Freight Claims in Plain English

Transportation Law

Retailer Perspective

Presented by Gerard F. Smith, Esq.

The Parties

intermediaries

Broker

BROKER

Freight Forwarder

3PL



SHIPPER Type name here Type name here

SHIPPER ( Type title here

CARRIER Type title here

CONSIGNEE

(Consignor)

What are the differences

between……

• Brokers,

• Freight Forwarders

• Third and Fourth Party Logistic Providers

• Carriers

THE CARMACK AMENDMENT

 Edward Ward Carmack was an attorney,

newspaperman, and political figure who

served as a U.S. Senator from Tennessee

from 1901 to 1907.

 The federal law governing surface carriers’

liability for loss, damage and delay to

interstate movements of goods in the

United States is commonly referred to as

the “Carmack Amendment”.

 The name is derived from Senator who was

responsible for having this law enacted in

1906.

Liability of a Motor Carrier



Carmack Amendment

49 U.S.C § 14706 (united states code)

Carrier responsible for “full actual loss”

caused by the carrier by reason of loss,

damage or delay

Carriers are “virtual insurers” of goods in

their possession.

THE CARMACK AMENDMENT

 1) a uniform standard of liability



 2) end to the conflict in state courts over the

extent of liability



 3) joint and several liability for originating and

delivering



 4) Require the carrier to issue a receipt or bill of

lading

THE CARMACK AMENDMENT

 5) Codify the common law liability of

common carriers;

6) uniform time limits for the filing of

claims and suits;

7) place where carriers may be sued

(venue);

8) Apply the laws governing water

carriers

THE CARMACK AMENDMENT



• 9) liability applies provisions to reconsigned

shipments

• 10) use of freight forwarder bills of lading and

delivery receipts

• 11) originating and/or delivering carrier required

to pay for a loss

BEGINNING and ENDING

of CARRIER LIABILITY

• WHEN LIABILITY BEGINS



Common carrier liability begins only after acceptance

of the bailment agreement by the carrier. Such

acceptance takes effect when the goods are placed in

a position to be cared for, and under the control of the

carrier or his agent, with his knowledge and consent.



Bailment = where physical possession of personal property, or chattel, is

transferred from one person (the 'bailor') to another person (the 'bailee') who

subsequently holds possession of the property.

BEGINNING and ENDING

of CARRIER LIABILITY

• WHEN LIABILITY BEGINS



• For liability as a common carrier to

commence, a shipper must complete delivery

to the carrier, and the shipment must be

accepted by the carrier

BEGINNING and ENDING

of CARRIER LIABILITY

• WHEN LIABILITY ENDS

• Common carrier liability does not end until

transportation of a shipment is completed.

Transportation is not completed until a

shipment has both arrived at its destination

and has been delivered

Claims against Motor Carriers

 49 USC 14706

 Minimum period for filing claims.—



 (1) In general.--A carrier may not provide by rule,

contract, or otherwise, a period of less than 9

months for filing a claim against it under this

section and a period of less than 2 years for

bringing a civil action against it under this

section. The period for bringing a civil action is

computed from the date the carrier gives a

person written notice that the carrier has

disallowed any part of the claim specified in the

notice.

Claims against Motor Carriers

 Who can File the Claim:

 Consignor?

 Consignee?

 Broker? or

 Insurance Company?



 A CLAIM IS A WRITTEN DEMAND BY A

CLAIMANT TO A CARRIER FOR DAMAGES DUE

TO THE CARRIER'S BREACH OF THE CONTRACT

OF CARRIAGE RESULTING IN LOSS, DAMAGE

OR DELAY TO SHIPMENT.

THE ESSENTIAL ELEMENTS OF

A CLAIM ARE:

 (1) NOTICE THAT A LOSS OCCURRED;

 (2) THE IDENTITY OF THE SHIPMENT;

 (3) THE NATURE OF THAT LOSS (DAMAGE, SHORTAGE,

NON-DELIVERY, PILFERAGE, ETC.;

 (4) THE AMOUNT OF THE LOSS, IF KNOWN, OR IF NOT,

THE AMOUNT OF THE POTENTIAL LOSS; AND

 (5) A DEMAND FOR PAYMENT.

