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When Goods Disappear or Are Damaged during Transportation, Whose Bill of Lading Controls Shipment?

It is common to have more than one transportation company involved in a shipment due to the increase in intermodal shipments, the expansion of the number of brokers, and the periodic lack of capacity that sometimes requires a carrier to outsource a shipment to another carrier. Shipments are often arranged by brokers, freight forwarders, shipper’s agents and other third party intermediaries. In such cases, there is a receiving, or initial carrier, and downstream intermediaries, or connecting carriers.

A carrier generally enters into an agreement (aka, bill of lading) with the shipper to limit its liability to an agreed upon value if the shipment is lost or damaged. But what happens when the connecting carrier issues a different bill of lading that limits liability at a different amount? Where the transaction involves multiple connecting intermediaries and carriers, there could be numerous agreements. Upon such an occurrence, whose bill of lading governs the shipper’s recovery if the cargo is damaged?

Since 1906 the Carmack Amendment to the Interstate Commerce Act has provided a federal scheme of carrier liability for goods lost or damaged in interstate transit.i The Carmack Amendment requires that the initial carrier of a shipment is responsible for the entire shipment despite the number of connecting carriers or intermediaries involved.ii The Carmack Amendment also provides that the bill of lading issued by the initial carrier controls the entire shipment, even though the downstream carriers were not parties to the contract between the initial carrier and the shipper.iii

A second bill of lading issued by a connecting carrier does not alter the terms of the original bill of lading unless the connecting carrier has received consideration for the bill of lading in addition to that which flowed under the original bill of lading issued by the initiating carrier.iv If a connecting carrier is bound by the initial carrier’s bill of lading, the issuance of a second bill for the same transportation is without consideration and void.v There must be new consideration, which includes a showing that a connecting carrier’s bill of lading represented an initiation of a new shipment.vi

A. Hypothetical # 1

Shipper contracts with Carrier 1, who issues a through bill of lading that limits its liability to $15,000. Thereafter, Carrier 1 tenders the shipment to Carrier 2 who then tenders the shipment to Carrier 3. Carrier 3 issues a bill of lading limiting its liability to $100,000. Carrier 3 delivers the goods damaged and Shipper brings an action for damages. The issue is whether Carrier 3 may limit its liability to $15,000 as reflected in Carrier 1’s bill of lading.
 

Shipper

Carrier 1
(Bill of Lading: $15,000 Limitation of Liability)

Carrier 2

Carrier 3
(Bill of Lading: $100,000 Limitation of Liability)

The answer is: Yes. The rule is that the initial carrier’s (Carrier 1) limitation of liability contained in its through bill of lading would be valid and limit the liability of all of the connecting carriers (Carriers 2 & 3) along the route.vii This rule prevents a Shipper from targeting the carrier with the largest limitation of liability as a defendant when the shipper is seeking recovery for damaged goods.

B. Hypothetical #2

In this hypothetical Carrier 1 has issued a through bill of lading that includes a limitation of liability of $100,000 and Carrier 3’s bill of lading includes a $15,000 limitation of liability. The issue is whether Carrier 3’s liability is limited to $100,000 or $15,000.

Shipper

Carrier 1
(Bill of Lading: $100,000 Limitation of Liability)

Carrier 2

Carrier 3
(Bill of Lading: $15,000 Limitation of Liability)

Does Carrier 3 receive the benefit of its $15,000 limitation of liability? Yes. Where an intermediary carrier (Carrier 2) contracts to transport goods, the shipper’s recovery against that carrier is limited by the liability limitation to which the intermediary and carrier agreed.viii

Note that, an intermediary carrier can negotiate reliable and enforceable limitations of liability with the carriers it engages; but, if a violation of the original shipper’s instructions exists, then the proper remedy is not against the carrier that contracted to limit its liability, but against the party that had knowledge of the shipper’s instructions yet failed to follow them.ix As a result, the party that knew of the shipper’s valuation will bear the responsibility for any gap between liability limitations.

C. Remember to Apply the Fundamental Requirements

Carmack permits carriers to limit their liability through a written or electronic declaration of the shipper or by written agreement between the carrier and shipper.x However, there are specific steps a carrier must take to properly limit its liability:

  1. The carrier must make its tariff available to the shipper upon request;
  2. The carrier must give the shipper a fair opportunity to choose between two or more carrier liability levels;
  3. The carrier must obtain the shipper’s choice of liability level; and
  4. The carrier must issue a bill of lading reflecting the shipper’s choice.xi

Before determining whether an intermediary carrier’s limitation of liability applies to an action for damages, the court first determines whether the four steps above were properly completed.xii

D. Conclusion

Interstate transportation often involves extended chains of parties and numerous bills of lading that may limit a party’s liability. It is important to remember that in sum, the originating carrier is responsible for the entire shipment. Therefore, the shipper should seek damages from that carrier. In turn, the originating carrier may seek damages from the connecting or intermediary carriers on whose line or route that the loss occurred. The originating carrier’s limitation of liability in a bill of lading extends to the connecting or intermediary carriers that are carrying the cargo under the same bill of lading. The intermediary or connecting carriers may also limit their liability under their own bill of lading but may not lessen the originating carrier’s liability. The benefits of allowing carriers to rely on limitations of liability negotiated by intermediary carriers are important. Such a system allows for efficient operations for intermediary carriers, cheaper rates, and unified remedies for shippers, as intended by the Carmack Amendment.

 

i. 49 U.S.C. § 14706 (motor); 49 U.S.C. § 11706 (rail).
ii. Missouri, K. & T. Ry. Co. of Texas v. Ward, 244 U.S. 383, 386, 37 S. Ct. 617, 619 (1917)(“The purpose of the Carmack Amendment . . . was to create in the initial carrier unity of responsibility for the transportation to destination.”).
iii. 49 U.S.C.A. § 14706.
iv. Mexico Light & Power v. Texas Mexican Ry. Co., 331 U.S. 731, 733-735 (1947).
v. Id. at 733-735.
vi. Id.
vii. Kansas City So. Ry. Co. v. Carl, 227 U.S. 639, 648 (1913).
viii. Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 34, 125 S. Ct. 385, 399 (2004).
ix. Id. at 400.
x. 49 U.S.C. § 14706(c)(1)(A).
xi. Werner Enter., 554 F.3d at 1323.
xii. Id.

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