The Carriage of Goods & the Liability of Air and Sea

Carriers

Chapter Six

This Chapter Will Examine

Issues Relating to liability and - air carriers- marine carriers- freight forwarders- marine cargo insurance

International Air Carrier Liability #11.1929 Warsaw Convention – set monetary

limits on airline liability – airlines held to a standard that called for “all necessary methods to avoid accidents” - revised several times.

2.1999 Montreal Convention - replaces the Warsaw Convention in the 78 countries that have ratified it (including the U.S.) – better for passengers than Warsaw, but maybe not better than domestic law.

3.Applies only to international flights – but this can get complicated (see page 194).

4. http://www.jus.uio.no/lm/air.carriage.unification.convention.montreal.1999/

International Air Carrier Liability #2

Death or bodily injury liability under the Montreal Convention is based on– Passenger death or injury– From an accident– On board the aircraft– Embarking the aircraft or– Disembarking the aircraft

What is an accident? Something external to the passenger – not a blood clot from sitting too long, for instance.

International Air Carrier Liability #3

• Cargo and bag loss limitations;– Cargo limits are 17 SDRs per kilogram, unless

special arrangements have been made and paid for;

– Baggage limits are 1,000 SDRs per passenger, unless special arrangements have been made and paid for;

– Delays are compensable up to 4,150 SDRs per passenger, unless the airline proves it took all reasonable measures or that it was impossible to do so.

Limits on Liability – Death & Injury

• Unlike Warsaw which tied the limits to a gold standard, Montreal uses a basket of currency approach called SDRs (Special Drawing Units).

• The airline is “strictly liable” for the first 100,000 SDRs, and for proven damages above that the airline is liable unless it can prove it was not negligent. In other words, the first 100,000 SDRs are no fault, but fault is required above that amount).

• Comparative negligence rules apply in all cases (even under 100,000 SDRs).

• Aircraft manufacturers and other third parties are not covered by this law.

• No punitive damages allowed.

Psychological Damages

• There are many instances where passengers can claim mental or psychological harm.

• These are easy to allege, but often hard to prove or disprove.

• Under Montreal, to be compensable there must be some physical proof of mental injury, such as hives.

The Death on the High Seas Act• This is a U.S. federal statute from 1920.• Applies to airline cases at least 12 nautical

miles out at sea.• Permits recovery only for economic losses,

plus care comfort and companionship.• Does not permit pain and suffering, mental

anguish, consortium, or punitive damages.

The Multi-forum Trial Jurisdiction Act of 2002

• This federal statute gives U.S. trial courts jurisdiction over most civil law damage cases involving deaths of 75 or more persons in a single accident at a single location. Why?

• Venue is proper where the accident occurred or when the defendant resides.

• A two-year statute of limitations.• For cargo or bag damage 7 day notice

requirement for bags, 14 days for cargo.

Liability of Seagoing Carriers

Over 90% or world trade moves by sea.Tens of thousands of containers are lost at sea every year.

Containerization• Containerization began in 1956.• This has revolutionized maritime

shipping.– Reduces slow manual handling and

stowing– Reduces pilferage and damage– Most are owned by the carriers

themselves– What are some potential downsides?

History of Shipping Liability• In England and the U.S. the rule was long one

of absolute liability on the part of the carrier – they were essentially insurers of the cargo they received.

• With steam things changed and carriers grew more powerful and demanded contractual indemnity.

• The U.S. added back liability in the 1892 Harter Act, but it only applies between domestic U.S. points.

• After WWI many nations adopted The Hague Rules (1924) , codified in the U.S. in 1936 as The Carriage of Goods by Sea Act (COGSA).

COGSA• Forbids the use of

hold-harmless/indemnification/ exoneration clauses that would limit the carriers liability below that specified in the statute.

• Since the 1995 Sky Reefer case, this law permits choice of forum clauses that require these cases to be litigated in foreign countries. This is often used, resulting in fewer cases being filed in the U.S.

• There is a one-year statute of limitations and a 3-day notice requirement for latent damage.

COGSA Litigation (and there is lots of it)

• Carrier is liable for failure to use due diligence in providing a seaworthy vessel.

• A clean bill of lading requires a carrier to prove itself not liable.

• With containers, that only applies to the container itself, as to the contents the Plaintiff must prove that they were in good condition when placed on board.

• If proven, still no liability if it used due diligence in providing a seaworthy vessel or there was a specific exemption as listed in COGSA (see Exhibit 6.2, p. 204)

• If shipper and carrier are unaware of hazardous cargo, shipper bears the resulting loss.

