What's a Shipment Worth?
By Henry E. Seaton
March 2007
Reprinted from etrucker.com

Q As a carrier, we entered a contract that provided we would be responsible for the “full actual value” of a shipment lost, damaged or delayed, excluding special or consequential damages. A shipment was damaged in transit, and the shipper demanded the invoice amount. Our insurer says that replacement cost is all it is required to pay and wrote a letter to our shipper denying the claim until replacement cost information was provided. Our good customer now threatens to withhold payment and claims we lack adequate insurance.

A I will try to unpack this issue. Your contract terms “full actual value” with no “special or consequential damages” is language that tracks the Carmack Amendment, 49 U.S.C. §14706, that would have been applicable by operation of law if you never had addressed the issue in the contract. There is extensive case law under the Carmack Amendment for deciding this kind of liability issue that stalemates your shipper and your insurer. In fact, when I pressed your insurer, it admitted your policy offers Carmack coverage, i.e. legal liability indemnity, for this particular loss.

You are caught in the middle because your shipper thinks the insurer provides less than Carmack coverage, and your insurer suggests the shipper seeks more than Carmack provides. Both believe your contractual liability may be different than the legal liability indemnity the policy provides.

The resulting conundrum caused by contractual language other than Carmack is an example of why I urge shippers and carriers to just go with the statute. Carmack affords legal precedent and a mechanism for resolving the invoice-versus-replacement-cost issue. Otherwise, “actual value” is the term over which a shipper and the carrier’s insurer might disagree.

As a Carmack matter, the difference between replacement and alleged invoice price is not a new situation, and there is case law and precedent for your insurer to resolve the issue with your customer. Yet, when Carmack does not apply and contract terms must be interpreted, a loophole can be created between coverage and contractual undertaking. That can throw you right back into the middle of the dispute and lead to the bad result you face.

Some qualified lawyers counsel their clients to carefully draft logistics agreements, waiving general principles of transportation law – including Carmack – and negotiating cargo liability and other terms as cases of first impression. I believe this approach is flawed, however, because you have only one cargo insurance policy that cannot be stretched to meet individually negotiated liability standards.

In your case, you ought to be covered because the contractual language is so similar to Carmack, and you should be afforded coverage by your insurer and the shipper. I must caution, though, that if there is litigation, the waiver of Carmack would frustrate uniform application of federal precedent and could mean that a state law judge would decide the issue.

The lesson that your case presents, I believe, is that carriers should negotiate with their insurer to obtain, if at all possible, “legal liability” cargo coverage coextensive with 49 U.S.C. §14706, and then be careful to stay on the ranch in shipper contracts to ensure that general principles of federal transportation law and the Carmack statute is applicable and not waived.