CLAIMS PROCEDURES &

ADMINISTRATION



 WHO MAY FILE A CLAIM OR SUIT

 RISK OF LOSS

 FILING CLAIMS

 BRINGING SUITS

 The first step in any claim case is to ascertain who has risk

of loss in transit. This concept is significant because it

determines who has the legal right or obligation to file the

claim, and who is the proper “party in interest” in the

event of litigation.

CLAIM LETTER FORMAT

DOCUMENTS THAT SHOULD BE SUBMITTED

WITH CLAIM

• Paid freight bill;

• Original bill of lading;

• Certified copy of the invoice

• Copy of inspection report, correspondence from

carriers acknowledging the loss or damage, delivery

receipt with exception notation;

• explanation of repair costs,.

Proof required against Motor Carrier

• 1.Good order and condition

– a. loading tallies

– b. actual testimony of person who observed

loading

– c. packing lists

– d. the bill of lading (except shippers load and

count - SL&C)

– e. invoice

Proof continued…



• 2nd element of proof…

• Non-delivery

• Damages to goods

• Delay

Proof continued…

• 3. Damages

– “Actual Value” of the goods = Destination market

value (not Manufactures cost)

–A. Invoice amount

–B. replacement costs

–C. customs declaration

–Duty to mitigate damages

CARRIER DEFENSES TO LIABILITY

• ‘(a) the act of God

• (b) the public enemy;

• (c) the act of the shipper himself

• (d) public authority

• (e) or the inherent vice or the nature of the

goods. ..

CLAIMS PROCEDURES &

ADMINISTRATION



• REJECTION vs. ACCEPTANCE OF DAMAGED

SHIPMENTS

– THE “PRACTICALLY WORTHLESS” SHIPMENTS

– WRONGFUL REJECTIONS

– INSPECTIONS

SPECIFIC CLAIM PROBLEMS



• CONCEALED DAMAGE

• If damage to cargo is not apparent at the time of

delivery, a shipper or consignee must give prompt

notice to the carrier upon later discovery of damage.

Failure to give prompt notice places the burden on

the shipper to rebut the presumption that the cargo

was delivered in good condition

LIMITATIONS OF LIABILITY

– RELEASED, AGREED, ACTUAL, AND

DECLARED VALUES

– In a “released rate” situation, the carrier is liable

for the full actual loss unless the shipment is

“released” to the carrier at a lower stated value.

If the shipper enters a released value on the bill of

lading, it will be entitled to a lower or reduced

rate; if it fails to do so it will be charged the higher,

full-value rate

Hughes Aircraft Co. v. North American Van Lines, Inc.,

970 F.2d 609, 613 (9th Cir.1992)





• TO LIMIT ITS LIABILITY A CARRIER MUST:

1. MAINTAIN AN APPROVED TARIFF;

2. OBTAIN AN AGREEMENT WITH THE SHIPPER BASED ON A CHOICE OF

LIABILITY;

3. GIVE THE SHIPPER AN OPPORTUNITY TO CHOOSE BETWEEN LEVELS OF

LIABILITY; AND

4. ISSUE A BILL OF LADING PRIOR TO THE SHIPMENT.

LIMITATIONS OF LIABILITY

• SPECIFIC PROBLEMS

– NOTICE – ACTUAL OR CONSTRUCTIVE

– “SOPHISTICATED SHIPPER”

– PARTIAL LOSSES

– FORM OF BILL OF LADING

– AUTOMATIC RELEASES & “INADVERTENT” RULES

– “HIGH VALUE” SHIPMENTS

– THE NMFC AND RATES DEPENDENT ON VALUE

• Released Value Items

• Actual Value Items

• Item 172 – Limitation Where Value Is Not Declared by Shipper

» Item 60000-Class 70 – Drugs, Chemicals, Medicines, Toilet

Preparations and Other Articles

SPECIFIC CLAIM PROBLEMS



• DELAY CLAIMS (REASONABLE DISPATCH)

