If a cargo loss/damage claim occurs with a load with which you have any involvement, a careful analysis be competent transportation law counsel is critical as soon after the loss occurs as is possible. There are many legal, business, and economic factors to consider when a cargo loss/damage claims occurs. We will not attempted to list all of them here. Some of them include, however, a) whether a "broker" has a contract with its customer pursuant to which it agrees to be liable for cargo loss/damage; b) the nature of and extent of the benefits derived from the relationship with a particular customer; and, c) the likelihood of recovering from the carrier or its insurer.

When a claim for cargo loss/damage arises, a party that had any connection to the transportation of such load must assess the role that each party associated with the load played. Some of the factors that might be relevant to such an assessment are:What services did one hold itself out to the public as providing through advertisement, marketing, brochure, and website materials?  What did one hold itself out to be? A broker? A carrier? A freight forwarder? One must be sure that it is not misrepresenting itself, intentionally or unintentionally, through statements and images communicated through its website, brochures, letterhead, and other materials.

Under the Carmack Amendment to the Interstate Commerce Act,, 49 U.S.C. § 14706, "motor carriers" and "freight forwarders" are liable for loss or damage to cargo. There are only five (5) defenses to this semi-strict liability provision for loss and/or damage to cargo, most of which will almost never apply. The five (5) defenses available to "motor carriers" and "freight forwarders" are: a) An Act of God; b) An Act of Public Authority; c) An Act of the Public Enemy (This defense is not available for theft of cargo. The "public enemy" defense is applicable to acts, such as terrorists acts or attacks by foreign military. It is generally not applicable to acts of a common thief or even organized crime); d)The Inherent Vice of the Goods being shipped (Only on rare occasion is this defense available. It is only available when goods are inherently incapable of being shipped safely and without damage); e) An Act of Omission of the Shipper (This is the one defense that is more commonly available to carriers and freight forwarders. It generally arises when a shipper has not adequately packaged and prepared goods for shipment and such faulty preparation is not apparent on a visual inspection when the carrier picks up the freight).

The statutory frame-work of the Carmack Amendment has often been held to pre-empt all other state law or common law causes of action for loss or damage to cargo. This principle is a derivative of a larger American legal principle of "federal pre-emption," which holds that when Congress has addressed an issue and enacted a statute to address an issue, such federal statute supercedes and prevails (i.e. pre-empts) all state or common law on the issue. The Courts are not unanimous, however, in holding that the Carmack Amendment preempts all state law and/or common law causes of action for loss or damage of freight; and, the Carmack Amendment might not apply in every situation (e.g. intrastate transportation of freight). Thus, you will often see other causes of action asserted as alternatives to a claim under the Carmack Amendment for loss/damage of freight.

The Carmack Amendment provides that a "motor carrier" or "freight forwarder" is liable for " the actual loss or injury to the property" in the event of cargo loss/damage.

The Carmack Amendment further provides, however, that the amount of a party’s liability for cargo loss/damage may be limited by provisions in the bill of lading, tariff, service guides, or other applicable agreements or documents that might be incorporated into the agreement for transportation of the freight.

Carriers, and often other parties that provide other services that are ancillary to the actual transportation of the freight limited their liability for cargo loss/damage through provisions limiting recovery to a specified amount per pound, or per package. Such provisions are often referred to as "released value" provisions; and, under many circumstances may be enforced.

If a shipper desires to specify a greater dollar value for recovery of a load of freight in the event of cargo loss/damage, it generally may do so at the time that the agreement for transportation of the freight is made by declaring a value and paying greater rate for transportation of the freight.

Shippers might also further protect their interests in recovering for cargo loss/damage by purchasing shipper interest insurance on a load of freight prior to having the same transported. Some carriers, brokers and freight forwarders can assist shippers in obtaining such insurance coverage.

