Just stick to Carmack
By Henry E. Seaton

June 2006
Reprinted from etrucker.com

Q On a brokered load, the consignee rejected a perishable shipment from Texas to California, and the goods were destroyed – although they were perfectly fit for human consumption. The broker paid the claim in full and sued us in Oregon, where a default judgment was entered. (We never got notice of the suit.) As the plaintiff, the broker now seeks to domesticate the judgment in our home state. What recourse do we have?

A You have more problems than Carter has liver pills. Apparently, you have selected an agent for a service-of-process company that does not have attorney agents in each state, and as a result, you did not get the suit papers in a timely fashion. You have recourse to the agent and can contest the default, but it will cost you.

Of greater instructional interest is how and why you let yourself get sued under these circumstances. In this column, I have cautioned carriers repeatedly to “watch what you sign.” As a carrier, you have a right under the standard terms and conditions of the bill of lading and the Carmack Amendment to expect a shipper and consignee to mitigate damages. You can and should establish service conditions that require a shipper to follow salvage procedures and file claims under federal regulations that allow for a proper insurance adjustment.

In this case, the broker – who under common law has no liability for cargo claims in the absence of its negligence – nonetheless claims it was required by its private contract with the shipper to pay for the full cargo loss without mitigation. It then in turn sued you for “indemnity,” claiming that you agreed to indemnify it by contract. Using this circuitous reasoning, the broker now claims it can trump the bill of lading terms and conditions, gut the preemptive effect of the Carmack Amendment, and overcome any common law duty the consignee had to accept and mitigate the damages.

All too frequently, I fear, this is what can happen when carriers, without thinking, sign broker- and shipper-prepared contracts and do not insist upon express incorporation of the Carmack Amendment, standard bill of lading terms and conditions, claims procedures and duty to mitigate.

Carriers should provide that all cargo claims are governed by Carmack, 49 U.S.C. §14706 and general principles of federal transportation law. Do not confuse cargo claims, which state law judges do not really understand, with indemnity issues. The key word in an indemnity clause should be the first one: “Except as to cargo claims, a carrier agrees to indemnify shipper and/or broker to the extent its negligent act or omission causes loss, claim, damage or harm.”

A broker may want to assume liability for cargo loss or damage and for business rapport may choose to pay unmitigated claims including special and consequential damages. Do not let the broker claim indemnity and demand the right of reimbursement from you, or – even worse – offset its gratuitous payment against your freight charges.

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