Freight Claims in Plain English (3d edition)
copyright (c) 1996 W.J.Augello     table of contents || Title Page

The Legal Principles of Freight Claims—From a Claimant's Standpoint


1.0 Surface Carrier Liability

At the very outset of freight claim problems, a determination must be made as to what laws, administrative regulations and contracts govern the transaction between the shipper and carrier. In view of the fact that a great volume of freight generally moves in common carrier service, claimants often presume that principles of common carrier liability govern claims, and later discover that some movements are not subject to these principles. The consequences often are expensive and embarrassing to the claimant.

Therefore, the first step in processing a freight claim is to establish the legal classification of the movement, ie.,:

  1. interstate and foreign common carriage (regulated by the I.C.C.);
  2. intrastate common carriage (usually regulated by a state P.S.C., P.U.C., D.O.T., etc.);
  3. “exempt” common carriage (governed only by the common law);
  4. contract carriage (regulated by the I.C.C. or state regulatory agency); or
  5. private carriage (shipper's vehicle).

Although this text is oriented toward the legal principles governing liability of regulated common carriers, it is also necessary for the claimant to know when a claim is not subject to such liability standards.

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1.1 Interstate and Foreign Commerce

The terms “interstate commerce” and “foreign commerce” formerly were defined in the Interstate Commerce Act differently for each mode of transportation. (Former sections 1(1), 303(a)(10) and (11), 902(i) and 1002(a)(6) applying to rail, motor, water and forwarder traffic respectively.) In the Revised Act, Chapter 105 deals with the “jurisdiction” of the Interstate Commerce Commission. There are slight differences in wording between the sections dealing with rail, express, water and pipeline carriers (49 U.S.C.  10501) and motor carriers and freight forwarders (49 U.S.C.  10521). “Exemptions” applicable to each mode of transportation are also set forth in this chapter. See Appendix 3 and Appendix 4 for the full text of relevant statutory provisions.

Simply stated, the Interstate Commerce Act applies to transportation:

  1. between two states (Example: Between New York and California);
  2. between two points in the same state if the shipment traveled through another state (Example: Between two points in New York via a point in New Jersey);
  3. between a point in the United States and a territory or possession of the United States to the extent the transportation takes place within the United States (Example: Between New York and Puerto Rico).
  4. between two states through a foreign country (Example: between New York and Oregon via Canada), but only with respect to that portion of the transportation which is in the United States, and
  5. between a point in the United States and a foreign country (Example: from Ohio to Germany) but only with respect to that portion of the transportation which is in the United States.

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1.1.1 The Carmack Amendment

The Carmack Amendment to the I.C.A. codified the prevailing common law rule that a common carrier is liable for the “full actual loss” caused by the common carrier by reason of loss, damage or delay in the transportation of property. Former section 20(11) of the Act covered the liability of railroads and express carriers, while former sections 319 and 1013) made the same rule of liability applicable to motor carriers and freight forwarders. No similar provision was made applicable to interstate water carriers.

The Interstate Commerce Act was recodified in 1978 and the Revised Act consolidates the three sections referred to above, and makes the Carmack Amendment rule applicable to:

  1. Rail, Rail-Water, Express and Pipeline Carrier Transportation;
  2. Motor Carrier Transportation;
  3. Freight Forwarder Service.

49 U.S.C.  11707 relates to the principal provisions of former Section 20(11), while 49 U.S.C.  10730 relates only to the provisions regarding liability based on value limitations (released rates). See Appendix 9 for the full text of the current Carmack Amendment. Readers are urged to read and study these two sections before proceeding with this text.

The historical background of the Carmack Amendment may be found in the “Historical Note” to 49 U.S.C.A. 20(11) See Appendix 60. Briefly stated, the original purposes of this legislation were to:

  1. Adopt a uniform standard of liability governing interstate surface transportation. Adams Express Co. v. Croninger, 226 U.S. 491 (1913);
  2. Put an end to the conflict in state courts over the extent of liability of originating carriers;
  3. Put an end to the inconvenience to shippers in bringing actions only against originating carriers by creating joint and several liability for originating, intermediate and delivering carriers;
  4. Require the issuance of a uniform contract of carriage and to apply the terms of that contract whether or not issued to the shipper;
  5. Codify the common law liability of common carriers for-hire as “virtual insurers” liable for the “full actual loss” of goods sustained while in their possession;
  6. Prohibit limitations of liability unless approved by the I.C.C. prior to publication;
  7. Provide uniform time limits for the filing of claims and suits;
  8. Prescribe the place where carriers may be sued (venue);
  9. Apply the laws governing water carriers when the loss occurred while in water carriers' possession;
  10. Apply these liability provisions to reconsigned shipments;
  11. Exclude switching carriers from the provisions of this legislation;
  12. Provide for the use of freight forwarder bills of lading and delivery receipts by motor common carriers;
  13. Enable the originating or delivering carrier required to pay for a loss to recover from the carrier on whose line the loss occurred.

Each of these principles is discussed in detail in the text under appropriate topical headings.

