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Carrier hit with $6 million judgment for lost load

Lawsuit gavelA recent multi-million dollar summary judgment should remind carriers to review their shipping contracts and load acceptance practices when it comes to high-value cargo.

A U.S. District judge in Ohio on Aug. 26 awarded Westerville, Ohio-based broker Exel Inc. $5.9 million in its case against Southern Refrigerated Transport Inc. of Texarkana, Ark.

At issue was a 2008 shipment of pharmaceuticals stolen from a rest stop near Dickson, Tenn., while en route from Exel’s Mechanicsburg, Pa., warehouse to Memphis.

Following the theft of the shipment, Exel filed a claim with SRT on behalf of pharmaceutical maker Sandoz for $8,583,671.12, the alleged actual value of the lost goods. SRT denied the claim.

In court, SRT argued that its liability was limited under the Carmack Amendment to the value on the bill of lading, $56,766.36.

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The Carmack Amendment to the Interstate Commerce Act is the federal law governing interstate carriers’ liability for property loss. Based on the bill of lading, a shipper can be confident that the carrier will be liable for any damage that occurs to its shipment. And a carrier can accurately gauge, and insure against, any liability it may face for hauling that load.

But Exel successfully argued that the Carmack Amendment did not preempt the language of the Master Transportation Services Agreement between the broker and the carrier. And, under the MTSA, SRT owed Exel the replacement value for the shipper’s freight.

“It’s an interesting case and hopefully a good reminder to everyone in the marketplace – whether they’re a carrier, a broker or a shipper – that you need to take transportation contracts seriously. Make sure that you understand what you’re agreeing to,” says attorney Marc Blubaugh, Bensech partner and co-chair of the Ohio firm’s transportation and logistics practice group. “They need to be scrupulous about reviewing these contracts, and even some fairly sophisticated attorneys for carriers may not be attuned to the fact that contracting with a broker involves some different considerations than contracting directly with a shipper.”

Another “misapprehension,” and one argued in the case, is that a carrier’s liability is capped by the limits of its insurance, explains Blubaugh.

“In a carrier’s mind, they say the customer should have clearly understood that the maximum exposure was going to be $100,000 or $250,000 because that was the insurance that the carrier promised to have. Why would a carriers want to have an uninsured risk?” he says. “But those are two different issues, and the court here said that’s not going to work.”

Blubaugh, who also currently serves as president of the Transportation Lawyers Association, emphasizes that the parties to a contract “need to be on the same page,” and enter into an agreement based on a “sound business relationship” and “transparency.”

“It appears here that the two parties had a disconnect,” he says. “The carrier is thinking it’s got significantly limited liability whereas the broker is thinking they’ve already addressed full liability because that’s what the shipper desires.”

And that’s not uncommon in the trucking industry, Blubaugh suggests. Some shippers or brokers are too quick to accept a low rate, and will presume that the carrier understands the risk. Too often, however, the low rate comes from a carrier who does not understand – and has not priced – that risk appropriately.

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Even in the case of a large carrier with a standing relationship with a broker, sometimes a mispriced load will slip through the system, whether it’s a risk manager not paying attention or a sales agent being too aggressive.

“There could be all sorts of provisions that are lurking in any kind of broker-carrier agreement, or a shipper-broker agreement, that can benefit or burden one of the parties,” Blubaugh says. “So many carriers are tempted to just sign whatever is put in front in them. While the risk might be modest in certain circumstances, it certainly is not modest when you’re dealing with high-value freight like pharmaceuticals.”

Covenant Transportation Group Inc., parent company of SRT, reported Tuesday that the uninsured portion of the award in excess of the current reserve is estimated at $7 million to $8 million before tax.

“We are disappointed with the adverse ruling at this point in the case,” Covenant Chairman, President and CEO David R. Parker said in a statement. “At this stage, we are reviewing our options and expect to appeal the decision.”

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4 comments
Scott
Scott

I agree with the statements of both Tim and Karl - something isn't right here.  How can a court find that the carrier is all of a sudden responsible for the street value, if the courts have ALWAYS used the BOL as the primary contract?  So now all of a sudden the BOL is useless?  A contract with a broker SHOULD state that all value issues are defined by the BOL.  I am confident the appeal will be successful.  

Tim
Tim

This is a very interesting case which screams questions like: What shipper brokers a 8 million dollar load? Why wouldn't the shipper use their own carrier and supply an armed escort? Why isn't the FBI or other law enforcement involved trying to locate these drugs? What if the drugs were contaminated and are now hitting the street? Who was the broker, I want to make sure I never haul a load for them as it seems like some very important information was not communicated to the carrier who probably would have set up their own security if they had known the load was worth millions? How big of a hit is this to a carrier, Celadon is a public company which posted a 7.68% net profit last year, to cover an eight million dollar "mistake" they will have to run 433 trucks for 120,000 miles each at 2.00 per mile for one year. How is it that it was a large carrier that ended up on this brokered load and not a much smaller carrier? There seems to be more to this story that is not being reported than just the broker/carrier contract issue.

CGIL
CGIL

@Tim Don't you think the carrier has a responsibility to ask the value of the load they are going to haul? The carrier should take some responsibility for gathering information to protect themselves. For example, if the carrier has a insurance policy with a $3M limit why would they go ahead and ship a load valued at $7M, it is because they did not do their due diligence and find out the value of the load they are bidding on. It would make good sense for carriers to incorporate a request for the value of the load they are looking to haul when they are dealing with shippers.

Karl
Karl

So first thing is to look at numbers.  It had a cost value to the Mfg of 56K according to BOL  but the retail value was 8.5 MILLION. What that says is carriers need to consider that if you are going to be charged then hit them in the rate.   Second is off subject but shows what the problem is with health care.    56k  to 8.5 million. Do the math.

I'm guilty of sometimes skimming the contract. This will help kick me in the seat.  What I always ask the broker is "What is the product?"  


Kevin Jones is Senior Editor, Trucking Media, and writes from his home in Little Rock, Ark. His Fleet Street blog features whatever strikes his fancy and has at least a little connection to trucks, or drivers, or highways. Or David Allan Coe. (Google "the perfect country and western song" if you're not nearly as old as Kevin is.) You can also keep up with Kevin by following his Twitter feed (@KevinJonesCCJ) or just drop him a line: kevin.jones@randallreilly.com.