Limitations of Liability Upheld

“This is a maritime case about a train wreck” is how Supreme Court Justice Sandra Day O’Connor began the 2004 Supreme Court decision in Norfolk Southern v Kirby, 543 U.S. 14 (2004).  Since Kirby, other cases have tested legislative overlaps and conflicts when goods are transported using over water and land using "through bills of lading." Multi-modal transport has spawned clashes over the interplay of the Carriage of Goods by Sea Act (COGSA), the Carmack Amendment, Pomerene Act and the Harter Act.

In another case about a train wreck, the Southern District of New York in September, 2012 dismissed most of cargo’s claims against the rail carriers upholding through bill of lading provisions which prohibited suit against parties other than the carrier that contracts with the shipper. Sompo Japan Insurance Company of America et al v Norfolk Southern Railway Company, et al, 2012 U.S. LEXIS  125398, 2012 AMC 2409

Plaintiffs in Sompo were subrogated insurers of various shippers whose cargoes traveled by ocean, rail and truck from China and Japan to various locations in the United States. The ocean carriers and NVOCCs issued through bills of lading to the shippers. The bill of lading contained “Himalaya clauses”[1] that among other things, prohibited suit against any party other than the carrier contracting with the shipper. Defendants were inland rail carriers subcontracted by the original upstream carriers.

The Sompo plaintiffs asserted claims in contract, bailment, tort and the Carmack Amendment. They argued that the Himalaya clause violated the Harter Act, COGSA and the Hague Rules which prevent a carrier from avoiding its liability. Circuit Court Judge Denny Chin, sitting by designation,  questioned whether the Harter Act even applied to an overland loss, ruling that event if it did, the language in the bills of lading were a limitation of liability not an avoidance and were therefore enforceable.

Judge Chin also dismissed plaintiffs’ Carmack Amendment claims based upon the Supreme Court’s ruling in Kawasaki Kisen Kaisha Ltd v Regal Beloit Corp., 2010 U.S. LEXIS 2433 (2010) which held that Carmack does not apply to a shipment originating overseas under a through bill of lading.

The surviving claims for now, were based upon the Court’s finding that the NVOCC’s bill of lading language was ambiguous and that additional evidence was required to discern the parties’ intent.  Nonetheless, the Court’s decision in Sompo is another important reminder to review limitations of liability provisions with counsel when reviewing a case for subrogation potential. 

[1] A Himalaya Clause, named after a case,  is a contractual provision in a bill of lading that extends the bill’s liability limitations to downstream parties contracted by the carrier to assist in the carriage of goods.  Kirby, 543 U.S. at 20.

COGSA vs. Carmack - Carmack Does Not Apply to Overseas Shipment under a Single Through Bill of Lading


Train WreckOn Monday, June 21, 2010, the United States Supreme Court issued its opinion in Kawasaki Kisen Kaisha LTD. v. Regal-Beloit Corp. By a 6-to-3 vote, the court said the Carmack Amendment does not apply to a shipment originating overseas under a single through bill of lading. The terms of the through bill of lading govern the parties’ rights.

The court framed the issue as “whether the terms of a through bill of lading issued abroad by an ocean carrier can apply to the domestic part of the import’s journey by a rail carrier, despite prohibitions or limitations in another federal statute.” Relying on the text of the Carmack Amendment, the court determined that a shipment’s point of origin is critical in deciding whether a Carmack-compliant bill of lading is required. The court’s opinion states:

… for Carmack’s provisions to apply the journey must begin with a receiving rail carrier, which would have to issue a Carmack-compliant bill of lading. It follows that Carmack does not apply if the property is received at an overseas location under a through bill that covers the transport into an inland location in the United States. In such a case, there is no receiving rail carrier that “receives” the property “for [domestic rail] transportation,” § 11706(a), and thus no carrier that must issue a Carmack-compliant bill of lading. The initial carrier in that instance receives the property at the shipment’s point of origin for overseas multimodal import transport, not for domestic rail transport.

A carrier that accepts goods for further transport from another carrier in the middle of an international shipment under a through bill of lading does not become a receiving carrier under Carmack.

