If it's Dented, is it Worthless?
By Henry E. Seaton
August 2007
Reprinted from etrucker.com

Q As an auto hauler, we brokered a load to another hauler who was in an accident caused by a third party. The car being transported suffered $4,000 of actual damage, but the new car manufacturer has decided to crush the car, filing a claim for its full invoice amount. The auto hauler we hired claims it is not liable for the full value of the car, and his insurer agrees. The manufacturer now has offset the full claim against us. What do we do?
 
A This question involves an issue of mitigation of damages and a situation that is somewhat unique to the new car hauling business. Many automobile original equipment manufacturers (OEMs) insist by contract that carriers waive mitigation and allow them to decide when a damaged automobile is a “constructive total loss.” Allegedly, the auto manufacturers do not want damaged, but repaired, new cars in the marketplace because of future liability concerns.

This concept violates general principles of federal transportation law as set forth in the Carmack Amendment, 49 U.S.C. §14706. Ordinarily, the shipper must mitigate damages unless the damage renders the cargo practically worthless. Sending an otherwise easily repaired new car to the crusher makes no economic sense! It cannot be argued that a new car is practically worthless because of cosmetic damages or that a new car, once repaired, can’t be sold “as is” without warranty, just like a used vehicle. At least the component parts should be salvaged.

Notwithstanding the objections to the constructive total loss concept as a violation of established claims principles, it quickly has become a standard in many auto hauling contracts. Any auto hauler should take great care to understand its new-car manufacturer’s position on claims and mitigation in the event of damage in transit. If the shipper insists by contract that you assume more than legal liability and requires you to honor any demand for the full actual value without mitigation, you have a potentially significant problem.

Although there is at least one manuscript policy written for auto haulers that will pay a diminished value or constructive total loss claim, even the best standard cargo policy will not provide coverage for this type of liability. If an auto hauler is accepting this type of liability by contract, (1) it should be sure it has appropriate insurance coverage to handle a loss; and (2) if it in turn brokers or subcontracts one of these loads to another, be sure the subhauler has accepted constructive total loss liability and has similar coverage. In the absence of such precaution, anticipate an uninsured loss. Because of claims like this, it is important, I believe, that cargo loss and damage be limited expressly to Carmack liability (49 U.S.C. §14706).

Finally, as I have said time and again, your case has been compromised by your subcontracting without appropriate precautions to prevent unilateral offset. Here, some third-party four-wheeler caused the wreck, but you suffered the uninsured loss with no insurer to pursue subrogation.