Carrier's Website Does Not Limit Liability Under Carmack Amendment

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A recent decision in District Court in New Jersey may interest insurers subrogating transportation claims. In particular, it sets forth the legal argument to challenge target-carriers’ arguments about purported limitations of liability and the appropriate measure of damages.

This case, The Donna Karan Company LLC v. Airgroup, (12-CV-02149) arises from a dispute over the liability of Airgroup, a carrier, for a shipment made by shipper Karan which was stolen during the shipping process. The court granted the plaintiff's motion for summary judgment against the carrier. Two issues were presented for determination by the court: 1) whether Airgroup’s liability for the theft is limited by the Carmack Amendment, 49 U.S.C. § 14706; and 2) if Airgroup’s liability is not so limited, what the measure of damages should be.

As the court noted, the Carmack Amendment regulates the liability of common carriers for loss or damage to shipments:

The Carmack Amendment to the Interstate Commerce Act imposes absolute liability upon carriers for the actual loss or injury to property caused by a carrier. Under [the statute], carriers, however, are permitted to limit their liability through a written agreement with the customer or shipper which evidences an absolute, deliberate and well-informed choice by the shipper. Permitting carriers to limit their liability is a carefully defined exception to the Carmack Amendment’s general objective of imposing full liability for the loss of shipped goods; courts, thus, carefully scrutinize agreements purporting to limit such liability. Carmana Designs, Ltd. v. North American Van Lines, Inc., 943 F.2d 316, 319 (3d Cir. 1991) (citations omitted).

The court then went on to cite to a controlling Third Circuit decision which elaborated upon this “carefully defined exception” to absolute liability. See Emerson Elec. Supply Co. v. Estes Express Lines Corp., 451 F.3d 179, 186 (3d Cir. 2006). The court explained that “a carrier had to satisfy four requirements before it could limit its liability under the Carmack Amendment: (1) maintain a tariff within the prescribed guidelines of the Interstate Commerce Commission; (2) obtain the shipper's agreement as to [the shipper's] choice of liability; (3) give the shipper a reasonable opportunity to choose between two or more levels of liability; and (4) issue a receipt or bill of lading prior to moving the shipment.” The carrier bears the burden of proof.

In this case, the court’s decision focused on the third element, the question of whether the carrier gave the shipper a reasonable opportunity to choose between two or more levels of liability. The relevant facts are undisputed. The carrier used an online shipment booking system. The shipper entered shipment information on a series of web pages, and there were empty boxes for the declared value and for the insured value of the shipment. For the shipment at issue, the Karan employee booking the shipment left both boxes blank. There is no evidence that entering a declared value would have changed the rate, as the rate was undisputedly based solely upon weight of the shipment. Vague language in the carrier’s “Rules and Regulation” offered insurance in excess of $25,000. However, this offer lacked specific material terms, and it was conditional. As such, the court held that this was not evidence “that Airgroup offered Karan an alternative rate for a higher level of liability.”

Having found that Airgroup’s liability was not limited by the Carmack Amendment, this court then turned to the proper measure of Karan’s damages. The court, quoting from Polaroid Corp. v. Schuster’s Express, Inc., 484 F.2d 349, 351 (1st Cir. 1973) noted that “Hijacked goods, unlike those destroyed, ultimately compete with the manufacturer and, therefore, no true replacement is possible.” The court then cited to Robert Burton Assocs. v. Preston Trucking Co., 149 F. 3d 218 (3d Cir. 1998) as follows:

[O]rdinarily when the carrier is responsible for the loss of the goods in transit, the shipper is entitled to recover the contract price from the carrier. Yet the Supreme Court has recognized that the test of market value is at best but a convenient means of getting at the loss suffered. Thus it may be discarded and other more accurate means resorted to, if, for special reasons, it is not exact or otherwise not applicable. Of course, the carrier has the burden of proof to demonstrate that a court should deviate from the market value rule.

Upon the facts presented to it, the District Court held that “[t]here is nothing in the record from which any reasonable finder of fact could conclude that the theft of the goods did not cause Karan to lose sales. Airgroup has failed to meet its burden of proof that this Court should deviate from the market value rule.” As such, Karan’s damages shall be measured by the domestic market value of the stolen shipment.

In light of the court’s ruling, subrogation professionals must be familiar with the legal and factual arguments to challenge any limitation defense on its merits.