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A Broker’s Role in Cargo Damage Claims
and
Exempt Commodities
Welcome and
Thank Your for Joining Us
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Patrick Bobo Megan M. Early-Soppa Jason Engkjer Marshal
Pitchford
Panelist Panelist Panelist Moderator
Coyote Logistics Moseley Marcinak Law Group Lommen Abdo DiCaudo
Pitchford &Yoder
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What is Carmack Amendment and Why Does it Exist?
• Passed in 1935• Federal Law governs liability of a motor
carrier or
freight forwarder for loss of or damage to goods transported in
interstate commerce
• • 49 USC §14706 • Exclusive remedy • Simple cause of action •
Strict liability • Limited defenses
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What is Carmack Amendment and Why Does it Exist?The law also
creates a liability presumption.
The shipper—that’s the customer—must establish 1. That it
delivered the goods to the carrier in good condition,2. That the
goods did not arrive, or that they arrived in a damaged
state, and 3. That the loss can be measured in dollars. If the
shipper meets these conditions, the carrier must prove that it was
not negligent, or that something unexpected occurred which caused
the loss.
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What are the benefits of the Carmack Amendment?
LIMIT LIABIITY• Limit’s motor carrier’s liability to the actual
loss or injury to the property. • Carrier can adopt a tariff that
is applied to shipping rates based on the weight of goods,
mileage
required to transport, or the value of the goods.
PREEMPTION• The courts have uniformly held that the Carmack
Amendment preempts all state and common law
claims and provides the sole and exclusive remedy to shippers
for loss or damage in interstate transit. Hughes Aircraft v. North
American Van Lines, 970 F.2d 609, 613 (9th Cir. 1992). The
preemptive effect of the Carmack Amendment also applies to claims
of damage or loss relating to storage and other services rendered
by interstate carriers. Margetson v. United Van Lines, Inc., 785
F.Supp. 917, 919 (D.M. 1991).
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Who does the Carmack Amendment benefit and why?
Shippers and Carriers involved with interstate shipments of all
commodities with a few exceptions
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When does the Carmack Amendment NOT apply?
Five Exceptions to the Carmack Amendment. 1. An Act of God2. The
“Public Enemy” or the “Act of War”3. Act or Default of Shipper4.
Public Authority5. The Inherent Vice or Nature of the Goods
Transported
The Carmack Amendment holds a motor carrier liable for freight
claims, without proof of negligence, unless it can prove that (a)
it was not negligent, AND, (b) one of the five exceptions outlined
in the law was met. IT DOES NOT APPLY TO BROKERS.
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When does the Carmack Amendment NOT apply?
The determination of liability is often left up to the courts,
which results in case-by-case decisions that gradually provide
further clarity for brokers, carriers, and shippers. Some recent
court decisions reflect just how much the landscape is shifting as
to what qualifies as broker liability:
• Essex Insurance Co. v. Barrett Moving & Storage, Inc.:
“The Court concluded that Barrett ‘acted as a motor carrier, not a
broker…’” and was liable for damages.
• Mecca & Sons Trucking Corp v. White Arrow LLC: “...White
Arrow [carrier] is liable to Mecca [broker] under the Carmack
Amendment for the losses incurred by the rejected cheese.”
• Tryg Insurance v. CH Robinson Worldwide Inc: “...CRWH was
ruled to be a carrier rather than a broker and therefore liable for
the damages caused to the miniature chocolate liqueur bottles.”
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When does the Carmack Amendment NOT apply?
Carmack applies only to transportation by a motor carrier in the
United States between a place in:
A. a State and a place in another State; B. a State and another
place in the same State through another State; C. the United States
and a place in a territory or possession of the United States
to
the extent the transportation is in the United States; D. the
United States and another place in the United States through a
foreign
country to the extent the transportation is in the United
States; or E. the United States and a place in a foreign country to
the extent the
transportation is in the United States
Interstate vs. Intrastate
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When does the Carmack Amendment NOT apply?
Exempt Commodities• Carmack applies to the interstate
transportation by DOT carriers of all shipments except
the following: o Transportation by a farmer of his agricultural
or horticultural products and supplies. 49 U.S.C. §13506(a)(4)
(2005).
• Transportation of motor vehicles operated by an agricultural
cooperative association. 49 U.S.C. §13506(a)(4) (2005).
• Transportation of livestock. 49 U.S.C. §13506(a)(6) (2005).
Commodities such as fish and selfish, fish by-products, poultry and
livestock feed not intended for human consumption are also exempt
from Carmack. 49 U.S.C. §13506(a)(6); see also, Taiyo Americas,
Inc. v. Honey Transport, Inc., 464 F. Supp. 1249 (S.D.N.Y.
