In this installment of PARCEL Counsel, we will analyze the relationship between a motor carrier’s liability for loss and damage to cargo, cargo liability insurance, and cargo insurance. It is very important for a parcel shipper to understand these three concepts and how they come into play when a loss occurs.
Motor Carrier Liability. The basis of liability for regulated motor carriers is found in 49 U.S.C. ⸹ 14706 – a federal statute known as the Carmack Amendment. This statute imposes strict liability on regulated motor carriers for loss and damage to cargo without proof of negligence on the part of the carrier.
The first thing for a shipper to be aware of is that this statute applies only to regulated motor carriers and not unregulated motor carriers. An example of the latter is a carrier hauling certain agricultural commodities.
This statute also does not apply to air carriers. This is important to note because many large transportation providers such as UPS or FedEx operate as both motor carriers and air carriers. Accordingly, when involved in a claim one must first determine the capacity in which the provider was operating.
There are five exceptions to a motor carrier’s liability under the Carmack Amendment. These are (i) act of the public authority, (ii) act of the public enemy, (iii) act of the shipper, (iv) inherent vice, and (v) an act of God. These have all been acknowledged by the United States Supreme Court. In order to establish one of these defenses with respect to a particular claim, the carrier must also be free of negligence.
In addition to the defenses described above, most carriers have published limits of liability in their tariffs. These can sometimes be as low as $1.00 per pound.
Cargo Liability Insurance. Most motor carriers purchase cargo liability insurance. The most important thing to know about cargo liability insurance is that it will only pay a claim to the shipper if the carrier is liable for the loss or damage to the cargo. This means that if the carrier is not liable due to a defense such as “an act of God” or a valid limit of liability in a carrier’s tariff, there is no coverage that will pay the shipper.
There is also a misconception in the industry that the carrier is only responsible up to the amount of its insurance coverage. For example, if the amount of the claim is for $140,000.00 and the carrier only holds $100,000.00 in cargo liability insurance, many persons believe that the carrier is only liable up to the amount of the insurance and not liable for the $40,000.00 not covered by the insurance. This simply isn’t so. While it is true that a carrier can establish a limit of liability in its tariff of $100,000.00, simply buying a cargo liability policy in that amount will not limit the carrier’s liability.
Cargo Insurance. Cargo insurance, also called shipper’s interest cargo insurance, is a policy purchased by a shipper to better protect itself. These policies are in the nature of casualty insurance as opposed to liability insurance. While subject to the exclusions and deductibles of the policy itself, it will pay regardless of the carrier’s liability. Shippers should give serious consideration to purchasing their own cargo insurance, especially for high value shipments, because “acts of God” do happen and there are numerous limits and exceptions in carriers’ tariffs.
All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the content library on PARCELindustry.com. Your questions are welcome at brent@primuslawoffice.com.
This article originally appeared in the May/June, 2024 issue of PARCEL.
