability under the Carmack Amendment include the carrier offering the shipper an agreement that adheres to the following steps:

  • obtain an agreement from the shipper on a choice of the carrier’s liability;
  • give the shipper a choice between two or more levels of liability; and,
  • issue a receipt or a bill of lading to the shipper to memorialize the agreement modifying liability.

The case at issue here involved a shipper who on its face fulfilled all of these requirements. But the shipper still challenged whether the carrier should be liable for the goods that were lost.

Facts of this Case

This case, Choi v. ABF Freight System, Inc., Civ. No. 14-7458 (U.S. Dis. Ct. New Jersey 2015),  involved a shipper who contracted with a national company to have their household goods transported from Texas to New Jersey. En route to New Jersey the truck carrying the goods was in an accident that caused a fire that destroyed all of the goods on the trailer, including the shipper’s goods. The shipper made claims under the Carmack Amendment of more than $60,000 because all of their goods were lost.

Prior to shipping the goods the shipper and carrier entered into an agreement that limited the carrier’s liability to $7,500. The agreement also allowed the shipper to choose between other levels of liability, but chose the maximum of $7,500. The argument the shipper made in this case was that the carrier only offered one level of liability for catastrophic loss, even though there were a number of liability options for other types of loss.

The district judge did not agree with this argument. The ruling in this case was that more than one option was enough, and the carrier did not need to offer different levels of liability for different types of loss. This is another lesson for trucking companies as they seek to limit liability under the Carmack Amendment.

As we have discussed many times on this blog, it is important to have a trusted legal partner when it comes to navigating the ins and outs of the Carmack Amendment. At Anderson and Yamada, P.C., we pride ourselves in providing legal options and solutions to trucking companies regarding all aspects of the trucking industry. Contact us today so we can become partners with you and your company.

Waiving Carmack Remedies: A Federal Court Rules

A Federal District Court in Minnesota recently clarified when and how the Carmack Amendment applies in the face of arbitration agreements. The case, Federated Mutual Insurance Company v. Con-Way Freight, Inc., began in Texas where the shipper agreed to ship its cargo via a well known shipping company to Minnesota. As you would expect with a cargo claim case, the cargo was damaged sometime during transit. The insurance company that insured the cargo paid a claim of over $30,000 to the cargo’s owner, and then sought to be reimbursed by the trucking company under negligence and breach of contract claims.

This scenario plays itself out in the the trucking industry everyday, but there was an interesting twist in this particular case. In this case, both the insurance company and carrier were signatory members of the Arbitration Forums. Being a member of the Arbitration Forums requires that signatories forego the litigation process and submit claims on insured property to the Arbitration Forums where it is decided by an arbitrator. Thinking arbitration was where it should go to be compensated for its insurance claim, the insurance company submitted the claim to Arbitration Forums and won its case against the carrier. But after winning, the carrier refused to pay the award to the insurance company.

The shipping company refused to pay the insurance company because it felt that the arbitrator lacked the authority to decide the case. According to the shipping company, the Carmack Amendment precluded the arbitrator from making a decision, and the case should have been brought in federal court.

The Carmack Amendment and Arbitration

Every trucking company should know that the Carmack Amendment is the exclusive remedy for interstate-shipping contracts and property damage claims. But that exclusivity can be waived in certain circumstances. As the federal judge discussed in this case, the rights and remedies applicable in interstate-shipping cases can be waived,

If the shipper and carrier, in writing, expressly waive any or all rights and remedies under this part for the transportation covered by the contract, the transportation provided under the contract shall not be subject to the waived rights and remedies and may not be subsequently challenged on the ground that it violates the waived rights and remedies.

49 U.S.C. § 14101(b)(1) (emphasis added). So while a company can waive the applicability of the Carmack Amendment, the waiver must be in writing and it must be expressly waived.

In this case, the court explained how this works. The shipping company and insurance companies were both signatories to an arbitration agreement that was very general in nature. Their arbitration agreement simply required the parties to forego litigation in self-insured property subrogation claims, but did not mention the Carmack Amendment at all. The court explained that such a general waiver was not enough to erase the applicability of the Carmack Amendment. Any agreement must expressly mention that it is waiving Carmack Amendment claims to properly waive the applicability of the Carmack Amendment. As a result, the arbitration award was withdrawn by the court, and the case now has to proceed under the Carmack Amendment in federal court.

This case provides a good reminder to trucking companies how important the bills of lading and shipping contracts are, especially when the contracts involved have arbitration clauses that may or may not apply in all cases. At Anderson and Yamada, P.C. we focus our practice on these and similar issues that affect trucking companies. We can provide the guidance needed in all of your company’s shipping contracts. Contact us so we can serve you.

