Most anyone involved in the transportation process is familiar with the concept of carrier limitation of liability. Managing the inescapable dangers of transportation has long been a part of the bargaining process between provider and consumer, with carriers essentially “selling” the risk of loss by way of higher freight charges, or put differently, discounting their charges for a service package that leaves most risk with the shipper. Shippers are free to shoulder that risk themselves, or apply their freight charge savings toward first-party cargo insurance.
With the broadening of our industry’s practices to include numerous separate service providers, transportation intermediaries, stevedores, warehousemen and others also see the benefit of avoiding the risk of loss by way of contractual limitation of liability. These players track their carrier-cousins’ programs of including limitation of liability provisions in their contracts and other documentation, sometimes by way of incorporation of “tariffs,” “terms and conditions,” “rules,” and other provisions sometimes posted on websites.
The biggest difference between carrier and non-carrier limitation of liability, at least from a legal perspective, is that federal statutes and international treaties govern the former, while the latter are subject to state statutory and common law. COGSA, Carmack and the Montreal Protocols, along with their interpretative federal case law, spell out just what a carrier has to do to ensure its liability is limited. That law doesn’t apply to non-carriers. An arguable exception is that surface freight forwarders and ocean non-vessel operating common carriers, which don’t actually operate trucks, trains and boats, are legally “carriers” for liability purposes, and may limit their liability accordingly.
Warehousemen are particularly involved with liability limitation issues, given their significant role in the transportation process. State law governing warehouse business practices, including warehouseman liability for lost/damaged property, is contained in Uniform Commercial Code Article 7. Most states have adopted versions of UCC Article 7 that include limitation of liability provisions subject to fair notice to the property owner. However, courts familiar with the transportation process in general, and carrier liability in particular, frequently apply some of the same concepts to stationary service providers as they do to mobile ones. Both often use the same limitation of liability language for services including combinations of warehousing, forwarding, stevedoring and carriage.
The U.S. District Court for the District of Maryland recently determined the enforceability of a warehouseman’s limitation of liability clause in the context of a cargo owner’s kitchen sink worth of challenges. Coutinho & Ferrostaal (“C&F”) imported a cargo of steel pipes from China, engaging a series of transportation service providers, including Ruckert Terminal Corporation, which provided warehousing services as a marine terminal operator at the Port of Baltimore, among other things. The pipes were banged up, at least potentially while in warehouse storage, and C&F sued all concerned to recover some 350 grand in alleged damages.
Ruckert’s documentation with C&F consisted of a warehouse receipt and a rate letter stating its various storage rates. The warehouse receipt contained a provision incorporating the “‘Standard Contract Terms and Conditions for Merchandise Warehouseman’ approved by the American Warehousemen’s Association,” and provided that Ruckert’s “Liability limited to 10 times the provided, per ton, monthly storage rate” [sic] accordingly. If enforced, that clause would limit the warehouseman’s liability, if any, to about 20 grand.
In response, C&F first claimed it only received page one of Ruckert’s warehouse receipt, which had no limitation of liability provision. The court tossed this argument on a basis it cites throughout the entire opinion. C&F had been in the steel business for decades, with vast experience in warehousing protocol. Thus, it bore the same presumptive familiarity with warehousing procedure as a “sophisticated shipper” does with ocean shipping (see May 2002 Legal Lookout article). It therefore is presumed to know that warehouse receipts have more than one page, including a long list of provisions that typically include limitation of liability. Moreover, the warehouse receipt’s first page indicated that successive pages followed, a circumstance in which courts throughout the land regularly hold any missing terms incorporated by reference, or “that the signee should have inquired about their absence.”
Next, C&F argued that the limitation of liability term was “ambiguous” on a number of grounds. It urged that the rate sheet, which had no limitation of liability clause, constituted the extent of the parties’ contract. That’s not how the law works, the court ruled. Warehouse receipts can stand alone as contracts, or supplement the terms of existing ones. In the event a warehouse receipt adds new terms, they’re enforceable unless the property owner objects (or they’re just unreasonable).
With regard to the limited liability’s reasonableness, the court viewed the provision in the context of Ruckert’s storage charges. C&F knew it was getting a low rate, and should have known the rate was based on Ruckert’s diminished risk. Any seasoned warehouse service consumer knows that. That’s the whole point behind providers limiting their exposure.
Next, C&F pointed out that Ruckert’s tariff contains a $500/package limitation, which differs from the one in the warehouse receipt. The court nixed this argument based on the well-entrenched transportation law principle that specific contracts take priority over the terms of general tariffs. In addition, the two limitation of liability provisions address separate areas of liability (stevedoring versus warehousing). The court also threw out a couple other ambiguity arguments that just didn’t hold up.
Given the transportation process’s inherent risks, limitation of liability will remain a transactional element of any entity facing exposure for a loss. Consumers should be mindful that most providers intend to limit their liability (or collect high fees); believe they have done so; and will point to limitation of liability as their first defense to a claim. If there is any confusion about the extent of a provider’s liability, it should be cleared up in advance of operations.
Ref: Coutinho & Ferrostaal, Inc. v .M/V FEDERAL RHINE, et al., 2011 WL 3267210 (D. Md. 2011)
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