– PERISHABLES

– NON-PERISHABLES

– PUBLISHED SCHEDULES

– “GUARANTEED” DELIVERY

– MECHANICAL BREAKDOWNS

SPECIFIC CLAIM PROBLEMS



• NON-DELIVERIES

– SHORTAGES AND PILFERAGE

– ROBBERIES, THEFTS, HIJACKINGS AND IMPOSTER

THEFTS

– UDELIVERABLE FREIGHT AND MISDELIVERIES

AUTOMATIC” RELEASES & “INADVERTENCE” RULES





An automatic release is a limitation of liability which

comes into effect when the shipper fails to take some

affirmative action to obtain full liability coverage.

Automatic releases may be found in exempt

contracts such as those which incorporate the

railroad’s TOFC/COFC circulars, and in motor carrier

tariff rules, which require the shipper to enter a

value on the bill of lading or make a notation that full

(or higher) liability coverage is desired.

AUTOMATIC” RELEASES & “INADVERTENCE” RULES

• Beware of tariff provisions such as in Item 62822 of N.M.F.C. 100, applying

on radio, radio-telephone or television transmitting or transmitting and

receiving sets, etc. which state:

• NOTE: The released value must be entered on shipping order and

bill of lading in the following form: “The agreed or declared value of the

property is hereby specifically stated by the shipper to be not exceeding

$_____ per pound.”

• If the shipper fails or declines to execute the above statement or

designates a value exceeding $5.00 per pound, shipment will not be

accepted, but if shipment is inadvertently accepted, charges will be

assessed initially on the basis of the class for the highest value provided.

Upon proof of lower actual value, the freight charges will be adjusted to

those that would apply if the shipment had been released to the amount

of its actual value.

LIMITATIONS OF LIABILITY

• DEREGULATION CHANGES

– MOTOR CARRIER ACT OF 1980

• No Requirement for Prior I.C.C. Approval

• Collectively-Made Released Rates

• Choice of Rates

– TRUCKING INDUSTRY REGULATORY REFORM ACT OF 1994

– FEDERAL AVIATION ADMINISTRATION AUTHORIZATION

ACT OF 1994

– I.C.C. TERMINATION ACT OF 1995

– STAGGERS RAIL ACT OF 1980

• Limited Value Rates

• Deductibles

Freight Charges: Prepaid and Collect

• Prepaid means that the shipper owns the

freight payment responsibility.

• Collect means that the consignee owns the

freight payment responsibility.

• Prepaid/Collect Beyond means that the

shipper or consignor owns the prepayment

portion with the balance of the freight charge

being the responsibility of the consignee.

Freight Charges: Prepaid and Collect

• Third Party establishes that a party neither the consignor nor consignee

owns the payment processing function. The legal payment obligation may

or may not belong to the third party and the assignment of the legal

responsibility is determined from the parties identified on the Bill of

Lading Contract. Simply put, unless the payment party is a party to the Bill

of Lading contract, they have no legal obligation for payment. “Third

Party” is typically invoked when there is an outsourced payment service to

handle the freight payment function.

• Pre-pay and Add typically means that the shipper advances the freight

charges to the carrier and then bills the beneficial owner of the freight for

an amount approximating or equal to the actual freight charges.

The Uniform Commercial Code

The Uniform Commercial Code (UCC

or the Code) is one of a number of

uniform acts harmonizing the law of

sales and other commercial

transactions in all 50 states within

the United States of America.

Uniform Commercial Code

 There are certain presumptions, based on the “terms of

sale” used:

 F.O.B. Place of Shipment - U.C.C. 2-319 provides that where

F.O.B. place of shipment is specified, the seller is bound to

ship the goods at that place and bears the risk and expense

of putting the goods in possession of the carrier. Thereafter,

the risk of loss is on the buyer.

 F.O.B. Place of Destination - When the term is F.O.B. place of

destination, the seller must transport the goods to that

place at his own risk and expense and tender proper

delivery. Thus, the risk of loss is on the seller during transit.