Understanding the Carmack Amendment: Bills of Lading

As we have discussed on this blog, the Carmack Amendment is that portion of federal law that regulates interstate cargo claims. The Carmack Amendment puts certain requirements on different players in the trucking industry, and this article will address one of those requirements – bills of lading.

Before we get started on bills of lading, we are going to review how the Carmack Amendment defines the different players in the trucking industry.

  • Motor carriers are those who provide the transportation or or service via motor vehicles for profit. 49 U.S.C. § 13102(14).
  • Freight forwarders hold themselves out to the public as transporters of goods for profit, whether they transport by assembling and consolidating the goods. Freight forwarders assume the responsibility to transport goods from receipt to destination. 49 U.S.C. § 13102(8).

Bill of Lading Types

Both motor carriers and freight forwarders are required by the Carmack Amendment to provide a bill of lading or receipt for the property they ship. These bills of lading are regulated under the Bills of Lading Act found in 49 U.S.C. 80101-80116. In a nutshell, bills of lading are the contracts between the shipper, the consignor, and the carrier. Following are different types of bills of lading:

  • Straight Bill of Lading.
    • Where the bill of lading states who the goods will be delivered to.
  • Negotiable Bill of Lading.
    • Where the bill of lading controls possession of the goods.
  • Non-Negotiable Bill of Lading.
    • Where the bill of lading specifically states it is not negotiable.
  • Order Bill of Lading.
    • Much like a negotiable bill, it states that goods to be shipped are consignable to the person named on the bill.
  • Clean Bill of Lading.
    • Where the bill guarantees the condition and quality of the goods without qualifying language. It is clean because it does not have qualifiers regarding the items.

Bill of Lading General Rule

Regarding bills of lading, 49 U.S. Code § 80107 applies a general rule. Under the general rule of bills of lading the person who negotiates or transfers a bill warrants that the bill is genuine; that the holder has the right to transfer the bill and title to the goods described in the bill; the holder doesn’t know of anything that would adversely affect the value of the goods; that the goods are fit for their purpose when merchantability and fitness would have been implied in an agreement for transfer of the goods without a bill of lading. Of course this general rule can be modified in the bill of lading by adding to or taking from it. In fact, bills of lading are can be customized on many different levels, but it should always be done under the supervision of a professional. Providing guidance on how to customize bills of lading within the limits of Carmack Amendment is one of the things we do at Anderson and Yamada, P.C.

Conclusion

There is much more to the Carmack Amendment and bills of lading than we can explain here. At Anderson and Yamada, P.C. we are truck law lawyers. We have dedicated our practice to the trucking industry and look forward to working for you.

Cargo Loss and Damage Claims: Cases of Interest

Kevin and I recently attended the semi-annual meeting of a relatively small group of transportation attorneys who specialize in freight loss and damage claims.   At the meetings, specific, recently decided legal decisions are summarized by a designated presenter, which then is followed by a group discussion.  Below is a summary of the cases we discussed that should be of interest to you:

1. Fireman’s Fund v Reckart Logistics dealt with identity theft. In that case Alliant (the shipper) sued Reckart (the broker), S&G (the carrier whose identity was stolen), Mr. Bult’s (the real carrier) and Fore (the cross-docker).  Alliant hired Reckart to broker the shipment. Reckart posted the shipment on a load board and was contacted by “S&G” and, at the same time, “Sam” contacted Mr. Bult and hired it to transport the shipment. When Mr. Bult arrived at the origin the driver was told to take the shipment to Chicago rather than St. Louis. Mr. Bult delivered the shipment of Fore Transportation who cross-docked it and turned it over to another carrier.  The shipment was never seen again.

Fireman’s Fund insured Alliant, paid the claim and then sued Reckart, S&G and Mr. Bult for negligence, breach of bailment and Carmack liability.  Reckart Settled. S&G argued that it was the victim of identity theft. And Mr. Bult argued that it was not liable under Carmack because the theft constituted an “act of the public enemy” and, further, that it was entitled to contribution from Fore.at the origin the driver was told to take the shipment to Chicago rather than St. Louis. Mr. Bult delivered the shipment of Fore Transportation who cross-docked it and turned it over to another carrier.  The shipment was never seen again.

The court was sympathetic to S&G and dismissed the claim against S&G because of its identity theft. [Query:  Does this mean that a motor carrier has no obligation to protect its identity? I suspect that this defense will not always work and, accordingly, carriers need to take steps to protect their identity.]