In this case, the court continued, the shippers or cargo owners made the decision to select “K” Line for their through transportation needs. “K” Line received the goods in China, issued through bills of lading for shipment to inland destinations in the Untied States, and subcontracted with Union Pacific for rail transportation in the United States. The through bills of lading provided the liability and venue rules for the foreseeable event that the cargo was damaged during carriage. Had the bills of lading for the overseas transportation ended at a port in the United States and the cargo owners then contracted directly with Union Pacific to complete a new journey to the inland destinations in the United States, Union Pacific would have been a receiving carrier and would have been required to issue a separate Carmack-compliant bill of lading.

In finding Carmack inapplicable to the inland portion of an international shipment under a through bill of lading, the court’s decision effectively protects carriers within the United States from the liability regime provided by the Carmack Amendment when a shipment originates overseas. Since the Carriage of Goods by Sea Act (COGSA) governs shipments traveling to or from a port in the United Sates by an ocean carrier engaged in foreign trade, a carrier’s liability under a through bill of lading could be limited under COGSA’s liability regime. COGSA permits carriers to limit their liability to $500 per package. In addition, a forum selection clause in a through bill of lading that provides for jurisdiction or arbitration in a foreign country, such as Japan, is enforceable.

When faced with a cargo loss where the shipment originated overseas, it is important to obtain a copy of any bills of lading issued by the carriers and understand the importance of their terms. Cozen O’Connor stands ready to assist you in navigating those waters.


Horse Trailer Accidents-Theories of Recovery

It’s every horseman’s nightmare—a trailer accident. There are many causes of these accidents, but in the chaos of attempting to remove the horses and tend to their wounds (or worse), questions that could pave the way for a subrogation opportunity often go unanswered. This post will discuss some of the primary reasons for trailer accidents, and subrogation opportunities that can be explored.

Interstate Hauling-ICC Termination Act
Often driver error is the cause of a trailer accident. When horses are being hauled over state lines, the ICC Termination Act (formerly known as the Carmack Amendment) provides the sole and exclusive remedy to shippers against a carrier for loss or damage to their horses in transit. The horse owner/insurer should be familiar with the strict notice requirements and other limitations of the Act.

Intrastate Hauling-Distracted Driving
When the planned route is within one state, the ICC Termination Act does not apply. Depending on the relationship between the owner and the hauler, claims for negligence, breach of warranty, bailment, or breach of contract may arise. There are new theories of negligence supported by recent events. In January, the United States Department of Transportation issued a nationwide ban on texting by drivers of commercial vehicles. After NTHSA reported almost 6,000 distracted driving deaths in 2008, this is an issue that is getting increasingly more attention. Not coincidentally, distracted driving in equine and livestock hauling is also becoming more prevalent. Mark Cole, managing member of USRider, a large national equine transportation company, has said “From our trailer accident study, we found that distracted driving was one of the primary reasons for trailer incidents.” When a commercial horse hauler is being used, it should be determined whether the driver was talking or texting on his phone while driving. Another area to explore is whether the driver is following company protocol. For example, had he logged more hours than allowed in order to make deadlines? Given the current political climate, such actions may give rise to a negligence claim.

Loading Problems
Injuries often occur due to failure to properly load or secure horses in the trailer. Consideration should be given to weight distribution, how the horses were secured/wrapped, and whether the horses were protected from sharp edges. If the injury occurred due to human error, the ICC Termination Act will still apply to interstate hauling, but intrastate routes may provide a common law avenue for recovery. The hauler should be asked if a they use a safety checklist and whether a safety check was performed.  An expert witness on the standard of care for loading and securing horses be consulted, as expert testimony will be critical if your case reaches the litigation stage.  If the injury is due to some problem with the truck or trailer itself, consideration should be given to a products liability claim.

Defective Truck or Trailer—Products Liability 
There have been several defects identified in horse truck and trailers, not always resulting in a product recall. Recently the Horse Transportation Safety Act of 2009 (H.R. 305) was introduced following the overturn of a double-deck truck carrying 59 Belgian draft horses. The accident resulted in the death of 18 of those horses. The bill would prohibit the interstate transport of any horse in a double-deck truck. It could be argued that the double-deck truck has a defective design which makes it unreasonably dangerous for the transport of horses.

