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.

Swords and Shields: Carmack Preemption, FAAAA Preemption & Waiver – Part III: Waiver

What is Waiver?   Under 49 USC 14101(b) a carrier, at its option, may enter into ongoing transportation contracts with shippers, other than for the transportation of household goods, to provide specified services at specified rates. In addition, if they agree in writing, the carrier and shipper may expressly waive any or all rights and remedies provided for under 49 U.S. Code, Part B–Motor Carriers, Water Carriers, Brokers, and Freight Forwarders, except for the statutory provisions and related regulations that govern registration, insurance, or safety fitness.   If there is a waiver, then the contract (1) is not subject to the waived rights and remedies, (2) may not be subsequently challenged on the ground that that it violates the waived rights and remedies, and (3) the exclusive remedy for any alleged breach of  the contract containing a waiver provision is in an appropriate State court or U.S. District Court, unless the parties otherwise agree.

Who is a Carrier?  As indicated, only a carrier can agree to waive the otherwise applicable provision. So the first question is “Who is a carrier?”  A carrier is defined as a motor carrier, a water carrier, and a freight forwarder. 49 USC 13102(3).

Who is a Motor Carrier?  In 1995 the definition of a “motor carrier” was changed to mean a person providing motor vehicle transportation for compensation. 49 USC 13102(14).

What About Common Carriers and Contract Carriers?  Also in 1995 the distinction between common and contract carriers was eliminated, so that there are now only “motor carriers.”  However, despite this change, the FMCSA continues to issue “common carrier certificates” and “contract carrier permits.”  Regardless of the type of authority a motor carrier holds, whether a contract carrier permit or a common carrier certificate, they are both motor carriers. But a motor carrier can distinguish the type of service it provides.

What is “Contract Carriage”?  Since these changes were made in 1995 a motor carrier (regardless whether its FMCSA-issued authority says it is a common carrier certificate or a contract carrier permit) can provide “contract carriage.”  Since January 1, 1996 “contract carriage” has been defined as transportation service provided under a contract entered into under 49 USC 14101(b).  As discussed above, 49 USC 14101(b) simply states that a “carrier” may provide transportation or other regulated services under a contract with a shipper, other than for the transportation of household goods, to provide specified services under specified rates and conditions.  If there is no contract, then service is provided as a motor carrier subject to all of the provisions of  49 U.S. Code, Part B, Motor Carriers, Water Carriers, Brokers, and Freight Forwarders.  It is important to note that waiver is optional, is not automatic, and must be expressly stated in the contract if it is desired.

What Contracts are We Talking About?  The contracts subject to waiver are any contracts that a motor carrier or freight forwarder (“water carriers” are named in the statute but excluded from this discussion)  may enter into, including, but not necessarily limited to, Carrier-Shipper Contracts, Carrier-Broker Contracts, Freight Forwarder-Shipper Contracts and Freight Forwarder-Carrier Contracts.

Where do Brokers Fit In?  It is important to note that although brokers are not motor carriers or freight forwarders and are not named in 49 USC 14101(b)(1), virtually all of the contracts brokers enter into are with carriers and freight forwarders, so brokers need to be aware of the pros and cons of waiver and negotiate for or against waiver as they deem most appropriate for their business. In these contracts, brokers also generally qualify as shippers.

What About Broker-Shipper Contracts?  As indicated above, Broker-Shipper Contracts do not fall within the scope of 49 USC 14101(b)(1). However, that does not mean that a broker is obligated to comply with a myriad of regulations under 49 U.S. Code Part B–Motor Carriers, Water Carriers, Brokers, and Freight Forwarders.  For all intents and purposes, a broker already has the right to negotiate virtually all terms, conditions, provisions and remedies contained in its Broker-Shipper Contracts.

TO WAIVE OR NOT TO WAIVE?   There has been and is an ongoing debate amongst transportation attorneys throughout the country whether to waive or not waive the provisions of 49 U.S. Code Part B–Motor Carrier, Water Carriers, Brokers, and Freight Forwarders.  Indeed, this issue has been the subject of multiple presentations at conferences for transportation attorneys over the years since the provision was enacted effective January 1, 1996. There are three positions generally presented: First, do not waive any provisions at any time;  second, waive all provisions all the time; and third, waive some of the provisions some of the time.

