Legal Briefs: Intermodal Liability

While this is not exactly Shakespeare, the Bard may have said it if he knew the present state of intermodal loss and damage law. In his day those moving goods down the Avon River and then by horse cart to Stratford never had to worry about dueling bills of lading and other such matters.

It is a tangled web that can make carriers, shippers, logistics providers and insurance companies hate lawyers. Why? Because it is increasingly difficult for lawyers to be able to render clear advice on each party's responsibilities when cargo that begins its transportation adventure on a ship and ends it on a railroad or truck is lost or damaged.

Two years ago everyone thought the law was settled when the U.S. Supreme court held, in a unanimous decision, that the Carriage of Goods by Sea Act (COGSA), could apply not only to the sea portion of an intermodal move when the goods were being transported by an ocean carrier, but also to the land portion of the move when the goods were being transported by a rail carrier.

That case involved a shipment of machinery being transported from Australia to Huntsville, Ala. The entire movement was put together by a logistics company that hired an ocean carrier to transport the goods to the port of Savannah, Ga. The logistics company prepared a bill of lading containing what is known as a "Himalaya Clause" (named after the ship involved in an English court decision in 1955).

Basically, a "Himalaya Clause" says that the liability aspects of COGSA will apply not only to the sea voyage, but also to the land portion of the intermodal movement. One reason this is important is because COGSA has a $500 per package limit. An entire container may be considered a package. A shipper can choose a higher level of liability, but if it does it will pay more for the transportation. Consequently, higher limits are rarely selected. Shippers do however often obtain their own insurance to cover the entire movement.

COGSA also has a one year statute of limitation period meaning that any suits for loss or damage must be initiated within 12 months of the discovery of the loss or damage or the time when it should have been discovered. This contrasts with the Carmack Amendment relating to loss or damage for domestic rail and motor movements which establishes a two year statute of limitation.

The machinery in question left Australia onboard the ship and arrived in Savannah intact. Unfortunately on the trip by rail to Alabama there was an accident with a claim of $1.5 million in damage to the cargo. An insurance company paid the shipper and then sued the rail carrier in the name of the shipper claiming the Himalaya Clause was inapplicable because the damage clearly occurred on land, not at sea.

The Supreme Court held for the railroad holding that the Himalaya Clause was valid and by its language in the bill of lading (a form of contract) made COGSA and its liability limitations applicable to the land as well as sea portion of the move.

Lawyers are taught that the Supreme Court is the final interpreter of the law in the United States and its decisions are to be followed by other courts, especially when they are recent and unanimous. Well, tell that to the U.S. Court of Appeal for the Second Circuit, the federal appellate court covering New York, Connecticut and Vermont. Last summer it practically ignored the Supreme Court's ruling in the machinery from Australia case and held in a factually similar situation (a shipment of tractors from Japan to Swanee, Ga., and then by rail to Texas) that the Carmack Amendment applied and not COGSA despite the fact that there was a Himalaya Clause in the applicable bill of lading. In this case the railroad lost and declined to bring the case to the U.S. Supreme Court.

Only a month after the Second Circuit ruling rejecting the application of COGSA to the inland portion of an intermodal move despite the pressure of a Himalaya Clause the U.S. Court of Appeals for the Eleventh Circuit (covering Florida, Alabama and Georgia) held that COGSA could apply to the inland portion of an intermodal move. In this case a load of cigars that arrived in Florida by ship was stolen during the inland motor carrier portion of the movement. This appellate court held that the Himalaya Clause applied, referred to the Supreme Court ruling as binding, and held that the Carmack Amendment was not applicable.

So, what law are those in the supply chain suppose to rely upon? At this point it is a confusing situation still being worked out by the courts. Until the Supreme Court considers the issue again, or more appellate courts rule, all those involved in an intermodal movement need to carefully consider the language in any documents that may cover the transportation.

James A. Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger, L.L.P. (Washington, D.C., www.zsrlaw.com), where he concentrates in transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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