Enforcement of Claims Processing Rules
Question: We are a broker company, and we broker loads to our contract carriers. We have a clause in the contract that we are to be held harmless of any claims that arise for any loads that were under the care of the carrier.
We submit claims to the carrier if we are unable to deduct it from any settlements, a good portion of the carriers don’t care, and ignore the claim filed. I try calling them and don’t always get a response.
In your book, “Freight Claims in Plain English” under Claim processing rules 12.1.3, it states that if a carrier fails to acknowledge claims that we can report them to the I.C.C. Is that correct? If so, what address is this and is there anything else we can do other than filing them with a collection agency for help? I would like to report all the carriers that I can that refuse to follow the rules for claims. Can I still report them if I have to turn them over to a collection agency, and they are able to discuss the situation with them?
Answer: Motor carriers are subject to the federal regulations governing the processing of claims at 49 CFR Part 370. These are the former ICC regulations, which were in 49 CFR Part 1005, and are now under the jurisdiction of the Federal Motor Carrier Safety Administration. You might try writing to the General Counsel’s office at the FMCSA in Washington, DC. Unfortunately, the FMCSA does not have the resources to do much in the way of enforcing these regulations.
Obviously, if you are not getting anywhere with the carriers you have the option of turning the claims over to a claims collection company or law firm. Contact Headquarters for information on firms that specialize in transportation law and handle loss and damage claims.
Concealed Damage
Question: A $15,000 labeling machine was purchased from a vendor in southern California and shipped to Kansas. This machine weighs 700 pounds and was completely crated for shipment. Unaware of any damage, the crate was accepted and signed for without any noted exceptions. When the consignee began uncrating the machine right after delivery, it was discovered that a cross brace/support had broken inside the crate and damaged the machine. The terminal was notified of the concealed damage within 30 minutes of the driver’s departure and an inspection was arranged. The inspection report noted the damage and a claim was filed to replace the damaged component, roughly $6,000.00.
The carrier has offered to pay 1/3 of the amount, asserting that this was concealed damage because there were no notations on the delivery receipt. What are our rights and our obligations?
Answer: Whether or not the damage was “concealed” only creates an evidentiary issue as to where the damage occurred. If damage is not noted on the delivery receipt at the time of delivery, the claimant has a greater burden, namely to show that the damage did not occur after delivery. In other words, the clear delivery receipt creates a rebuttable presumption that the shipment was in good order and condition at the time of delivery.
Unless there is some reason to believe that the damage occurred either before tender to the carrier (at the shipper’s facility) or after delivery (at the consignee’s facility), the carrier should pay the claim in full. Under the circumstances described, it is apparent that the damage occurred in transit and not after delivery by the carrier. (It sounds as though the carrier top-loaded other freight on the crate.)
There is no legal basis for the 1/3 settlement offer. The carrier either is liable or it is not liable. The only justification for a compromise settlement is when it is uncertain where the loss occurred, or, in disputed cases, the potential expense of litigation.
The claimant always has the basic burden of proof; that the shipment was in good order and condition when tendered to the carrier at origin, and that the shipment was damaged at the time of delivery. See “Freight Claims in Plain English” (3rd Ed. 1995) at Section 5.0, Burdens of Proof.
Special Damages – Missed Deliveries
Question: What is the law concerning passing of fines to the carrier on missed delivery appointments? Different LTL carriers of ours have missed delivery appointments and our customers have assessed the fines to us, and we in turn have passed them onto the carrier in the form of a freight claim. The carriers have declined the freight claim under the heading “special damages”. Our B/L clearly states that “All Delivery Fines are Passed to Carrier” Who is in the right in these instances, and what other resources do we have if the carrier is right in declining the freight claims?
Answer: There are two separate contractual relationships: vendor-purchaser and shipper-carrier.
The first question is whether the purchase order or terms of sale provide for a penalty for missed delivery appointments. If they do not, the purchaser has no legal right to charge a penalty.
The second question is whether the contract of carriage provides for delivery at a specific date and time, and for a penalty if the appointment is not met. It could be argued that the notation on your bill of lading is sufficient notice that penalties will be passed on to the carrier. Otherwise, the carrier’s only obligation is to deliver with “reasonable dispatch” and your attempt to collect the penalties would be considered “special damages”. See “Freight Claims in Plain English” (3rd Ed. 1995) at Section 7.3.
