Cargo Owners Can’t Recoup Full Damages if Freight Originated Overseas, Court Rules

This story appears in the July 5 print edition of Transport Topics.

The owners of cargo originating overseas and damaged while traveling to a U.S. destination by rail or truck under a single bill of lading cannot seek full reimbursement of their losses, the U.S. Supreme Court has ruled.

In a decision reversing a ruling by the U.S. 9th Circuit Court of Appeals, the high court ruled 6-3 that the Carmack Amendment to the Interstate Commerce Act allowing full cost reimbursement for goods damaged or lost by a U.S. carrier does not apply when cargo is shipped from a foreign port to a U.S. destination using an intermodal bill-of-lading.

Instead, the court ruled that the Carriage of Goods by Sea Act limiting claims for damage or lost cargo to only $500 “per package” is the correct legal standard for civil court claims when damages occur after an ocean shipper arranges intermodal transportation.

“Congress has decided to allow parties engaged in international maritime commerce to structure their contracts, to a large extent, as they see fit,” the court said. “It has not imposed Carmack’s regime, textually and historically limited to the carriage of goods received for domestic rail transport, onto what are ‘essentially maritime’ contracts.”

The ruling appears to settle a legal debate that has been percolating in U.S. appellate courts for more than five years, said Richard Gluck, a Washington transportation attorney and general counsel of the Transportation Intermediaries Association.

Besides removing the uncertainty of whether a railroad or motor carrier is going to be fully liable if there is damage, the decision also clarifies how much insurance a carrier or shipper might need for a “port-to-port” intermodal shipment using a through bill-of-lading, Gluck said.

“Commercially, everybody now knows how to plan now for what the rules of the game are,” Gluck said.

Prior to five or six years ago, everyone assumed that COGSA applied for these claims, Gluck said.

“It’s only in the last five years that some of the courts have started saying, ‘Well, we’re going to apply the Carmack full-value standard to these claims,’ ” Gluck added.

The lawsuit stemmed from a dispute over a 2005 shipment of cargo owned by a Wisconsin electrical manufacturer that was safely transported by “K” Line America Inc. vessels across the Pacific Ocean and then loaded onto a Union Pacific train. However, the train was derailed in Oklahoma, before reaching its final destination.

In earlier court decisions, a COGSA “package” has been defined as anything from an expensive construction crane to a comparatively less costly laptop computer. In all cases, carriers were liable for up to $500, said Rob Moseley, a Greenville, S.C., transportation attorney.

The Supreme Court’s decision solidifies legal support for through bills-of-lading, a key tool in the intermodal transportation system, said officials with the Federal Maritime Commission.

“I’m pleased to see the court recognize the importance of intermodalism for our nation’s transportation system,” the commission’s chairman, Richard Lidinsky, said in a statement.

“This is a big deal for the railroads and motor carriers to be able to invoke the ocean shippers’ limited liability,” Gluck said. “There are lots and lots of claims out there, so the insurance companies will have to take this into account when they insure cargo.”

For example, Gluck said, a court using COGSA might rule that a 10-package cargo valued at $1 million is worth only a $5,000 judgment, but under Carmack, the entire $1 million in damages might be awarded to a cargo owner. As a result, attorneys for cargo owners have been highly motivated to “forum shop” to bring these claims under Carmack, Gluck said. “Now, that route is probably going to be cut off.”

Gluck said the trend in shipping goods from foreign ports to U.S. destinations has been for the ocean carrier to arrange an intermodal shipment for the entire trip in a single through bill of lading.

The ruling should help carriers and shippers because it will reduce the amount of litigation over which law applies, Moseley told Transport Topics.

“I think it’s good for the system,” Moseley said. “Having the ability to issue a through bill-of-lading certainly matches what’s happening in the ports today.

“The motor carrier doesn’t know what’s in the container, can’t count it and doesn’t know what kind of shape it’s in. So requiring that a bill of lading be issued at that point would be problematic.”

The Supreme Court’s ruling applies only to import commerce.

“Today’s decision need not address the instance where goods are received at a point in the United States for export,” the June 21 ruling said. “Nor is it necessary to decide if Carmack applies to goods initially received in Canada or Mexico for import into the United States.”