 F.A.S. means “free along side” and requires the seller to

deliver the goods to the pier or dock. Risk of loss remains on

the seller until such delivery is completed.

FOB (Freight on board)

 FOB Origin means the responsibility of the Seller stops when the 'goods'

are delivered to the Carrier at seller’s factory.



 It also means if something gets lost or is damaged in transit, it is between

the Buyer and the carrier.



 FOB Destination means that the risk of loss to the merchandise passes at

time and place of delivery to the consignee (Retailer).



 Simply stated…FOB origin means the risk of loss or damage in transit is on

the buyer, and FOB destination means risk of loss or damage in transit is

on the seller (vendor).

Make a distinction

• Title to the Goods (sales terms)



• Risk of Loss (goods in transit)



• Prepaid and collect (freight charges)

INCOTERMS

• Incoterms or international commerce terms are a series of international

sales terms, published by International Chamber of Commerce (ICC) and

widely used in international commercial transactions.



• EXW – Ex Works (named place)

• The seller makes the goods available at his premises. The buyer is

responsible for all charges.



• EXW means that a seller has the goods ready for collection at his premises

(Works, factory, warehouse, plant) on the date agreed upon.



• The buyer pays all transportation costs and also bears the risks for bringing

the goods to their final destination

“shippers load and count”

• This notation is generally used when, for the

shipper’s convenience, the carrier “drops” a

trailer to be loaded and sealed by the shipper,

and returns at a later time to pick up the trailer

without inspecting or counting the contents.

• § 80113. Liability for nonreceipt, misdescription, and improper loading

• (a) Liability for nonreceipt and misdescription. –

• Except as provided in this section, a common carrier issuing a bill of lading is liable for damages

caused by nonreceipt by the carrier of any part of the goods.

• (b) Nonliability of carriers. -

• A common carrier issuing a bill of lading is not liable under subsection (a) of this section (1)

when the goods are loaded by the shipper;

• (2) when the bill -

• (A) describes the goods in terms of marks or labels, or in a statement about kind, quantity, or

condition; or

• (B) is qualified by “contents or condition of contents of packages unknown”, “said to contain”,

“shipper’s weight, load, and count”, or words of the same meaning; and

• (3) to the extent the carrier does not know whether any part of the goods were received or

conform to the description.

• (c) Liability for improper loading. -

• A common carrier issuing a bill of lading is not liable for damages caused by improper loading if

• (1) the shipper loads the goods; and

• (2) the bill contains the words “shipper’s weight, load, and count”, or words of the same

meaning indicating the shipper loaded the goods

“shippers load and count”

 The Bills of Lading Act addresses the effect of loading by the

carrier or the shipper.



 When bulk freight is loaded by a shipper that makes available to

the common carrier adequate facilities for weighing the freight, the

carrier must determine the kind and quantity of the freight within a

reasonable time after receiving the written request of the shipper to

make the determination. In that situation, inserting the words

“shipper’s weight” or words of the same meaning in the bill of

lading has no effect.

 When goods are loaded by a common carrier, the carrier must

count the packages of goods, if package freight, and determine the

kind and quantity, if bulk freight. In that situation, inserting in the

bill of lading or in a notice, receipt, contract, rule, or tariff, the

words “shipper’s weight, load, and count” or words indicating that

the shipper described and loaded the goods, has no effect except

for freight concealed by packages.

“shippers load and count”

• The Bills of Lading Act addresses the effect of loading by the

carrier or the shipper.



• When bulk freight is loaded by a shipper that makes available to the

common carrier adequate facilities for weighing the freight, the

carrier must determine the kind and quantity of the freight within a

reasonable time after receiving the written request of the shipper to

make the determination. In that situation, inserting the words

“shipper’s weight” or words of the same meaning in the bill of

lading has no effect.

• When goods are loaded by a common carrier, the carrier must count

the packages of goods, if package freight, and determine the kind

and quantity, if bulk freight. In that situation, inserting in the bill of

lading or in a notice, receipt, contract, rule, or tariff, the words

“shipper’s weight, load, and count” or words indicating that the

shipper described and loaded the goods, has no effect except for

freight concealed by packages.