The best advise is the have a written transportation agreement with each of your carriers in which you spell out the terms and conditions, and clearly define the obligations of the parties. You can include provisions governing delivery by appointment, and the penalties or other consequences if appointments are not met.
Damages – Act of God
Question: What is the responsibility of the carrier in the event of freight damage from a tornado or sudden violent weather conditions?
Answer: Both under the common law and under the Uniform Straight Bill of Lading, which is in common use, a carrier has a defense against liability if it can establish that the cause of the loss or damage was an “Act of God”, and that it was free of any negligence.
The case law defines an “Act of God” as “an occurrence without intervention of man or which could not have been prevented by human prudence. It must be such that reasonable skill or watchfulness could not have prevented the loss…” Generally, only extraordinary events such as tornadoes or hurricanes would qualify, and ordinary bad weather, rain, snow, etc. would not be considered an “Act of God”.
This subject is discussed in detail in “Freight Claims in Plain English” (3rd Ed. 1995) at Section 6.3, Act of God.
Bills of Lading
Question: Historically, the carrier was legally obligated to “issue” the bill of lading even though many shippers do so for their own convenience. Is this legal obligation still in force? I found support for this point in the UCC but I do not believe that the UCC is applicable to interstate commerce.
Answer: The Interstate Commerce Act (ICA) requires motor carriers to “issue a receipt or bill of lading” for property received for transportation, 49 USC § 14706. (In practice, the shipper usually prepares a bill of lading on its own form and presents it to the driver for signature.) Theoretically, this requirement can be waived, if the parties expressly agree in writing, 49 USC § 14101, but it is always a good practice to have a written receipt for shipments.
The ICA does not specify any particular form of the receipt or bill of lading, but the Federal Motor Carrier Safety Administration regulations prescribe the minimum requirements, 49 CFR Part 373.
373.101 Motor Carrier bills of lading:
Every motor common carrier shall issue a receipt or bill of lading for property tendered for transportation in interstate or foreign commerce containing the following information:
• Names of consignor and consignee.
• Origin and destination points.
• Number of packages.
• Description of freight.
• Weight, volume, or measurement of freight (if applicable to the rating of the freight).
Claims – Carrier No Longer Available
Question: We are a broker and hire contract carriers to move the loads that we get.
I received a claim from my customer for 160 cases short on a load, which is noted on the proof of delivery and we have a proof of pick up that the driver signed showing he picked it up.
I have talked to our carrier numerous times trying to get this claim paid. It is clear-cut that we owe our customer this claim, however the carrier refuses to pay stating the following reasons:
• They were not allowed on the dock to count product; and
• Product was shrink-wrapped, making it impossible to count and inspect.
Further investigation showed that the driver is allowed on the dock to count and inspect, and it is easy to see the product on the shrink-wrapped pallet to count. These loads are not marked shipper load & count and the driver never indicated any problems. It is my understanding that the carrier is responsible for the loss.
I have now turned the claim over to the carrier’s insurance company. We have a valid insurance certificate showing the carrier was insured at the time the incident occurred. The insurance company is refusing to deal with the claim because they are unable to contact the insured (carrier) to verify the insurance and to find out any information regarding the load. All mail sent to the carrier is returned unclaimed. So without the information from the carrier, we cannot get the claim paid by the insurance.
Answer: It appears that you have two options.
Turn the claim over to an attorney (someone who is knowledgeable about transportation law) and, if necessary, commence a lawsuit against the carrier.
File a claim under the carrier’s BMC 32 endorsement directly with the insurer. Under the BMC 32, the insurer is liable for up to $5000 with no deductibles or exclusions, and whether or not the carrier is still in business. (See “Freight Claims in Plain English” (3rd Ed 1995) at Section 12.1.1.1 for an explanation of the federal mandatory cargo insurance requirements for interstate motor carriers.) You can get the name and address of the insurance company from the FMCSA web site.
I would observe that, as a broker, you normally should not have liability to the shipper for loss or damage.