Product defects resulting in accidents or fires typically cannot be fully evaluated at the scene of the accident. To protect your claim, take care to adequately document and photograph the accident scene, including the truck and trailer and the area of suspected defect.  Preserve the truck and trailer and immediately place the potentially responsible third parties on notice of your claim. As part of your investigation, research product recalls, find out if the truck or trailer is under warranty, determine the maintenance history for the truck and trailer, and request a copy of all maintenance records. If the damage is only to the truck or trailer itself, you may be faced with the economic loss doctrine. The economic loss doctrine is a principle of law that bars tort claims brought to recover purely economic losses – such as lost profits or the cost to repair or replace a defective product.  However, if horses or livestock are injured, the economic loss doctrine often will not apply to “other property” aside from the truck or trailer itself. 

Practice Tips
While the scene of a trailer accident is devastating and chaotic, early documentation of the evidence is critical. Ask questions to find out the who/what/when/where/why surrounding the accident and gather all of the shipping documents, maintenance records and recall information. Once you complete this initial fact gathering, determine if there are legal bars or limitations to recovery. A bit of effort at the outset gives your the best chance for recovery down the road.

COGSA vs. Carmack - United States Supreme Court To Address Carmack's Application To Intermodal Shipments

At the end of last year the United States Supreme Court granted certiorari in two consolidated cases, Kawasaki Kisen Kaisha v. Regal-Beloit Corporation, No. 08-1553, and Union Pacific Railroad Company v. Regal-Beloit Corporation, No. 08-1554, to determine whether the inland portion of an intermodal shipment is subject to the Carmack Amendment even when no separate domestic bill of lading is issued. The specific question presented in No. 08-1553 is: “Whether the Carmack Amendment to the Interstate Commerce Act of 1887, which governs certain rail and motor transportation by common carriers within the United States, 49 U.S.C. §§ 11706 (rail carriers) & 14706 (motor carriers), applies to the inland rail leg of an intermodal shipment from overseas where the shipment was made under a ‘through’ bill of lading issued by an ocean carrier that extended the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 30701.  Note, to the inland leg, there was no domestic bill of lading for rail transportation, and the ocean carrier privately subcontracted for rail transportation.” The Supreme Court previously determined that a through bill of lading could control inland transportation in Norfolk Southern Railway v. Kirby, 543 U.S. 14 (2004), but that decision only addressed the application of state law to a bill of lading that extended COGSA inland, where COGSA and the state law conflicted.  It did not consider the ramifications of the Carmack Amendment, and the United States Courts of Appeals have split in their treatment of the competing principles under COGSA and the Carmack Amendment.

The two cases currently pending before the Supreme Court concern the proper forum for suits over damage to cargo being delivered to the United States from China, where the cargo was damaged when the United States rail carrier’s train derailed in Oklahoma on the inland domestic leg of the international multimodal or intermodal shipment. Regal-Beloit, other shippers and their subrogees brought suits against the rail carrier and the ocean carrier in the United States. The carriers argued that the suits were required to be litigated in Japan based on a forum selection clause in the ocean carrier’s bill of lading that was proper under COGSA. The issue essentially came down to whether the contractual provisions in a bill of lading can control over the default statutory rules set forth in the Carmack Amendment when a loss occurs on the United States on the inland leg of an international intermodal shipment. The Ninth Circuit Court of Appeals determined that “the contractual extension of COGSA to the inland leg cannot supersede the requirements imposed by the Carmack Amendment unless the parties properly agree to opt out of Carmack. Regal-Beloit Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985 (9th Cir. 2009). The carriers appealed this decision to the United States Supreme Court.

The carriers’ briefs on the merits were filed on December 23, 2009, and the respondents’ briefs were filed on February 12, 2010. Four amicus briefs were filed in support of the carriers, including one for the United States filed by the United States Department of Justice. The Transportation & Logistics Council, Inc., a non-profit organization representing shippers nationwide, and the American Institute of Marine Underwriters filed an amicus brief in support of the respondents. Oral argument has been set for Wednesday, March 24, 2010. The Supreme Court should issue its decision within two to three months after oral argument.

The Supreme Court’s decision could have a significant impact on the amount of damages recoverable against a carrier involved in an international shipment. While COGSA permits carriers to limit their liability to $500 per package, a plaintiff suing under the Carmack Amendment is entitled to the actual loss or injury to the property if the carrier has not effectively limited its liability by a written declaration or agreement. Check back with the Subrogation & Recovery Blog for the latest news regarding the Supreme Court’s upcoming decision.