The sky need not be the limit

Carriers should manage cargo liability actively

By Henry E. Seaton
July 1, 2011
Reprinted /

Q: We are a small carrier that maintains $100,000 per occurrence in cargo insurance. How do we limit our liability for loss and damage to this amount?

A: Limiting your liability to the amount of your cargo insurance and managing high-value loads by exception is a practice that can be done and that I recommend highly.

Unless trumped by terms and conditions in a written contract, you are entitled to prepare service terms and conditions made available to shippers and brokers upon request that ordinarily will govern the terms of your agreement. With respect to cargo loss and damage, the Carmack Amendment, 49 U.S.C. 14706, would apply, and you will be liable for the full value of the shipment lost or damaged in transit unless you limit your liability properly by preparing service terms and conditions

Beware that contracts trump your service terms.

This is not a do-it-yourself proposition, and there is much litigation over the proper use of “release rates.” Basically, your service terms and conditions must provide a choice of rates and a default to a lower limit of liability and rate unless a higher rate is declared by the shipper or broker. This choice of rates provided in your rules circular then is incorporated into the bill of lading by a typical declaration box.

If you use a rules tariff and a release rate provision, it is critical that you give “constructive and actual knowledge” to the shipper or broker that the lower valuation ordinarily applies. You can do this by placing your rules tariff on your Website and incorporating reference to your rules tariff in rate tenders, load confirmations, sales brochures and credit applications.

In the truckload market, however, shipments usually move according to written bilateral contracts that trump carriers’ service conditions. Shippers and brokers typically have an allergic reaction to service conditions and require that all of the terms and conditions be set forth in the contract. Accordingly, when signing contracts, it is important that you clearly state your liability will be limited to the stated amount of your cargo insurance unless otherwise agreed in writing.

If the contract contains a provision that states – as most do – that the written agreement constitutes a waiver of generally accepted commerce rules to the extent not inconsistent therewith, the simple statement of a limit of liability should stand notwithstanding the technical compliance otherwise required under the “release rate” case law.

Use of limits of liability, whether by contract or by rules tariff, is particularly important in the truckload spot market where frequently the carrier doesn’t know the value of the shipment to be transported. The rates you quote often are not dependent upon valuation, and only by inserting a limit of liability will you be able to flush out whether you are transporting a high-value shipment that commands a higher rate and shipment-specific insurance to protect you against loss.

Given the way the spot market works, you as the carrier may have signed an agreement in the past that subjects you to unlimited cargo liability on all present and future loads. You may wish to consider preparing an addendum sheet to attach and incorporate onto spot market load confirmations. Such an addendum could include items such as the limit of liability discussed herein, provisions for free time, detention, fuel surcharge, etc.

you employ this procedure, be sure the signed confirmation sheet expressly includes language incorporating the addendum by reference and that you have the shipper’s signed acknowledgement before the move occurs. I recommend that before you employ new procedures of this type, you check with a transportation expert to ensure proper compliance.

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