1979).
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Generally, Carmack applies to all interstate shipments by DOT
carriers, unlessthe carrier is providing the following
services:
• Transportation in a terminal area when the transportation is a
transfer, collection or delivery provided by the freight forwarder
or if the transportation is incidental to the transportation or
service provided. 49 U.S.C. §13503 (2005).
• Transportation of property by a non-transportation business
when the transportation is within the scope of the primary
business, which includes transportation by a “private motor
carrier.” See 49 U.S.C. § 10524(a)(1995); 49 U.S.C. § 13102(13) (a
motor private carrier is on other than a “motor carrier”).
• Transportation by a person who is a member of a corporate
family for other members of the corporate family. 49 U.S.C.
§10524(b)(2005).
• When there is a carriage contract between the shipper and the
carrier. See 49 U.S.C. 14101(b) (2005).
• When the motor carrier transports the goods pursuant to an
intermodal bill of lading issued by a maritime vessel
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What law applies in the absence of Carmack?State law unless…The
absence of Carmack raises multiple issues:
• No uniform standard requires an understanding of the laws of
the state in which the company operates
• Potential for wild variations in the level of recovery•
Multiple state law causes of action• Loss of federal forum
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Broker’s Perspective
No contract is not necessarily a bad thing.
BUT…
What are the considerations if the customer requires
accountability for loss or damaged cargo whether you are a broker
OR hauling exempt commodities?
Demonstrates the importance of careful contract review
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Potential Solutions to Choice of Law and Venue Concerns
• Explicitly incorporate Carmack standard into transportation
contracts:
“The parties agree that all liability standards and burdens of
proof are herein governed by the Carmack Amendment, 49 U.S.C.
Section 14706, and any successors or amendments thereto.”
“Regardless of whether the property or goods tendered are
intended to move in interstate, intrastate, inter-provincial or
foreign commerce, or are exempt from federal jurisdiction, the
Parties agree that [PARTY] shall assume the liability of a common
carrier pursuant to 49 USC Section 14706 (i.e. Carmack Amendment
liability) for loss, delay, damage to or destruction of goods
transported hereunder. Such liability shall be for (i) the full
invoice value of the goods only, plus (ii) any other damages
allowed under 49 USC Section 14706, minus (iii) the salvage value,
if any.”
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Potential Solutions to Choice of Law and Venue Concerns
• Explicitly contract out of all damages other than actual
loss:• Incorporate a damages standard / level of recovery•
Expressly disclaim certain damages – indirect, consequential,
exemplary, special, incidental, lost profits, goodwill,
etc.
• Consider incorporating other uniform standards into
transportation contracts:• Incorporate claims handling procedures
pursuant to 49 C.F.R. Part 370.• Specify claims notice,
investigation and timing requirements.• Specify claims handling
process for concealed damage.
The point? Contract into a uniform standard to ensure certainty
across state lines.
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What about limitation of liability provisions?
Question: When hauling exempt commodities, do the limited
liability provisions of Carmack (49 USC 14706(c)(1)(A) and (B))
still apply?
Answer is PROBABLY NOT.
“Because the products at issue are exempt commodities, neither
the Secretary of Transportation nor the Service Transportation
Board had jurisdiction over them under Chapter 135, Subchapter 1,
and the Carmack Amendment does not apply to the products at issue.
And, as the Carmack Amendment does not apply, there is no subject
matter jurisdiction in this Court.” Serv. First Logistics, Inc. v.
J. Rodriguez Trucking, Inc., No. 16-14337, 2017 WL 1365410, at *5
(E.D. Mich. Apr. 14, 2017).
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Limitation on liability provisions (cont.)Question: If Carmack
is not applicable, can a limitation of liability be incorporated
into the contract?
Answer is PROBABLY SO, the argument being that absent the
application of Carmack, standard contracting rights would
apply.
But Another Question: Can you incorporate the Carmack Standard,
but avoid adhering to the dual levels of coverage requirement?
Answer is it is difficult to say. • Burden is on a carrier to
demonstrate compliance to successfully limit liability.• Assuming
we are in a situation in which Carmack will not apply (exempt
commodities), BUT we wish to be
subject to Carmack via (burden will be on carrier to show
compliance). a choice of law provision, it would seem to follow
that the shipper be offered the dual levels of coverage and obtain
its agreement to its choice of liability. See Exel, Inc. v. S.