Shortages under COGSA Rules

• Containers are again problematic.• Bill of ladings refer to “shipper’s weight, load, count”• Won’t save the carrier if the weight is verifiable.• If no verifiable weight is provided, carrier not liable.• COGSA Sec. 1303(3): After receiving the goods into his charge

the carrier. . .shall on demand of the shipper, issue to the shipper a bill of lading showing: (b) either the number of packages or pieces, or the quantity or weight . . . as furnished by the shipper or (c) . . . No carrier shall be bound to state or show in the bill of lading any . . . Quantity, or weight which . . . . he has had no reasonable means of checking.

Pre-Package Liability Limits• Unless you declare a higher value (and pay a higher

freight fee) the maximum carrier liability is $500 per package.

• What is a package? COGSA doesn’t say, but custom says is a “class of cargo, irrespective of size, shape, or weight, to which some packaging preparation for transport has been made which facilitates handling” even if it doesn’t conceal the goods.

• See Z.K. V Arch?V Archigetis case (p. 211) where yachts were declared packages subject to the $500 limit.

• What about a container? Look at the bill of lading – if it indicates a number of packages inside, multiply that number by up to $500 each, if not then only $500.

Individual items do not necessarily equal packages – i.e. the case of 7,790 live plants (p. 213).Items on pallets can either be one package or the number of items on the pallet depending on whether the pallet is wrapped in see-through polyethylene shrink-wrap or not.Moral: always follow good shipping practices of hire someone who will. Examples (which is best?)1 X 40ft. Container 1 X 40ft. Container STC 12,000 bottles of red wine, or1 X 40ft. Container STC 1,000 cases of red wine, or1 X 40ft. Container STC 1,000 packages(cases) of red wine

The $500 limit won’t apply to material deviations such as detours or storing non-containerized goods up on deck.

Wait, It Gets Even More Complicated

Liability of Intermediaries

Freight Forwarders• They are agents for shippers who help in

contracting with carriers. They advise shippers, make contracts with carriers, get cargo insurance, assist in packaging & containerizing, arrange warehousing, and act as customs brokers (i.e. prepare customs documents and getting goods through customs).

• It the goods are damaged in transit they are liable if they did not act reasonably or follow due diligence standards.

• NVOCCs* perform many of the same functions as a freight forwarder, but by combining small loads in one container they are also deemed to be carriers.

*non-vessel operating common carriers

The Ocean Shipping Reform Act of 1998 (OSRA)

• An act to bring a level of deregulation to the maritime shipping industry.

• Now shippers can negotiate confidential service contracts with lower negotiated rates, not the posted common carrier tariff rates of old.

• The contract replaces the bill of lading.• The carriers are not acting as “common

carriers.”• They are not subject to COGSA. They can work

out their own liability issues in the contract.• Ocean carriers are given exemption from

antitrust laws.

FROM THE FEDERAL MARITIME COMMISSION*

• From THE IMPACT OF THE OCEAN SHIPPING REFORM ACT OF 1998:

• Numerous pro-competitive reforms enacted under OSRA to increase industry market responsiveness focused on service contracting. The ability to deal with individual carriers, the elimination of the “me-too” requirement for similarly situated shippers, and the confidentiality of certain commercially sensitive service contract terms have fostered a shift to contract carriage -- carriers generally report that 80 percent or more of their liner cargo currently moves under service contracts.

• • The 200 percent increase in the number of service contracts and amendments filed since May 1999, as well as the increase in the volume of cargo moving under service contracts is due, in part, to the flexibility and confidentiality of individual service contracting.

• • Most shippers presently are negotiating one-on-one with individual carriers for confidential service contracts, instead of negotiating with rate-setting conferences or groups of carriers.

• *http://www.fmc.gov/images/pages/OSRA_Study.pdf

Marine Cargo InsuranceCovering the bearer of the risk of loss

Policies vs. Certificates

• Individual policies are good, but large volume shippers maintain open cargo policies (think of big borrowers who need open lines of credit). The open policy covers all shipments by the shipper of certain goods over specific routes to specific destinations. The insurance company provides a form “certificate of insurance,” which are often used in CIF shipments. They are negotiable and go along with the bill of lading. In a plain CIF contract the certificate will suffice in the U.S., but not in the UK.

What Do Marine Insurance Policies Cover?

• Three types of covered losses:1.Total loss of all or part of the shipment2.General average losses – a chipping-in by all

parties to the voyage if loss is incurred by less than all (and their insurers), subject to the York-Antwerp Rules.

3.Partial (or Particular) average losses – some policies exclude coverage for partial losses in general, or for a partial loss of a particular type (i.e. FPA* fire).

*free of particular average

Types of Coverage

• Limited only by price, willingness to offer, and ingenuity.

• Basic coverage is in the “perils clause” – really bad weather, shipwreck, stranding, collision, and the like.

• Special coverage can be bought for things not covered in the perils clause, such as explosions, through a “specially to cover clause.”

• An “all risks” policy still doesn’t cover risks of war and civil unrest, delays, and strike related damages.

• Even war risk insurance is specially available.