If they broke it, don’t pay for it

Updated Jan 14, 2010

FedEx Ground settles owner-operator suit
FedEx Ground has agreed to a $26.8 million court settlement with 203 California drivers who argued they were misclassified by the company as independent contractors. Final court approval is required. Now-retired California Superior Court Judge Howard Schwab ruled in 2004 that the drivers were legally employees and entitled to be reimbursed for all the expenses the company had required them to pay. In August 2007, the California Court of Appeals affirmed the judgment and doubled the damages awarded to the drivers.

About 27,000 FedEx drivers nationwide have a multidistrict lawsuit against the company for misclassification pending in South Bend, Ind.

Q We transport pre-cast stone that is stacked, banded, skidded and loaded by the shipper onto trailers. Frequently after delivery, we receive concealed damage claims for broken stone that was not noted at time of delivery. Are we liable? How can we protect ourselves?

A Without being too simplistic, unless the pre-cast stone somehow is packaged by the shipper, giving rise to the “act or omission of shipper” or “inherent vice” defense, a carrier whose driver observes the loading under normal circumstances is liable for freight securement and must pay the cargo claim if damage is noted at time of delivery. The only exception to this general rule that the bill of lading notations create a presumption of liability is when the shipment is loaded by the shipper, unloaded by the consignee, and the words “shipper load and count” or words of similar meaning appear on the bill of lading at time of pickup. Even then, you will encounter a real argument if the driver was there and could observe the loading.

Concealed damages that were not observable by the driver at time of pickup and were not noted by the consignee at time of delivery create a tough issue. The problem you mention is a real one, particularly if items such as expensive marble countertops are involved. The driver is not an expert and does not have the ability to conduct an in-depth inspection or to determine the condition of the middle pieces of cargo that have been pre-banded and skidded prior to pickup.

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As a carrier, you should rely on the presumption of good order at time of delivery if you have a clear delivery receipt to deny any claim you receive. When damage is noted at time of delivery, the burden is on you to prove an exception from liability. A claimant does not have to prove your negligence or rough handling. Yet, if the shipment is received in good order and the damage is discovered later, that presumption is reversed. Then it is up to the claimant to show that the damage occurred during transit and was not a pre-existing condition at time of shipment, or did not happen subsequently.

Because of reoccurring concealed damage claims with particular shipments, both shippers and carriers try via contract to negotiate special claims terms and conditions that alter the effect of precedent. Carriers should beware of contract terms that state that concealed damages reported within 15 days of delivery will be treated as if noted as exceptions at time of delivery. Arguably, language like this reverses the presumption of good order at time of delivery and means the carrier is presumed liable for damages, even though to all parties concerned the carrier appeared to deliver the shipment in the same condition in which it was received.

In order to enjoy a successful long-term relationship with a shipper of this type of product, I recommend some written understanding on the front end about the handling of cargo claims. Possibly the following language would help:

All shipments will be loaded and braced by the consignor to withstand the perils of transportation and will be shipped as “shipper load and count, consignee unload.” In the absence of upset or demonstrable carrier negligence during transportation, carrier shall not be liable for damage due to alleged chipping or breaking of product in transit.

Another way to approach this issue might be to establish a low released valuation that would permit claims to be settled economically and would otherwise greatly minimize your claims exposure.