Damaged or Misdirected Shipments
Question: If an inbound shipment is freight terms FOB Origin – freight collect, and there is a problem with the shipment i.e:
Partial damage: can you refuse the damaged items?
Misdirected Shipment: can you refuse the shipment? My understanding is that the consignee must pay the freight bill as originally presented. Understanding that any shortcomings with the shipment are properly noted on the dock receipt. And, a freight claim must be generated to recover on any loss or damage. If this is accurate, can or should the consignee refuse deliveries of any shipments thinking they are free and clear of freight payment? Or, should they take in the freight, note it on the bill and file claim?
Answer: On partially damaged shipments, as a general rule the consignee should not reject the shipment, but should receive it and attempt to mitigate the damage. Depending on the nature of the damage, it may be possible to repair or repackage the item, sell it for salvage value, etc. See Section 10.9, Rejection vs. Acceptance of Damaged Shipments in “Freight Claim in Plain English” (3rd Ed. 1995), which is available from the Transportation Consumer Protection Council.
If damage is observable at the time of delivery, you should always make a notation on the delivery receipt or bill of lading, notify the carrier and request an inspection. Claims must be filed in writing and should be done promptly. In addition to the value of the damaged goods, you can also claim for any reasonable expenses that you incur in mitigating the damage.
On a “misdirected” shipment, if you are not the consignee named in the bill of lading, you have no obligation to accept the shipment. If you are the named consignee – and the vendor or shipper has shipped the wrong goods – you should accept the goods, immediately notify the vendor or shipper, and request disposition instructions.
Claims Filing – Proper Party
Question: I have been trying to collect on a claim but the carrier refuses to deal with us. The carrier maintains that the warehouse we use hired them, not us, so the warehouse should be the one to make the claim, not us. Maybe I am wrong but from reading Freight Claims in Plain English I was under the impression that if you maintain an interest in the shipped product (like ownership), you could bypass the warehouse and make the claim directly to the carrier. How should we resolve this claim?
Answer: Apparently the carrier is taking the position that your company is not shown on the bill of lading as the shipper or consignee, so that it has no contract with you. However, the court decisions are clear that you may still file a claim if you have an interest (ownership) in the goods. If the carrier is giving you a hard time, I would suggest that you get a letter from the warehouse stating that you are the owner of the goods and submit it with your claim.
Freight Charges – Billing to Customers
Question: I recently discovered that a supplier has been charging us more than the actual cost of shipping merchandise. There is nothing in their sales literature that pertains to charges for shipping.
Is a manufacturer permitted to charge a customer (in this case a retailer) more than the actual cost of transporting of merchandise when there is no specific contractual understanding?
Answer: Unfortunately, the problem you describe is a fairly widespread practice and a question we often get from various parties. Many shippers charge their customers for freight in an amount greater than the shipper actually pays, and do not pass along the discounts or allowances that they are getting from the carriers to their customers. In some instances, this can be a significant profit center for the shipper.
Section 7 of the Negotiated Rates Act of 1993, and former regulations of the ICC in 49 C.F.R. 1051.2 were addressed to “off bill discounting”. Essentially, this prohibited carriers from paying a discount or allowance to anyone other than the payor of the freight bill and required carriers to disclose all discounts or allowances on their freight bills. Due to subsequent legislation, namely the Trucking Industry Regulatory Reform Act of 1994 (“TIRRA”) and the ICC Termination Act of 1995 (“ICCTA”), the regulations have been eliminated and the statutory disclosure requirements, now in 49 U.S.C. § 13708, have been watered down. In order to comply with the statute, a carrier need only state on its freight bill that “a reduction, allowance or other adjustment may apply.” However, it should be noted that the statutory provisions and regulations never applied to shippers and the remaining requirements still only apply to carriers.
Thus, the real issue is whether you, as a purchaser, could reasonably claim commercial fraud or misrepresentation if the seller adds an amount higher than the actual freight charge to its invoices. We have not seen any court decisions dealing with this issue, but it would appear that you might have grounds for legal action if your vendors are misrepresenting the freight charges in their invoices to you. At the very least, you should bring this to their attention and demand that they accurately state the actual freight charges that are being included in the invoices.
