Appeals Court Says Tough Liability Law for Forwarders and Carriers Doesn't Apply to Through Intermodal Export Shipments

Under the Carmack Amendment, shippers can sue rail and truck carriers for damage to their goods during transportation. The law applies to carriers and freight forwarders. Carmack sets a low bar for shippers that seek damages, requiring them only to prove the value of the goods, that the loss occurred during transportation and that it wasn’t the shipper’s fault. The carrier or forwarder can only get out of liability in certain circumstances like an act of god or losses caused by the goods themselves. And Carmack is strict in requiring carriers and forwarders to assume liability for the full value of the goods unless waived by the shipper.

The Carmack claim in this case arose on a 2006 shipment of glass from Corning’s factory in Kentucky to a factory in Taiwan. Corning had an ongoing agreement with Hyundai Merchant Marine to transport its regular shipments of glass. For the 2006 shipment at issue in this case, Hyundai subcontracted transportation from Kentucky to the ocean port of export on the West Coast to the Norfolk Southern and BNSF railroads. But once the containers got to Washington United Terminal at the Port of Tacoma, Washington, the entire shipment of two containers was found to be damaged. Corning later filed a claim with its insurer CNA, which paid Corning $664,679.88. CNA in turn sued Hyundai, Norfolk Southern, and BNSF for recovery of the loss.

In a case marked by “animosity between the attorneys, if not the parties” that included a jury trial, the U.S. District Court for the Western District of Kentucky found Hyundai, Norfolk Southern and BNSF liable for about $500,000 of the loss. It did so after finding the companies were liable under the Carmack Amendment.

Appeals Court Looks to Supreme Court for Guidance

On appeal, the 6th Circuit considered the broad issue of whether Carmack applied at all. It said the past decisions hadn’t really settled the question, and it noted that recent decisions didn’t clear much up either. For example, in 2010 the Southern New York U.S. District Court found Carmack applied in a lawsuit against Panalpina related to a train derailment on an export shipment from Illinois to Australia on a through bill of lading. But two years later it found Carmack didn’t apply in a similar lawsuit filed against forwarder Expeditors International. The 6th Circuit looked for clarification to two recent Supreme Court decisions on import shipments on through bills of lading.

In its 2004 decision in Norfolk Southern v. Kirby, the Supreme Court declined to apply Carmack in a case about a derailment on an import shipment from Australia to Alabama. The derailment had occurred on the last leg of the shipment by rail from the Port of Savannah. Although it didn’t mention Carmack by name, it said that, “so long as a bill of lading requires substantial carriage of goods by sea … it is a maritime contract [but] ... [i]f a bill’s sea components are insubstantial, then the bill is not a maritime contract.”

Then, in 2010, the Supreme Court specifically found in Kawasaki Kisen v. Regal-Beloit that Carmack does not apply to overseas intermodal import shipments on through bills of lading. Although it declined to address export shipments directly, it said applying Carmack to shipments with substantial ocean legs would present several problems. First, it would in many cases be impossible to tell if the damage occurred during the rail segment covered by Carmack or the ocean leg covered by maritime laws. Also, carriers would be discouraged from using through bills of lading for both the land and ocean segments of a shipment to avoid confusion, and would be encouraged to open containers when they receive them to check their contents, both of which would reduce inefficiency.

Finds Carmack Doesn't Apply to Overseas Intermodal Export Shipments; But Hyundai Still Pays

The 6th Circuit applied the Supreme Court’s logic in those import cases to find that Carmack does not apply to overseas intermodal export shipments on through bills of lading. “Although the Supreme Court left this question unanswered, it nonetheless provided guidance for future decisions, from which the prevailing trend is that Carmack does not apply to this situation,” it said. For example, in this case, most of the shipment was set to take place on the ocean. Although it was clear that the damaged occurred on land, the same may not be true in other circumstances, such as If the damage had been discovered at the port in Taiwan instead of in Tacoma.

But despite finding Norfolk Southern and BNSF were not liable under the Carmack Act and reversing the findings of the District Court, the 6th Circuit continued to hold Hyundai liable. Even though Carmack didn’t apply, Hyundai was still covered by a clause against damage to goods under the original service agreement. The Appeals Court affirmed the $498,509.91 judgment against Hyundai, and vacated the judgments against the railroads.

(CNA Insurance Company v. Hyundai Merchant Marine, 6th Cir. 12-6118/6201, dated 03/26/14)