“sh

shippers load and count ippers

long held that, if count”

• the courts have load and the improper loading is apparent

and could have been detected by the carrier’s employee, the carrier

cannot raise the shipper’s act as a defense.

• Thomson v. Chicago, Milwaukee & St. Paul Ry. Co., 217 N.W. 927

(Sup.Ct. Wis. 1928); Robinson v. New York Cent. R. Co., 282 N.Y.S.

877 (App.Div. 2nd Dept. 1935); David E. Kennedy, Inc. v. O’Brien, 175

A. 882 (Sup.Ct. Pa. 1934); Lewis Machine Co. v. Aztec Lines, Inc., 172

F.2d 746 (7th Cir. 1949); Modern Tool Corp. v. Pennsylvania R.R. Co.,

100 F.Supp. 595 (D. N.J. 1951); Central of Georgia Ry. Co. v. Griner

and Rustin, 127 S.E. 878 (Ct.App. Ga. 1925); Perkel v. Pennsylvania

R.R. Co., 265 N.Y.S. 597 at 604 (1933); United States v. Savage Truck

Line, Inc., 209 F.2d 442 (4th Cir. 1954); Symington v. Great Western

Trucking Co., 668 F.Supp. 1278 (S.D. Iowa 1987). See also Smart v.

American Welding and Tank Co., Inc., 826 A.2d 570 (N.H. 2003).

“

shippers load and count shippers

load sealed trailersconsequences of a “Shippers

and the should be accompanied by

• If a shipper is not willing to accept count”

Load and Count” notation,

another notation on the bill of lading requesting inspection by the

driver of the cargo after loading.

• TIP: Shippers should request drivers to check loads before

acceptance. If a driver refuses to do so and had the opportunity to do

so, record on your records what the driver was doing when you loaded

the shipment.

• TIP: Do not permit a driver to insert “SL&C” on a bill of lading

when he has been given the opportunity to inspect and/or count the load

during loading. In such cases, insert an affirmative statement that the

shipment is not a “SL&C” shipment, and that the driver is to inspect

and count the load.

“shippers load and count”

• TIP: When a “SL&C” defense is raised, determine whether the specific

cause of the damage can be attributable to the shipper’s loading. If not, the

“SL&C” defense is not relevant.



• TIP: Where goods are palletized and the driver cannot count the cartons on the

pallet, it is acceptable to state the number of pallets and the total number of

cartons, in which event the driver signs for the pallets only.



• TIP: Do not confuse “SL&C” with commodity rates published to apply when

a shipper loads and/or consignee unloads. These rate provisions do not necessarily

preclude the carrier’s driver from counting and inspecting the load during the

loading and unloading, as they merely provide for the substitution of shipper labor

for carrier labor, and are unrelated to carrier liability for damage. However, some

rate items specifically exclude the service of loading and counting the product in

the shipment.

Live Unload

• On LTL shipments and TL shipments where the driver unloads the trailer (or is

present during the unloading) it is important to count and inspect the goods as

they are unloaded from the vehicle.

• "Best Practices" recommendation: If there is any visible evidence of damage, or

the count does not match quantity shown on the bill of lading (or the purchase

order), a notation should immediately be made on the bill of lading or delivery

receipt, and it should be signed and dated by both the driver and the receiver.

• Note that on LTL shipments, carriers often use a "Pro" for a delivery receipt that is

generated by the carrier and contains information copied from the bill of lading.

Truckload shipments more commonly move with a copy of the bill of lading that is

carried with the load and is used as the delivery receipt.

• "Best Practices" recommendation: All damage, even if only slight markings on the

exterior of a package, should be noted, because it may offer a clue to damage to

the contents discovered later. On palletized shipments, if banding, shrink or

stretch wrapping is broken on receipt, inspect and count the contents in the

driver’s presence.

Dropped Trailer

• "Best Practices" recommendation: As noted above, before opening a dropped

trailer, it is important to verify the integrity of the seals, locks, hinges, etc. to make

sure that there has been no access after the time the carrier delivered the trailer.