For an understanding of why federal regulations were imposed on common carriers at all, and later extended to the liability of carriers for loss or damage in transit, see Dictionary of Law, William C. Anderson, pp. 208-9, Appendix 61. This treatise explains the corporate abuses which led to the regulation of the railroad industry in 1887.

Readers are also urged to read the historical account of abuses in liability and freight claims contained in the I.C.C.'s landmark decision in Ex Parte 263, Rules, Regulations, and Practices of Regulated Carriers With Respect to the Processing of Loss and Damage Claims, 340 I.C.C. 515 (1972). This decision contains a scholarly review of the history of common carrier liability and the continuing attempts by such carriers to limit their liability for loss and damage to the commodities they haul. For instance at page 519, the Commission observed:

Attempts by common carriers to limit their liability for loss and damage to the commodities which they transport probably began about the time that common carriage itself was in its most primitive stages. This is true mainly because the earliest traces of the common law imposed rigid standards of conduct and liability upon the carriers, and there have been few relaxations in these duties since those early days. It is appropriate, therefore, that we look at the general development of the law of carrier liability before probing into the current state of claims affairs and determining what can be done about the problems thus discerned.

Development of the presently applicable law.When the American Colonies inherited the common law of England, that body of principles included even then the rigid law governing the liability of common carriers. At the same time, this country simultaneously inherited many of the schemes carriers had conceived from time to time in an effort to limit their strict liability for loss and damage to cargo. Essentially, however, the rationale of a famous jurist, Lord Holt, has remained as a guiding light in determining carrier responsibility for loss or damage. In his often quoted ruling on bailments in the celebrated case of Coggs v. Bernard, [2 Ld. Raym. 909 (1703)], reprinted at 1 Smith's Leading Cases 369 (8th ed. 1885), Lord Holt there stated:

The law charges this person thus intrusted to carry good, against all events, but acts of God, and the enemies of the King. For though the force be never so great, as if an irresistible multitude of people should rob him, nevertheless he is chargeable. and this is a politick establishment, contrived by the policy of the law, for the safety of all persons, the necessity of whose affairs oblige them to trust these sorts of persons, that they may be safe in their ways of dealing; for else these carriers might have an opportunity of undoing all persons that had any dealing with them, by combining with thieves, & c., and yet doing it in such a clandestine manner as would not be possible to be discovered. And this is the reason the law is founded upon in that point.

Complications in the processing of claims against carriers, however, arose when the Supreme Court held in Adams Express Co. v. Croninger, 226 U.S. 491, 509-510 (1913), that a carrier could under the Carmack Amendment “by a fair, open, just and reasonable agreement limit the amount recoverable by a shipper in case of loss or damage to an agreed value made for the purpose of obtaining the lower of two or more rates or charges proportioned to the amount of the risk * * *.” Following the Croninger case and other similar court decisions, many railroads began to publish reduced rates based on agreed values and prohibitively high rates based on actual values of commodities shipped. The net result of this was that shippers had no effective choice or rates and were denied full and fair recovery for shipments lost or damaged in transit.

Inasmuch as common carriers are liable as carriers and bailees, they are fully responsible for the consequences of their own negligence or want of skill and also for whatever else may happen (save the above exceptions and those applicable only to water carriers) to the property while it is in their possession. The rigid liability thus imposed may not arbitrarily or unilaterally be avoided by the carrier, but it may be limited for a consideration provided we give our prior approval under the released rates provision of section 20(11) of the act. Even so, the problems of carriers attempting to limit their liability arbitrarily and by other means seem to have continued almost unabated. The rules adopted by rail and motor carriers and freight forwarders. . . which prompted the filing of the petition in docket No 35198, and the other relevant carrier practices with which we are concerned in this proceeding, appear to represent the latest efforts by carriers in this time-honored endeavor. (Emphasis added).

The Carmack Amendment of 1906 clearly established that national policy would not permit carriers to exonerate themselves for their own negligence and that the traditional defenses to ocean cargo damage actions could not be expanded to the detriment of shippers or consignees of surface transportation. This statute restated a strong public policy which the Supreme Court has consistently applied to common carriers generally. Cf. Union Pacific R.R. Co. v. United States, 292 F.2d 521, 523 (Ct. Clms. 1961).

The Carmack Amendment was enacted to protect shippers and consumers against the natural tendency of rail carriers to attempt to limit and evade liability for loss and damage in transit. See, for instance, In Re the Cummins Amendment, 33 I.C.C. 682 (1915), wherein the Commission stated, at p. 683:

For many years, if not, indeed, from the origin of railroad transportation in this country, common carriers by railroad have sought, by provisions in shipping contract, bills of lading, tariff publications, etc., to limit their common-law liability, not only as insurers against loss or damage to property received by them for transportation, but also as tortfeasors for loss or damage caused by their negligence. One method was by a so-called release, executed by shipper and carrier, and intended to be effective whether the loss or damage was due to negligence of the carrier or to other causes. The courts in different jurisdictions have differed as to the validity of such limitations and they have been the subject of legislation in some of the states.

