Ship To Shore: Who's Liable

"Just about the time you think the law is settled you find out its not."

How many people in the logistics business have uttered these words?

Issues related to liability for the loss of or damage to goods for intermodal movements arriving in the United States by sea and then moving by motor or rail carrier are once again in a confused state. The conflict arises from two decisions rendered by federal appellate courts this summer that go in opposite directions. Both relate to two statutory schemes that govern the loss and damage to goods being transported, the 1906 Carmack Amendment and the 1936 Carriage of Goods by Sea Act (COGSA).

A continuing, and seemingly never resolved issue, is which carrier is liable when goods are shipped to the United States via an ocean carrier and then transshipped from the port to an inland destination? Carriers usually claim that both the water and land portions are covered by COGSA because unless otherwise stated the statute of limitations to file a lawsuit is one year from the time the goods are delivered or should have been delivered and liability is limited to $500 per package. Shippers generally want Carmack to apply because under it there is a two-year statute of limitations period and damages cover the actual value of the goods.

The conflict between the two statutes was thought to have been settled in 2004 when the U.S. Supreme Court held that a shipment of machinery from Australia to Alabama was covered entirely by COGSA, even though part of the movement went by rail carrier. The Supreme Court said that when the movement originated in Australia the ocean carrier issued a through bill of lading intended to cover the ocean transportation as well as the domestic U.S. rail portion. The bill of lading included a "Himalaya Clause" which states that COGSA liability will apply to the entire intermodal movement. Consequently, when the cargo was damaged during the domestic leg liability of the rail carrier was limited to $500 per package

With this Supreme Court decision it was felt that the matter was settled. Then came a decision in July by the U.S. Court of Appeal for the Second Circuit. The case involved the movement of thirty-two tractors from Japan to Georgia. The tractors arrived by sea at the Port of Los Angeles and then were hauled by rail to Georgia when they were damaged. The shipper claimed $479,500 in damages, the Carmack amount. The rail carrier said it was limited to $16,000, the COGSA amount. The Court of Appeals, in conflict with U.S. Supreme Court, held that Carmack applied. It reasoned that the wording of Carmack was a statutory requirement and that it could not be changed by incorporating COGSA into a contract, because that made it merely a contract term, not a statutory requirement. This reasoning had not been considered by the Supreme Court.

One month later the U.S. Court of Appeals for the Eleventh Circuit was confronted with a Carmack v. COGSA statute of limitations question. Over 2,000 cartons of cigars were shipped via ocean carrier from Puerto Rico to Jacksonville, Fla., and then hauled by motor carrier to Tampa. The driver parked the rig overnight and the next day discovered that the rig and cigars had been stolen. The shipper waited over a year from the date of the robbery to file a suit. Because of the COGSA statute of limitation's date of one year, the shipper presented the suit under Carmack.

As with the machinery from Australia and the tractors from Japan, the cigars moved on a through intermodal bill of lading. The intermodal bill of lading included a one-year limitations period to institute an action and also incorporated COGSA by reference.

The Court of Appeals held for the carriers saying that the intermodal bill of lading's adoption of COGSA was valid and therefore a one-year statute of limitation's period applied. Interestingly, the court stated that had a separate bill of lading somehow been issued for the motor carrier portion of the trip it might have reached a different conclusion.

Shippers and carriers need to know exactly what language they are agreeing to before the movement begins. Shippers should not assume that loss and damage issues are "automatically" covered by "standard" clauses.

James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger, L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected] This column provides 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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