Periodically, among my clients I see common issues that are of such significance it seems best to offer observations that may be helpful to many of them. In the past few months, I have seen several clients involved in the matters addressed below. My comments here are not meant as specific advice, since many variables may or may not affect all clients, but rather my comments are meant to suggest that you consider reviewing current practice for possible improvement, and should you have any need for more specific advice, you may contact me at your convenience.
Cargo Loss and Damage Claims Management by Property (Truck) Brokers and Intermediaries:
As a general principle of law, brokers are not responsible for loss or damage claims. However, brokers may become obligated for such liability either by express or implied contract.
A. Express Contractual Liability Assumed by Broker: The most obvious example is where a broker signs a contract with a shipper customer wherein the broker expressly agrees to be responsible for cargo claims. In all such instances the following are minimal considerations:
1) Same contract must provide that shipper will assign all claims to broker after receipt of payment. The broker will have to have such an assignment to pursue the claim against the carrier.
2) Contract should contain a limitations period for shipper filing such claims with broker which will allow time for broker to file the claim with carrier before the 9 months limitation period expires. Since broker is assuming this liability by contract, the contractual provision may (and should) be for a shorter period than the 9 months statutory limitation which applies against the carrier. Broker should also consider expanding the statutory limitations period in contract with carriers, beyond the 9 months. Many courts have ruled that this limitations period with carriers may not be reduced, but may be expanded by contract.
3) Where broker has assumed the responsibility for payment of claims to shipper, broker should receive an assignment of the claim from the shipper and should then file the claim in the broker’s name. (Broker should never file the claim in broker’s name, if broker has not assumed liability for payment of claims…more on this below.)
4) Pursuant to 49 CFR 370, et seq., in order for a claim to be properly filed it must include the following (several recent cases have denied claims for lack of this information in the original claim):
(a) the shipment must be identified to enable the carrier to conduct an investigation;
(b) the type of loss or damage must be stated;
(c) the amount of the claim must be stated or estimated to reasonable certainty; and,
(d) a demand for payment by the carrier must be made.
Many courts have ruled that an attempt to file a claim, which does not meet these requirements, will be found insufficient.
5) In order to further solidify the nature of the claim filing, claims should usually be supported by legible copies of the following:
a) The original bill of lading
(b) The paid freight bill
(c) Proof of the value of the commodities lost or damaged (an invoice)
(d) Inspection or survey reports, if made
(e) Copies of request for inspection
(f) Notification of loss
(g) Waiver of inspection by carrier
(h) Other supporting documents when appropriate, such as photographs, temperature reports, shock or impact records, condemnation certificates, dumping certificates, laboratory analysis, quality control reports, loading diagrams, weight certificates, written statements or affidavits, loading and unloading tallies, etc.
6) If the broker assumes liability for cargo claims by contract, many contingent cargo insurance policies will exclude coverage. This should be confirmed with the broker’s contingent cargo insurer.
B. Implied Contractual Liability Assumed by Broker: While brokers have no statutory or common law liability for cargo loss and damage, if exceptions are made and the broker pays claims, or has a regular practice of paying shippers’ claims, they can he held liable by practice, or implied contract. Such exceptions should be avoided, but if made part of the relationship with a customer, all such claims should be treated in the manner outlined above for express liability.
- Broker Has Neither Express nor Implied Liability for Cargo Claims, But Assists Shipper or Consignee in Filing Claims: Even though the broker has no express nor implied liability for claims, in all instances where the broker makes a regular practice of filing claims for the shipper/consignee, care must be taken to insure:
a) That all claims are filed in the name of the shipper (or beneficial owner of lading), and not in the name of the broker as the claimant. In such instances, the broker has no legal interest/ownership of the lading and is not the proper claimant.
b) That all claims are filed timely and with the elements specified above.
c) That shipper/consignee is informed of all filings, and of the time limits for filing suit should the claim be denied, and that broker is not assuming responsibility for the claim, or necessary filings of lawsuits.
d) Broker should routinely notify their contingent cargo insurance insurer of all claims made by shippers/consignees, should the carrier deny the claim for reasons covered in the broker’s contingent policy.
e) Broker should never fail to file the claim with the carrier, even if filed with the carrier’s insurance (recent case held that $200,000 claim was not filed within the 9 month limitations period, and therefore no recovery, because the broker only filed the claim with the carrier’s insurance company.)
In the context of all the above, consider the recent case of 5K Logistics, Inc. v. Daily Express, Inc., 2011 WL 5024223 (4th Cir. 2011). The broker (5K) was bound by contract to pay cargo claims to shipper. Neither the broker nor the shipper filed a claim with the carrier within the 9- month limitations period. However, the shipper sued the carrier under their contract (which had a longer limitations period) and got a verdict for $192,000. The broker then got an assignment from shipper and sued the carrier. However, because no claim was filed against the carrier within the statutory 9-month limitations period, the court ruled they could not recover.
Proper handling of cargo claims requires a full recognition of the contractual rights of all parties, limitations periods, proper claimant, and a careful claim preparation that includes all elements of 49 CFR 370, et seq., specified above.