Argument:  No Waiver Ever.  The transportation attorneys who argue no provisions should ever be waived argue that the statutes in and regulations issued under 49 U.S. Code Part B set up a well established system for determining the rights, duties and liabilities of all parties involved in transportation (carriers, freight forwards, brokers and shippers).  This is true, especially in defining the role of each participant and their respective rights, duties and liabilities. By avoiding that framework, the parties waiving the statutes and regulations are opening themselves up to the diverse and often inconsistent laws and rules of each of the 50 states.

The no waiver ever position is most often presented by those attorneys that represent LTL and other motor carriers, especially in freight loss and damage claims. In that regard, the Carmack Amendment (49 USC 14706) has been interpreted by federal and state courts for over 100 years, and the “rules” for Carmack cases are well-settled for the most part. Moreover, Carmack cases are subject to federal court jurisdiction in most cases (as long as the claim is for more than $10,000), and it is generally recognized that federal court judges are much more sophisticated in this area of the law than are state court judges.

These attorneys also point out that the existing statutory and regulatory framework works to assist brokers, freight forwarders and shippers by virtue of the provisions that define and otherwise apply to them, although these provisions are much less extensive than those applicable to motor carriers.

Nevertheless, there is no reason for a motor carrier to retain all provisions. For example, if a carrier and a shipper agree to limit the carrier’s liability for freight loss and damage to a specified amount, there is no reason to retain (that is, not waive) the provision of the Carmack Amendment, 49 USC 14706(c)(1)(A), and the case law interpreting that provision, dealing with what the carrier must do to limit its liability. From our perspective it makes sense to waive that specific provision and avoid any subsequent dispute with a shipper whether the contractual limitation or the statute applies.

Argument:  Waive Everything Always.   Some, but not many, transportation attorneys argue that all provisions should be waived at all times.  These proponents often represent shippers and take the position that the carrier and the shipper should set out their complete agreement within the “four corners of the contract.”  We state with utmost confidence that virtually every motor carrier, broker and freight forwarder has received a form contract from a shipper with a demand that it be signed and returned.  Overwhelmingly these shipper-drafted contracts are not subject to negotiation, contain a complete waiver provision, and are one-sided in the extreme.  Indeed, we have had broker clients presented with these shipper prepared contracts that define our broker-client to be a motor carrier. When we have tried to change the contract to correctly define our client as a broker, we have been told it cannot be done. Obviously, a complete waiver of everything always is an unacceptable provision.

Argument: Waive Some Provisions Some of the Time.   Over the years we have come to the conclusion that partial waiver is the best way to proceed. The statute, 49 USC 14101(b), states that the shipper and carrier can “expressly waive any or all rights and remedies” provided under the statute. This makes sense, because some of the statutory provisions and regulations make little sense and, in our opinion, should be waived for the benefit of all parties. One simple example is the provision of the regulations governing the processing and determination of freight loss and damage claims.  49 CFR Part 370 gives the carrier an open ended time frame to determine a claim as long as it gives the claimant an update every 60 days after the initial 120 day investigation period report. From our perspective, freight claims should be decided by the motor carrier or freight forwarder within a reasonable time, which we believe should be 90 days or less in most cases. At the same time, however, the Carmack Amendment should be retained for the determination of freight loss and damage claims, even if some of the provisions might be modified, as long as the core provisions remain intact.

This debate will continue, and it is important that you know what waiver is all about. If you are requested to sign a contract with a waiver provision, do not skip over it thinking it is some inconsequential legalese. It is not, but it is a provision that likely will have a serious impact on your duties, rights and liabilities.

Swords and Shields: Carmack Preemption, FAAAA Preemption & Waiver – Part II: FAAAA Preemption

FAAAA preemption is possibly the most powerful tool motor carriers (for-hire and private), brokers and freight forwarders (“service providers”)  have available to defend themselves with when facing a lawsuit or governmental investigation or complaint.  Every transportation service provider faced with defending against a lawsuit or government agency must ask “Is the claim being made against me (a service provider)  preempted by FAAAA?