If there is any such evidence, extra attention is in order.



• As with a "live unload", goods should be carefully counted and inspected as the

trailer is being unloaded. Any discrepancies should be accurately recorded. Most

companies use an Over, Short or Damage ("OS&D") form for this purpose. Again,

the use of digital cameras is highly recommended to document damage or

shortage during the unloading.



• When damage or shortage is discovered, it is important to call the carrier

immediately and request an inspection. Confirm your request for inspection in

writing! A telephone call is fast and simple, but provides no record of notification.

Dropped Trailer

• “Best Practices" recommendation: One of the most

important steps to take in cases of dropped trailer shipments

(or any concealed damage) is to set aside the damaged goods

awaiting the carrier’s inspection and RETAIN THE ORIGINAL

PACKAGE AND PACKING.

• Leave all straps, wood, or wrappings intact and try not to

move item unless necessary. Failure to comply with this

provision deprives the carrier of the opportunity to inspect

the goods and the packaging, which will, in turn, severely

hinder your chances to recover damages (unless, of course,

you have preserved the evidence by taking photographs,

obtained a written statement from the person having actual

knowledge of its condition, etc.).

Concealed Damages

• Many carriers refuse to pay a concealed damage claim that is not reported within

15 days, citing a "15 day rule". There is no such rule, but loss or damage reported

after a reasonable time makes it more difficult to prove that the condition existed

at the time of delivery, and not afterwards.



• Item 300155 of the NMFC addresses this problem as follows:

• PRIOR TRANSPORTATION-REGULATIONS GOVERNING THE INSPECTION OF FREIGHT

BEFORE OR AFTER DELIVERY TO CONSIGNEE AND ADJUSTMENT OF CLAIMS FOR

LOSS OR DAMAGE



• If a concealed damage inspection report covers merchandise which has had prior

transportation movement, consignee is required to assist carrier in determining if

shipment was opened and inspected by shipper prior to reshipment, and if not,

shall then assist carrier in every way possible to establish record of prior

transportation

REFUSED OR REJECTION OF A DAMAGED SHIPMENT

• There is a body of case law that places a duty on the shipper and consignee (and

the carrier) to "mitigate damage". What this essentially means is that damaged

shipments should not be refused or rejected back to the carrier unless the goods

are "practically worthless".

• The test is whether it is reasonable under the circumstances to mitigate the

damages, considering factors such as the cost of sorting, segregating, repair,

repackaging, and the net proceeds that may be recovered in a salvage sale.

• Food products, drugs and medicines usually cannot be sold or allowed into the

stream of commerce if there is any chance of contamination, adulteration, or

other condition that could pose a hazard to human health, and must be destroyed

without salvage. Manufacturers of goods such as consumer electronics and

electrical appliances usually will not permit damaged goods to be sold for salvage

because of product liability concerns, as well as the negative effect on their

reputation, trademarks, good will, etc.

REFUSED OR REJECTION OF NON-CONFORMING GOODS

• It is critical to distinguish between shipments that incur transit loss or damage, and

merchandise that is "non-conforming".

• Non-conforming goods typically involve the wrong color, size, and quantity or

otherwise are not what the purchaser ordered from the vendor.

• Sections 2-601 et. seq. specify the rights and duties of the parties where the goods

or tender of delivery fail to conform to the contract. Section 2-601 states that the

buyer may

• (a) reject the whole; or

• (b) accept the whole; or

• (c) accept any commercial unit or units and reject the rest.

• Section 2-602 states that rejection must be within a reasonable time after delivery

or tender, and requires the buyer to seasonably notify the seller. If the buyer has

taken possession of the goods, he is under a duty to hold them with reasonable

care at the seller's disposition for a time sufficient to permit the seller to remove

them.

Safersys.org



http://www.safersys.org/

Transportation and Logistics Council



• http://tlcouncil.org/

Pezold, Smith, Hirschmann , &

Selvaggio L.L.C.

http://www.transportlaw.com/





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Denville, NJ 07834

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