Two recent cases point to the conclusion that rail and motor carriers may be avoiding millions of dollars in valid cargo claims for full value, with questionable reference to released value limitations, which in many instances are not properly grounded.  Shippers, and brokers on their behalf, should be taking a much more careful look at the basis for these limitations, rather than accepting the routine, and in some cases, poorly written and administered limitations cited by rail and motor carriers.

In a typical instance of such procedure, the carrier will deny the full value of a cargo claim, citing “filed tariffs” or internal “rules”, which may, or may not, have been properly brought to the shipper’s attention, or properly made a part of the terms and conditions of the shipment.  Too many shippers/brokers then routinely accept this rationale for limitation of their claim recovery.  Over time, this procedure surely saves millions of dollars in claim payments by carriers at the unknowing expense of the shippers or beneficial owners of such cargo.

Part of the rationale for this anomaly is historical confusion about what is currently required by the law before a carrier may successfully claim a released value, rather than full value, for a cargo claim.  This history begins with the Carmack Amendment and its requirement of strict liability on carriers for loss and damage to cargo.

The Carmack Amendment, enacted in 1906 as an amendment to the Interstate Commerce Act, 24 Stat. 379, created a national scheme of carrier liability for loss or damages to goods transported in interstate commerce. See Adams Express Co.v. Croninger, 226 U.S. 491, 503-06 (1913). The Amendment restricts carriers’ ability to limit their liability for cargo damage. It makes a motor (and rail) carrier fully liable for damage to its cargo unless the shipper has agreed to some limitation in writing. 49 U.S.C. § 11706(a), (c), § 14101(b). 

Herein lies the historical “gray area” in which much confusion still exits even among  the courts.  Exactly what are the requirements necessary to satisfy the shipper having properly “agreed to some limitation in writing“?  Courts have reached various conclusions on such requirements, and they typically begin with the requirements on carriers before the elimination of the Interstate Commerce Commission in 1995, as stated in Hughes Aircraft Co. v N. AM. Van Lines, Inc., 970 F.2d 609, 611-12 (9th Cir. 1992), 

      Carriers must  (1) maintain a tariff in compliance with the requirements of the Interstate      Commerce Commission; (2) give the shipper a reasonable opportunity to choose between two or more levels ofliability; (3) obtain he shipper’s agreement as to his choice of carrier liability limit; and (4) issue a bill of lading prior to moving the shipment that reflects any such agreement. [“Hughes Test”]

Prior to the elimination of the ICC, carriers were required to file “tariffs” with the ICC, which gave shippers constructive notice of “released valuation rates”.  With the elimination of such “tariff” requirements, the question of constructive notice or actual notice became more important. However, carriers continue to deny full value liability with the assertion (too often accepted by shippers/brokers)  they have  “filed tariffs” allowing them to  pay only released value, when in fact, such  a position may be entirely without merit and a contradiction of the intent of the Carmack Amendment.

The “default posture” of the Carmack Amendment is full liability on the carrier.ABB Inc. v. CSX Transp., Inc., 721 F.3d 135, 142 (4th Cir. 2013). The (“released value”) limited liability of subsection (c)(1)(A) “is a very narrow exception to the general rule.” Toledo Ticket Co. v. Roadway Express, Inc., 133 F.3d 439, 442 (6th Cir. 1998) (relying on earlier provision of the statute).

The “very narrow exception” to full liability on the carrier has been further defined and modernized away from the former requirement that carriers file tariffs with the now-defunct ICC.  As the 9th Circuit concluded  (OneBeacon Ins. Co. v. Haas Industries, Inc., 634 F. 3d 1092, 1100 (9th Cir. 2011)),

” we hold that the Hughes test remains the same with one exception: Instead of maintaining a tariff in compliance with the ICC, a motor carrier must now, at the shipper’s request, provide the shipper with a written or electronic copy of the rate, classification, rules, and practices upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier, is based. 49 U.S.C. § 14706(c)(1)(B).”

With this modification to the requirement of providing proper notice of any released valuation rates on the shipper’s cargo, the carrier must also conform to the remaining requirements of the Hughes test,

(2) give the shipper a reasonable opportunity to choose between two or more levels of liability; (3) obtain he shipper’s agreement as to his choice of carrierliability limit; and (4) issue a bill of lading prior to moving the shipment that reflects any such agreement.  Hughes, at 1100.

When the courts interpret whether the carrier has complied with all four elements of the test of notice and choice of rates, much of the analysis often involves prior practices, actual or implied notice, and the exact nature of the terms and conditions of the applicable bill of lading.  Space here does not allow a full discussion of the particulars of such analysis, but it should be mentioned that

the carrier has the burden of proof of all test elements having been met, prior to the shipment and resulting damage to cargo, in order to deny full value on claims.

The writer is of the opinion that if all elements of the modern Hughes test were carefully considered by shippers, brokers and beneficial owners of such cargo claims, much value now being forfeited to carriers could be preserved in the form of full value payment for cargo loss or damage claims.