What is FAAAA?  The Federal Aviation Administrative Authorization Act, now codified at 49 USC 14501, provides for federal authority over regulation of intrastate transportation operations by service providers. The key provision is set forth in 49 USC 14501(c)(1) which provides no state or political subdivision or agency–

. . . shall enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier  . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.

What is statutorily excluded?  FAAAA, of course, has its limits, and, generally stated, does not extend to (a) the safety regulatory authority over motor vehicles, (b) highway route controls and limitations based on routes, size and weight, hazardous nature of the commodity, (c) insurance requirements, (d) the transportation of HHG, or (e) non-consensual towing.

What applies if elected by a motor carrier?  An insidious provision, 49 USC 14501(c)(3), allows motor carriers to elect to continue to be regulated as to intrastate shipments in regard to (1) uniform cargo liability rules, (2) uniform bills of lading or receipts, (3) uniform cargo credit rules, (4) anti-trust immunity or joint line rates or routes, classification, mileage guides, and pooling, and (5) antitrust immunity for agent-van line operations.  Thus, unless a motor carrier elects to be governed by these state laws, they do not apply. By electing to be governed by these states laws, a motor carrier gives up the freedom it has to set its own terms and conditions for providing intrastate service.

Every carrier that holds an intrastate permit, identified as a Class 1A Permit in Oregon, needs to take a look at its Permit and see if it elected to be covered by any of these elective state laws. If any are checked “yes,” then the motor carrier should seriously consider requesting that its Permit be amended and reissued stating that it does not elect to be covered by any of those laws. Although pure intrastate shipments do not come up that often, they do. In a recent case the shipment of office furniture and fixtures moved in Oregon intrastate commerce. The motor carrier’s bill of lading stated that its liability was limited to $0.50 per pound. However, the plaintiff shipper claimed that since the shipment moved in Oregon intrastate commerce the motor carrier was subject to ORS 823.101-.107, which sets forth Oregon’s uniform liability rules. If the motor carrier elects to be governed by these laws, then its Oregon intrastate shipments are subject to the following:  ORS 823.101, which makes the carrier liable for “any loss, damage or injury to such property . . .” and, further, imposes the liability for the full actual loss, damage or injury, notwithstanding any limitation of liability however expressed, except where the motor carrier has filed an application for a limitation of liability that has been expressly approved by ODOT; and ORS 823.103, which sets minimum times of nine months for claims to be filed and two years for institution of lawsuits. In the case described above, we were able to avoid these Oregon’s statutes and apply the $0.50 per pound limitation of liability because the motor carrier had elected to not be governed by these Oregon laws.

No motor carrier operating in intrastate commerce should agree to be bound by these elective provisions in any state.  Under the current federal law, motor carriers can essentially set their own terms and conditions, either by entering into comprehensive transportation contracts with its customers or by having an in-house rules tariff or other published document setting forth its terms and conditions of service, that will apply to all of its operations, both interstate and intrastate. It seems obvious that every motor carrier should limit the number of laws it must comply with to the extent it can do that. This means that there is no reason to elect to be governed by both State and Federal laws when it can choose to be governed by just the Federal laws that in many instances can be avoided.

Simply stated, motor carriers and other service providers have the opportunity to set almost all of their own terms and conditions under which they provide service, and they should do that to the fullest extent possible. There is no reason to elect to be governed by laws that can be avoided, especially when they do not benefit the service provider.

Has the U.S. Supreme Court Clarified the Extent of FAAAA Preemption? Yes, the Supreme Court has issued a number of decisions that define the scope of federal preemption of state regulation under FAAAA. The Court has issued a number of motor carrier cases on the scope of FAAAA preemption, but there also are numerous decisions relating to deregulation of the airlines that apply to motor carriers (for-hire and private), brokers, freight forwarders and other transportation service providers. This is because the preemption wording contained FAAAA was copied from and is virtually identical to the preemption wording contained in the Airline Deregulation Act (“ADA”) first adopted in 1978.  (As a point of clarification and to avoid confusion, personal injury claims generally are not preempted.)

Thus, the two leading cases dealing with the scope of FAAAA preemption are two airline cases, referred to herein as Morales and Wolens. Morales held that the scope of preemption was intended to be broadly interpreted. Wolens subsequently held that preemption meant that only the precise contract of the parties may be enforced, as follows:

This distinction between what the State dictates and what the airline itself undertakes confines courts, in breach of contract actions, to the parties’ bargain, with no enlargement or enhancement based on state laws or policies external to the agreement.