Public policy demanded that the law find offensive carrier contracts which relieve carriers from liability for loss or damage caused by their negligence. This concept was astutely explained by Justice Frankfurter in his dissenting opinion in United States v. Atlantic Mutual Ins. Co., 343 U.S. 236, 244 (1952) as follows:

The courts based this reservation upon the observation that such contracts were not in fact consensual agreements. The shipper had little choice but to accept the carriers' terms. See, e.g., Railroad Co. v. Lockwood, 17 Wall. 357, 379; Liverpool & Great Western Steam Co. v. Phoenix Ins. Co., 129 U.S. 397, 441. This circumstance did not necessarily void the agreement, since many stipulations were upheld. But it provided justification for refusing to enforce those which offended judicially pronounced public policy.

Orderly commerce among the 48 states dictated the preservation of a uniform bill of lading, and uniform liability terms among shippers and common carriers. For instance, in Adams Express Co. v. Croninger, 226 U.S. 491, 509-510 (1913), the U.S. Supreme Court held:

Some States allowed carriers to exempt themselves from all or part of the common law liability, by rule, regulation, or contract; others did not; the Federal courts sitting in the various States were following the local rule, a carrier being held liable in one court when under the same state of facts he would be exempt from liability in another; hence this branch of interstate commerce was being subjected to such a diversity of legislative and judicial holding that it was practically impossible for a shipper engaged in a business that extended beyond the confines of his own State, or for a carrier whose lines were extensive, to know without considerable investigation and trouble, and even then often-times with but little certainty, what would be the carrier's actual responsibility as to goods delivered to it for transportation from one State to another. The congressional action has made an end to this diversity; for the national law is paramount and supersedes all state laws as to the rights and liabilities and exemptions created by such transaction. This was doubtless the propose of the law; and this purpose will be effectuated, and not impaired or destroyed by the state court's obeying and enforcing the provisions of the Federal statute where applicable to the fact in such cases as shall come before them.

Since enactment of the Carmack Amendment, uniformity of contract terms and conditions has facilitated an orderly distribution system and a workable transportation network at the lowest cost possible.

In 1915, Congress attempted to employ a different method of determining carrier liability when it enacted the Cummins Amendment. That legislation provided for the:

  1. “giving of notice of claims” within 90 days;
  2. “filing of claims” within four months; and
  3. the institution of suit within two years, with the proviso that:

. . . if the loss, damage, or injury complained of was due to delay or damage while being loaded or unloaded, or damaged in transit by carelessness or negligence, then no notice of claim nor filing of claim shall be required as a condition precedent to recovery. (emphasis added) In Re Cummins, supra, 685.

This provision required the claimant to prove negligence on the part of the carrier for certain types of claims if it desired to be relieved of the notice, claim filing and suit filing time limits. It proved so unsatisfactory and unworkable, and placed such an unfair burden on claimants, that Congress repealed this provision in the Act of April 23, 1930 (46 Stat. 251).

This change was proposed by shippers and agreed to by the railroads for the purpose of simplifying and harmonizing the time for filing claims and actions thereon. (H.R. 3141, 71st Cong., 2nd Sess., P.L. 104, Vol. 46 St. At Large, p. 251.)

The fundamental reason for the requirement that carriers prove freedom from negligence is that in a bailment arrangement, only the bailee (carrier) is present when the loss occurs, and it, therefore, is the only one in possession of the facts.

This was true between 1906 and 1930 when Congress experimented with carrier liability standards and settled on the present law, and it has not changed with the passage of time. The reason is that when only one party to a contract is present when loss, damage or delay occurs to the other party's goods, that party must bear full responsibility for explaining how the loss occurred without its negligence.

Absent the Carmack, a claimant would be required to institute a suit against each individual carrier in a joint-line haul to preserve its rights until the carrier responsible for the loss was determined. Such a policy would be onerous to the public and the judiciary due to the multiplicity of suits and excessive expense to claimants and carriers alike.

Thus, all domestic surface transportation services have been subjected to the provisions of the Carmack Amendment whenever federal jurisdiction has been exercised over a particular mode of common carriage, and common carrier rate levels have been established to reflect the strict liability of a “virtual insurer”.

It should be noted that, on export shipments to an non-contiguous foreign country, the courts are not in agreement as to when the Carmack Amendment applies. Compare, e.g., Fine Foliage of Florida, Inc. v. Bowman Transp., Inc., 698 F.Supp. 1566 (M.D. Fla. 1988), aff'd, 901 F.2d 1034 (11th Cir. 1990) and Moller Steamship Co., Inc. v. Atchison, Topeka & Santa Fe Ry. Co., 1986 A.M.C. 262, 1984 WL 2682 (S.D. Tex. 1984), discussed in Section 18.2.

In addition, the Carmack Amendment is not applicable to an initial rail carrier which performs only a “switching” service. Such a carrier will be subject to laws of the state in which the service is performed, see Marks Manufacturing Co. v. New York Central R.R. Co., 448 F.2d 68 (6th Cir. 1971).

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