The court held that Carmack applied and that theft did not constitute an “act of the public enemy.” Thus, since Mr. Bult failed to prove that it was free from negligence it was liable.  Further, Mr. Bult had no claim against Fore since Fore was not a carrier with respect to the shipment.

2.  When does “delivery” occur was the issue in Merchants Terminal Corp. v L&O Transport where a shipment of wild salmon was stolen.   L&O picked up a loaded container  and transported it to Merchants’ facility in Delaware where it was unloaded. The next day L&O picked up the empty container and used it to transport the shipment of salmon to Merchants’ facility in Maryland. L&O delivered the loaded container to Merchants’ Maryland facility before it was open. L&O’s driver placed an L&O kingpin lock on the container and left, intending to return when the facility was open. Upon returning it was discovered that the container had been stolen.

The court denied L&O’s Motion for Summary Judgment (essentially meaning that the case had to go to trial). L&O argued that it was not liable because it had delivered the container containing the shipment of salmon. The court disagreed, stating that by placing L&O’s own kingpin lock on the container L&O retained exclusive control over the shipment and, as such, delivery had not been made. The court also ruled that Merchants had the right to bring the claim even though it was not named on the bill of lading as either the shipper or owner of the salmon. Unfortunately for L&O, there was a question of fact whether the person who had signed the equipment lease with the driver had the authority to do so.

3.  The nine month claim filing requirement and the 2 years and one 1 day lawsuit filing requirement were dealt with in 5K Logistics, Inc. v Dailey Express, Inc.  The key holdings in that case were that (a) the nine month minimum claim filing requirement and the 2 years and 1 day lawsuit filing requirement are minimums that must be elected by a carrier to apply and the only way they can be elected is to incorporate them into your bill of lading and/or (preferably both) your rules tariff (aka pricing guide or whatever you chose to call it) and (b) the specific time limitations can be negotiated and agreed upon in a transportation contract.  If these minimum time periods are not made a part of the applicable bill of lading, rules tariff or pricing agreement, then the applicable limitation period under state law applies. In Oregon, that means that a six year statute of limitation would apply.

4.  The importance of clear and comprehensible language in a carrier’s documents, in this case the carrier’s Rules Tariff, was highlighted in Dan Zabel Trading Co. v Saia Motor Freight Line.  As discussed in prior articles, in order to limit its liability a carrier must meet the 4-part “Hughes test” that requires the carrier to (a) maintain a tariff in compliance with the requirement of the ICC [obviously, this requirement no long exists] (b) offer the shipper a reasonable opportunity to choose between two or more levels of liability, (c)  obtain the shipper’s agreement as to its choice of carrier liability limit and (d) issue a bill of lading prior to moving the shipment that reflects any such agreement.

The court found that Saia met the requirements except for the third, stating that Saia did not effectively communicate to Zabel that its liability was limited to $1 per pound. The court looked a Saia’s tariff item in this regard and found it “incomprehensible, internally inconsistent and incoherent.”  This emphasizes the importance for carriers to have multiple parties in their organization, their tariff advisors or their legal counsel, review these critically important documents before publishing them.

5.  The scope of federal preemption under 49 USC 14501 continues to expand. As you know, the Port of LA case found many provisions sought to be imposed against drayage carriers were federally preempted. On the heels of that case the U.S. District Court for the Southern District of California held that California’s state “meal and rest break” law related to carriers’ services and therefore was preempted by 49 USC 14501.  That statute preempts any state or local law that affects a carrier’s rates, routes or services.

Avoiding Shipper Double Payment of Freight Charges

Question:   As a company who uses brokers to set up their truckload freight, how can we protect ourselves from liability of paying for a load twice, should the broker not pay the actual carrier?

Answer:   Shippers can protect themselves from having to pay twice. Shippers generally prepare the Bill of Lading (BOL), which the motor carrier “issues” when it picks up the load and the driver signs the BOL. In these situations the shipper can sign what is referred to as “Section 7,” which is the non-recourse provision. However, the BOL needs to contain the correct language. I have seen BOLs that refer to Section 7, but Section 7 is no where to be found – indeed, very few BOLs these days contain Section 7 or the other “standard” BOL terms and conditions. However, you can use alternative language rather than the standard Section 7 language. In addition, shippers should have a written Shipper-Broker Contract that (1) provides that the Broker is designated as the special limited agent for purposes of collection of freight charges so that payment to the Broker constitutes payment to the motor carrier’s agent and therefore the motor carrier, and (2) requires the Broker to enter into a written Broker-Carrier Contract that provides in part that the Carrier agrees to look solely to the Broker for payment of freight charges and to no other party.