Often shippers/consignees will specify or attempt to specify in a contract or otherwise that a carrier (or other party that may be liable for cargo loss/damage) is liable for the invoice value of the goods, average sales price of the goods, etc. Or, whether specified by contract or not, a claimant may assert damages in invoice amount, average sales price, etc. When this occurs, a careful analysis must be undertaken to determine if such amount is the proper measure of damages. Some courts have held that a claimant is only entitled to the amount of the manufacturing, wholesale, or production costs of goods and cannot recover full value (including profits). Others, however, have allowed full recovery if a shipper can show that it is able to sell virtually all of the goods that it produces. A careful analysis must be undertaken by competent transportation law counsel on a case-by-case basis.

Brand Name/Right to Salvage, etc. Often a cargo damage claimant will refuse to allow the damaged goods to be sold in the salvage market; thus, increasing the amount of the claim since it will not be reduced through sale of the salvage. While cargo damage claimants have a duty to take reasonable measures to mitigate one’s loss (which generally includes sale of salvage), some courts have held that where a company has expended significant resources to build its name and reputation, it is reasonable to not allow the damaged product to enter any market, even the salvage market. 

Liability for Payment of Freight Charges

When a carrier, broker, 3PL or freight forwarder is not paid for its services, who might it look to (other than the party from whom it originally expected to receive payment) for payment? Often a party seeking to collect payment may need to look for alternative sources for payment. The following provides a very brief summary of who may be liable for freight charges:

Shippers/Consignor A shipper/consignor (generally the party from whom the freight movement originates) is generally primarily liable for the payment of freight charges. Even when a shipper/consignor has paid one party (such as a broker or freight forwarder), but the carrier has not been paid, the shipper/consignor is often required to pay again to assure that the carrier is paid. About the only way to avoid the risk of liability for payment (or double payment) of freight charges when the shipper/consignor has not agreed to pay, is for the shipper/consignor to sign the non-recourse provision (often referred to as "section 7") found on most bills of lading.Many courts have reached this holding, including the Supreme Court of the United States in Commercial Metals and very recently, the Ninth Circuit Court of Appeals in Oak Harbor. So, if the shipper/consignor has not signed the non-recourse provision on the bill of lading, chances are that it will remain liable for the payment of freight charges.

Consignee/receiver A consignee (the party receiving the freight) is also generally liable for the payment of freight charges if the carrier is not paid. Generally, it is the shipper/consignor that is primarily liable to assure that the carrier is paid for transportation of the freight. On a bill of lading marked "collect," however, the consignee normally becomes primarily liable for freight charges. The shipper/consignor remains liable, unless section 7 or other non-recourse provision on the bill of lading has been signed.Where a bill of lading has been marked "prepaid," however, some courts have allowed consignees to avail itself of an "equitable estoppel" defense. The caselaw is not necessarily uniform or absolute; but, in many cases, courts have allowed consignees to escape liability for freight charges when the bill of lading is marked "prepaid" based upon principles of "equitable estoppel."

Broker Non-Payment To be granted authority from the FMCSA to operate as an "interstate property broker" (commonly referred to as a "freight broker"), one must keep in place a surety bond or broker trust fund in the penal amount of $10,000. Such surety bond or broker trust fund is intended to assure payment to carriers of freight charges if a broker fails to pay. So, if a carrier is not paid, or if a shipper/consignor is required to pay twice because a broker has not paid the freight charges, it may seek payment from the surety bond or broker trust fund. A major problem with surety bonds and broker trust funds, however, is that the aggregate penal amount is $10,000. That is, there is only $10,000 available to pay all claims against the surety bond or broker trust fund–not $10,000 per claim. Accordingly, the $10,000 covers a very small portion of a broker’s overall liability for payment of freight charges. Some brokers obtain surety bonds or broker trust funds with greater penal amounts; but, it is rare. Some brokers that are members of Transportation Intermediaries Association ("TIA")–the leading trade association for freight brokers–become part of TIA’s Certified Program. If a broker is part of the TIA Certified Program, there is $100,000 available to pay claims that would otherwise be covered by the $10,000 bond. Practically speaking, however, brokers that are part of the TIA Certified Program are very reputable and are not the brokers defaulting on payments to carriers.