It is critical for a carrier to know how to limit its liability under the Carmack Amendment, 49 USC 14706. The Carmack Amendment imposes substantial liability on a carrier for freight loss and damage. A carrier is liable for the “actual loss or injury to the property” except where the loss or damage is caused by (1) the act of God, (2) the public enemy, (3) the public authority, (4) the act or default of the shipper or (5) the inherent vice or nature of the property. In addition, the carrier must establish that it was free from negligence.
A carrier’s liability under the Carmack Amendment bears no relationship to the freight charges it earns. Carriers frequently are liable for damages far exceeding their charges. It is not unusual for a carrier to be liable for well over $50,000 in damages where it earned less than $2000-$3000 in freight charges. However, a carrier can control this risk by limiting its liability.
In order for a carrier to limit its liability by using released rates under the Carmack Amendment, the courts apply a four-part test. The carrier must show that it:
- Maintained an approved tariff on file with the ICC;
- obtained the shippers’ (written) agreement of his choice of liability;
- gave the shipper a reasonable (fair) opportunity to choose between two or more levels of liability; and
- issued a receipt or bill of lading prior to moving the shipment.
Since the ICC no longer exists and tariffs are no longer filed, the first requirement is moot. However, the remaining three requirements must be met. The carrier must give the shipper a choice of at least two different rates and levels of liability, but the carrier is not required to offer a full value choice; the shipper must be allowed to choose, preferably in writing, which level of liability it wants; and the carrier must issue a bill of lading before transporting the shipment.
The best way for a single line carrier to meet these requirements is for the carrier’s bill of lading to provide on its face (in red or otherwise in bold print) the limits of the carrier’s liability and giving the shipper the opportunity to declare a value and obtain a higher limitation by paying an additional charge, subject to a maximum level of liability. This method requires the carrier to issue a bill of lading in each instance, which is problematic since shippers frequently prepare the bills of lading.
To avoid the shipper prepared bill of lading problem, the carrier should have a rules tariff which sets out its limitations and the options given to shippers. In addition, the rules tariff needs to state that all service provided by the carrier is subject to the rules regardless what the shipper-prepared bill of lading states. This should be posted on the carrier’s website. In addition, the carrier should prepare and obtain a pricing agreement or a written understanding of the limitations signed by the shipper.
This is a very heavily litigated issue, and it is easy to understand why. In many cases the shipper claims hundreds of thousands of dollars in damages, but the carrier says its liability is limited to only several thousand of dollars. Shippers, and in many cases their subrogated insurers, are not going to go away without a fight, so carriers must do it right. The common argument made by shippers in attacking released rate limitations is that the shipper was unaware of the limitation because the carrier never mentioned it. Carriers need to avoid this defense by being open and up front with shippers when soliciting their freight. Only by doing it right will carriers limit and know the risk they are assuming when they agree to transport a shipment.