When discussing this issue with shippers, our best advice is to use a notice in the terms of sale and/or invoices, which constitute a sufficient disclosure to customers to avoid such claims. Some companies place a notice, either in their terms of sale or on their invoices to disclose that the freight charges being invoiced do not reflect volume discounts or incentives received from the carrier. Others use wording such as “shipping and handling charge”.
Damages – Shock Recorders
Question: Our customer ships motors via an LTL carrier and they use the Tip-N-Tell device on each of the cartons they ship. When the product was delivered to the customer the Tip-N-tell was activated although there was no other apparent damage to the cartons. In some instances the product was returned to them and was inspected and the product was found to be OK, so a claim was filed for the inspection of the product. In other situations the product itself was damaged and a claim was filed for the repair cost.
The LTL carrier has declined these claims. They state the Tip-N-Tell doesn’t establish carrier liability. The carrier also asserts that these devices and other shock warnings are unreliable and their experience is that these products go off during normal transit down the highway. Since this damage would not normally be noted upon delivery, but is noted only because the consignee sees that the Tip-N-Tell has been activated, would this be considered concealed damage even though it was noted as damaged upon delivery? What recourse or advice can you give the shipper to collect these claims.
I know in the past it’s been illegal to deduct claims from freight revenue. Since the contract between the shipper and carrier doesn’t include any provisions to do this, can they still deduct anyhow? What would the repercussions be if they did deduct, other than a strained relationship between the two parties? Is it illegal to deduct freight claims and if so what are the penalties for so doing? Is this provision to not deduct a law or regulation that is still in place?
Answer: In my opinion, if a Tip-N-Tell device is triggered, it is equivalent to seeing a damaged carton (dented, ripped, etc.) and it is only common sense that the carton should be opened and inspected for possible damage to the contents.
The cost of such an inspection, and any re-packaging, is a reasonable expense incurred in mitigation of damages. And, obviously, if the contents are in fact found to be damaged, the cost of repairing the item is a proper measure of damage.
As far as the reliability of the Tip-N-Tell products, it is my understanding that these products have been used for many years and have undergone extensive field testing. I would suggest that the manufacturer would be more than happy to tell the carrier that it is a good, reliable, tested product and would stand behind a claimant who used the products.
It is not illegal to setoff loss and damage claims against freight charges owed to carriers, but there are some ramifications with regard to possible late-payment penalties if the carrier does not agree. See “Freight Claims in Plain English” (3rd Ed. 1995) at Section 12.3.6 for a full discussion of this subject.
Liability – Overseas Storage
Question: We are purchasing merchandise from an overseas vendor on a “FOB overseas port” basis. As our vendor does not have sufficient storage space to hold merchandise, awaiting a “do not ship before date”, the vendor has established an arrangement with our forwarder whereby the forwarder is storing the merchandise (at no cost) pending the ship date. We are not a part to this arrangement. We are trying to determine:
• Who owns the merchandise while it is in the forwarder’s possession awaiting the authorized ship date- the vendor or us?
• If we own the merchandise, what is the forwarder’s liability?
Answer: You indicate that “our forwarder” is receiving and storing the goods. I would assume that this foreign forwarder is the equivalent of an NVOCC, although you do not indicate whether an ocean or multimodal bill of lading is being issued when the forwarder receives the goods from the vendor. If so, this could trigger a transfer of the property interest in the goods and shift risk of loss to the purchaser.
The forwarder’s liability could be either as “warehouseman” or as an ocean carrier, again, depending on whether a bill of lading has been issued. If a warehouseman, the liability would be governed by the local law of the country where it is located, and most forwarders have very limited liability. If a carrier, it would be governed by COGSA and the terms and conditions of the bill of lading, and tariffs. There may be specific provisions in the bill of lading or tariffs relating to goods stored for the convenience of the shipper or consignee.
In any event, you would be well advised to check this out very carefully, and make sure your marine insurance coverage is adequate.
