Prior Rate Agreements Found to be Binding in Carmack Amendment Case

Kevin Anderson Cargo Liability, Transportation

A shipper recently lost their arguments against a national cargo transportation company regarding whether that carrier adequately limited their liability. This case, decided by a federal court in Michigan, underscores the importance of understanding the documents, contracts, and bills of lading used to ship goods from state to state. One sentence in a contract can alter and direct the outcome of litigation involving millions of dollars.

This case also highlights another issue that raises itself on a regular basis in Carmack Amendment cases: limiting liability. Of course this would be a common issue because a shipper is constantly seeking to get as much money for lost or damaged goods it can, while a carrier wants to pay as little as possible.

The original purpose of the Carmack Amendment was to create a uniform scheme of liability that applies from state to state, across the nation. Keeping that in mind, the law is not so intractable that companies can not change the terms of liability. As long as a carrier complies very specific requirements, they can limit their liability in shipping goods, all while offering lower rates to the shipper. But those requirements are specific and difficult to prove, and in most courts, represent a tall hurdle for carriers to jump.

What Happened in This Case

The dispute here originated over the shipment of valuable aircraft parts. According to the complaint, the defendant received the aircraft parts in perfect condition, but when the parts were delivered, they were severely damaged. Understandably, the shipper sued the defendant for the full cost of the damaged parts. After all, the Carmack Amendment, when applied in full, guarantees full liability for lost or damaged goods.

“Not so fast,” said the carrier as the defendant. According to their defense, a limitation on liability signed by an affiliate company a year earlier applied to this shipment. That limitation in liability limited the carrier’s liability to $25.00 a pound, not the full liability guaranteed by the Carmack Amendment.

Somewhat surprisingly, the court agreed with the carrier in this case. In its opinion, the court decided that reference to the prior shipment agreement and its applicability of those terms bound the two parties. And because the shipper was receiving an 80% discount on its shipping, the court determined that the carrier effectively limited its liability.

This result was somewhat surprising because to limit liability under the Carmack Amendment, one of the requirements is to provide the shipper with a fair opportunity to choose between two or more levels of liability. Hughes Aircraft v. North American Van Lines, 970 F. 2d 609 (9th Cir. 1992). But in its opinion, the court pointed to the fact that the shipper was given the opportunity to obtain information about the limitation of the liability. On its face this does not seem to equate with providing the shipper with a fair opportunity to choose between limits of liability, but that is how the court ruled.

As your business continues growing and working, understand that the contracts, bills of lading, and communication you use with your customers matter greatly. At Anderson and Yamada, P.C., we have decades of experience dealing with every aspect of transportation law. We can advise you on your contracts, and resolve your disputes with other companies and individuals. Contact us today.