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Motor Carrier Found Liable for $5,890,338.82 in Lost Pharmaceuticals
By: R. Eddie Wayland, TCA General Counsel
A federal court in Ohio ruled that a motor carrier had to pay a freight broker $5,890,338.82 pursuant to the terms of the contract between the parties after the shipment of pharmaceuticals that was being transported by the motor carrier was stolen in Tennessee.
A pharmaceuticals manufacturer contracted with a freight broker to transport pharmaceuticals. The freight broker then contracted with the motor carrier to transport the pharmaceuticals from the freight broker’s warehouse in Mechanicsburg, Pennsylvania to Memphis, Tennessee. The contract between the freight broker and the motor carrier was titled the “Master Transportation Services Agreement” (MTSA). The MTSA provided that the carrier would be liable to the broker for “loss, damage or injury” to the cargo, and that even if “a bill of lading is used as a freight receipt,” that the MTSA would still control. Prior to the motor carrier transporting the shipment, a bill of lading was issued. The bill of lading provided that the “Uniform Domestic Straight Bill of Lading” applied, and that the release value for the shipment was $56,766.36.
After the shipment was stolen, the freight broker filed a claim against the motor carrier on behalf of the pharmaceuticals manufacturer. The claim was for $8,583,671.12, the alleged actual value of the lost pharmaceuticals. The motor carrier denied the claim, and maintained that the bill of lading limited its liability to the release value of $56,766.36. The manufacturer then assigned its rights to the freight broker, and the freight broker filed the lawsuit.
The freight broker argued that the MTSA was an enforceable contract, the carrier breached that contract when it lost the pharmaceuticals, and pursuant to the MTSA, the carrier must pay to replace the pharmaceuticals. In reply, the motor carrier argued that the MTSA was not the controlling agreement, and instead the bill of lading was controlling. The motor carrier argued that because the bill of lading applied, so did the “Carmack Amendment,” and that based on the Carmack Amendment, the freight broker was only owed $56,766.36.
The Carmack Amendment to the Interstate Commerce Act covers interstate carriers’ liability for property loss. In a previous ruling by the court, it determined that the Carmack Amendment did not control claims between a freight broker and a carrier that were brought pursuant to state law. The court found that “a broker’s claim survives preemption only if it is based on the carrier’s breach of a separate contractual obligation independent of its obligation as a carrier.” In arguing for the application of the Carmack Amendment despite the court’s previous ruling on the issue, the carrier argued that the broker’s claim was simply a loss of cargo claim by an interstate carrier, and that such a loss did not implicate contractual obligations independent of the traditional shipper-carrier relationship. While the court noted that there was some disagreement among courts concerning the applicability of the Carmack Amendment, it adhered to its previous ruling in the case, and ruled that the Carmack Amendment did not control.
The court then turned to the MTSA and found that it was enforceable. After determining its enforceability, the court ruled that the plain language of the MTSA required the carrier to pay the freight broker for the lost pharmaceuticals. The court found that while the MTSA only stated that the carrier was required to have $100,000 of liability insurance, that amount did not serve as a cap on liability for lost cargo because the MTSA also explicitly stated: “The Insurance required . . . does not limit Carrier’s liability . . . .” The court ruled that the carrier was liable for $5,890,338.82, which was the undisputed replacement value for the pharmaceuticals.
This case is noteworthy because it recognizes the split of authority among the courts regarding the applicability of the Carmack Amendment. As this case makes clear, a large amount of money can hang in the balance when determining what contract provisions cover lost cargo. Accordingly, it is imperative that carriers stay abreast of the state of the law in this area, including the law in jurisdictions that apply to them. Also, carriers should review their contracts to insure that the documents do not contain a potential liability catch or loophole, as was the situation in the case discussed above.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at firstname.lastname@example.org. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.
March 17, 2015