Just last week the Supreme Court affirmed Wolens in the case entitled Northwest v Ginsberg (“Ginsberg“). In that case Ginsberg filed a lawsuit against Northwest Airlines alleging that Northwest had terminated Ginsberg’s membership and participation in Northwest’s frequent flier program and, in doing so, Northwest had breached its “implied duty of good faith and fair dealing,” which is a term virtually every state, as part of its common law, implies into every contract. The Supreme Court ruled against Ginsberg and in favor of Northwest, citing Wolens as its authority. First, however, the unanimous decision (9-0) written by Justice Alito, reaffirmed (1) that the scope of preemption, that is, a law relating to a carrier’s “price, route or service,” is interpreted broadly, (2) that common law rights are preempted as well as statutes and rules, and (3) that any state law based  term or provision implied or otherwise imposed on the parties to a contract is preempted, especially when the implied provision cannot be avoided. The court noted that under the law in Minnesota, like the law in Oregon, that implied term cannot be waived. As a result, the state seeks to impose a contract obligation not agreed to by the parties and is preempted.

As stated above, in any litigation or administrative enforcement action, a motor carrier (for-hire or private), freight forwarder, broker or other transportation service provider must determine if FAAAA preemption applies to some or all of the claims made. For example, if you are sued for breach of contract and the other party seeks to impose any implied duty of obligation, it may very well be preempted. Ginsberg directly holds that the implied duty of good faith and fair dealing is preempted, which provides a basis for concluding that other “implied terms” such as a fiduciary duty based on a special relationship, a term based on course of dealing, or a duty or obligation based on industry practice or standards are similarly preempted by FAAAA.

FAAAA preemption is proving to be a major shield available to transportation service providers when it has been charged with wrongdoing by anyone, including states, counties and other local governing bodies.

A Client’s Questions re Cargo Insurance

A client asks: “What is the difference between a common and contract carrier insurance-wise, specifically: (1) Is the process different in dealing with the cargo insurer for a common carrier as compared to a contract carrier? and (2) Is the dollar amount the cargo insurer is liable to pay differ for a common carrier as compared to a contract carrier?”

The quick answers to these questions are (1) the process for dealing with a cargo insurer is the same regardless whether the carrier is contract or common and (2) the scope and extent of liability of a cargo insurer depends on the terms of the insurance policy. These questions also prompt the following comments:

  • Although the ICCTA eliminated the distinction between common and contract carriers, the FMCSA nevertheless continues to issue common carrier certificates and contract carrier permits. However, the statute itself now defines a contract carrier as one that provides service under an agreement entered into under 49 USC 14101(b).
  • The ICCTA does not require either a common or contract carrier of property (excluding HHG and passenger carriers) to maintain cargo insurance. 49 USC 13906 gives the FMCSA the authority to set what types and amounts of insurance a motor carrier must maintain. However, on March 21, 2011, the FMCSA eliminated the cargo insurance requirements for all motor carriers (except for HHG and passengers). Cargo insurance requirements are now a subject of negotiation between the parties.
  • The claim filing procedures and process set out at 49 CFR Part 370 apply to carriers and claimants and not to insurance companies.
  • As indicated, 49 USC 14101(b) authorizes carriers to operate as a contract carrier by entering into a contract pursuant to that section. That contract must set out the carrier’s insurance obligation, if any.  Although the carrier may continue to be liable under the Carmack Amendment, 49 USC 14706, that statute does not require insurance to be maintained. The contract needs to spell out the carrier’s  cargo insurance requirements,but the only way to confirm that the carrier maintains the correct coverage is to obtain and read a copy of the policy itself.
  • Common carriers can, and most do, limit their liability by maintaining liability limitations in their rules tariffs or pricing guides (or whatever the carrier decides to call it), but generally do not specify the type and amount of insurance the carrier will maintain. This is not a problem if the carrier is well-established and has substantial assets; however, it is a problem if the financial wherewithal of the carrier is unknown. In that  circumstance, a shipper, broker or other user of a carrier’s services would be wise to enter into a contract or have a pricing agreement that spells out the cargo insurance requirement.