Refrigerated Transp., Inc., 807 F.3d 140, 151 (6th Cir. 2015).
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What about the claims handling process and default
deadlines?
• Same concerns as with Carmack – ensuring a uniform standard.•
Claims handling considerations:
• Incorporate pre-claim mitigation provisions• Sealed shipment
provisions• FSMA considerations
• Establishes requirements for shippers, loaders, carriers and
receivers to ensure the safety of human food.
• Recognize the importance of “contracting out” of FSMA
“Shipper” requirements.
• Incorporate 49 CFR Part 370 into the agreement OR incorporate
a uniform standard to address process, timing, notice,
investigation and acceptance / declination procedures.
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What about cargo insurance? • “For hire” exempt carriers are not
required to maintain cargo insurance.
• 49 U.S.C. Subtitle IV, Part B is not applicable to “exempt”
for-hire carriers because exempt commodities are unregulated
• Exempt commodities generally:• Unprocessed or unmanufactured
goods• Livestock• Fruits, plants, vegetables• Other items that have
little to no value
• Most “exempt” commodities are covered by a standard cargo
insurance policy. However, some standard exclusions will apply,
such as livestock or tobacco.
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Cargo insurance (cont’d)
• Administrative Ruling 119 - Exempt commodities list• Long and
confusing list, since abandoned by the FMCSA. Remains on
the FMCSA website and is a decent guide for what types of
commodities are considered exempt.
https://www.fmcsa.dot.gov/sites/fmcsa.dot.gov/files/docs/Administrative_Ruling_119.pdf
• Administrative Ruling 133 – Non-exempt commodities• Guide to
what types of commodities are non-exempt (i.e. regulated)
under 49 U.S.C. 13606(a)(6). Codified at 49 CFR §372.115.
https://www.fmcsa.dot.gov/sites/fmcsa.dot.gov/files/docs/Administrative_Ruling_119.pdf
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Is motor carrier authority required to transport exempt
commodities interstate?
• Operating authority (MC#) is not required to transport exempt
(unregulated)commodities.
• However, exempt “for-hire” carriers must still register with
the FMCSA to get a USDOT#.• Why? They are still subject to the
FMCSA’s safety regulations:
• 49 U.S.C. 31136 and 31502 – Minimum qualifications and
requirements of driversand equipment
• 49 U.S.C. 31139 - Public liability financial responsibility
($750,000 auto insurance)• If a shipment contains both exempt and
non-exempt commodities, operating authority
(MC#) is required. The FMCSA has used the example of both raw
and roasted peanuts.
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What are the obligations of a transportation broker in the
exempt commodity market?
• Verify carrier’s USDOT#.• Verify carrier’s automobile
insurance.• Comply with the requirements of the shipper customer,
if any.• NOTE: No brokerage authority is required to broker
only
shipments of exempt commodities; however, the barrier to entryis
so low for brokers, one should register.
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Broker’s Best PracticesCustomer side• Know the commodity/type
and value of your customer’s cargo.• Make sure your cargo insurance
policy covers the commodities you intend to arrange
for transport, exempt or otherwise. Check your coverage
exclusions and educate yourpeople!• Do not buy a contingent
“follow-form” policy that will deny a claim based on an
exclusion in the carrier’s policy.• Instead, buy a “first
dollar” policy that will respond based on your legal liability
to
the customer.• Always include a maximum cargo liability and any
desired liability exclusions/carve-outs
in contracts with shipper customers.
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Broker’s Best Practices (cont’d)Carrier side• Verify the
carrier’s cargo insurance.
• Not all insurance policies are created equal. Check the
coverage exclusions!• Sign a contract with all contracted
carriers.
• Draft a liability provision broad enough to make the carrier
liable for your customers’ freight,including any exempt
commodities.
• Require minimum cargo insurance sufficient for your needs. Is
$100k enough?• NOTE: Although industry standard is $100,000 in
cargo insurance, FMCSA only requires $5,000
for “for hire” motor carriers.• Don’t rely on Carmack only. Have
the carrier waive Carmack to the extent your contract conflicts
with the statute.• Conduct sufficient due diligence on all
carriers you arrange to transport freight. Even if the cargo value
is
de minimis, the damages arising out of a truck accident are
not.
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Questions and Answers.
Thank You.
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Patrick Bobo Megan M. Early-Soppa Jason Engkjer Marshal
Pitchford
Panelist Panelist Panelist Moderator
Coyote Logistics Moseley Marcinak Law Group Lommen Abdo DiCaudo
Pitchford &Yoder
[email protected] [email protected]
[email protected] [email protected]
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