Freight Charges – Liability on Prepaid Freight
Question: A shipper tenders freight (full truckload) to a carrier (Carrier A) on a prepaid basis. Shipper’s terms of sale are FOB Origin. Carrier A then hires Carrier B to move this freight to destination. The contract between Carrier A and carrier B states 45 days for payment of freight charges. Carrier A does not pay carrier B – does carrier B have any recourse on the consignee or the shipper to seek payment of their freight charges?
Answer: From your description of the facts, it sounds as though “Carrier A” did not actually transport the shipment, but brokered the shipment to another carrier. I assume, also, that the shipper paid “Carrier A”, and that “Carrier A” failed to pay “Carrier B”.
Liability for freight charges depends on the facts and the relationships among the parties. Unfortunately, the “double payment” problem is very common when brokers go out of business or abscond with funds. This is a “gray area”, and collection agencies and lawyers for the carriers will probably tell you that the shipper or consignee could be liable even though they have paid the broker.
However, the general rule, as supported by a number of court decisions, is that if the shipper has dealt only with the broker, and has paid the broker, the carrier cannot come back to the shipper to collect its freight charges. The legal rationale is that there is no privity of contract between the shipper and the carrier; also, that the carrier has extended credit to the broker, and not to the shipper.
Freight Charges – Replacement Shipment
Question: Our company ships refrigeration equipment FOB origin, prepaid, prepaid & add, collect or third party. We try to leave it up to our customer to file claims with carrier, but often will get involved if unit is refused at destination or we accept it back for repair. Many times we will send replacement units, which brings me to my question. If we send a replacement, should this unit go prepaid, collect or free astray?
One of our carriers insists that replacement freight ships “free astray – deadhead” against the original freight bill. If we err and ship collect or prepaid, can’t the expense of freight be applied as an expense to the claim? This carrier has deducted the freight from their claim noting that they would have hauled the item at no charge, since the original bill was noted as damaged. They say they have special non-revenue accounts set up for this purpose. They state that they will not pay retail costs of replacement freight by themselves or another carrier. Are they correct? What difference does it make if it moves free astray or not? In my opinion they are still liable for the added freight expense.
Answer: You have an “apples and oranges” situation here. Technically, there are two separate shipments and two separate contracts of carriage: the original shipment and the replacement shipment.
With respect to the original shipment, if it was lost or damaged in transit, the carrier would be liable for the invoice price to the customer plus the freight charges, if paid. This would be true whether or not there was any “replacement” shipment made at a later time.
The concept of a “free astray” is usually applied to shipments which are misplaced or misdelivered by the carrier. When the shipment is found it is delivered to the consignee “free astray”, i.e., with no charge. This merely reflects the fact that the carrier is obligated to deliver the shipment to the named consignee under its contract of carriage.
It appears that this carrier is voluntarily agreeing to deliver a second (replacement) shipment free of charge when the original shipment is lost or damaged in transit. However, this has nothing to do with the carrier’s liability for original shipment, nor the measure of damages for the loss or damage to the original shipment.
Proof of Delivery – ‘Subject to Recount’ Notation
Question: On 2 or 3 recent truckload shipments to customers, the carrier has allowed the customer to add the notation ‘subject to recount’ on the final delivery receipt. The shipments were live unloads. The shipper has subsequently charged us back for a portion of the shipment that he says was short. This has put us in an awkward position. The carrier refuses to consider a freight claim as he claims to have a clear POD and says he had no choice but to allow the consignee the stamp the POD. In addition, the carrier was never notified of the shortage.
I feel the POD is rendered invalid by the notation. We would like to go to our customer and advise them that they cannot legally use this notation. What is the rule here? What if anything, can we tell (or show) our customer?
Answer: There is no “law” that prohibits a consignee from entering a notation such as “subject to recount” on a delivery receipt.
However, from what you say, the principal problem is with your customer and not the carrier. The customer should be counting the cartons as they are being unloaded when there is a “live unload”, and not waiting until after the driver has left. Essentially, the consignee is creating the same kind of problem as a “concealed shortage”, i.e., how do you prove that the shortage did not occur after delivery by the carrier.
About the only suggestions I can give are: (1) talk to your customer and ask them to count on delivery, not afterwards; (2) include appropriate instructions or requirements in your sales contracts or confirmation of sale documents.