"Sophistication" works both ways!

By William J. Augello Esq. -- Logistics Management, 7/1/2000

Many courts have ruled against shippers that tried to avoid liability limits in a carrier's tariff when they had not read the applicable tariffs and had not signed released-value clauses on bills of lading. The courts generally have charged those shippers with being "sophisticated" and therefore responsible for reading carriers' bills of lading and tariffs before shipping.

In a break from that pattern, the 7th Circuit Court of Appeals recently ruled against a carrier even though the shipper had not read the carrier's tariff. In this case, Tempel Steel Corp. v. Landstar Inway Inc., 2000 WL 528057 (7th Circuit; May 2, 2000), the shipper sought bids for shipping machinery to Mexico on through bills of lading. Landstar Inway was the successful bidder.

During a cross-border drayage operation, one piece of machinery fell off the trailer. Landstar denied liability, based on language in its tariff stating that it did not provide through transportation service to or from Mexico regardless of any bill-of-lading notations to the contrary. Its tariff also stated that "at no time shall Landstar be held liable for any loss or damage to a shipment within the country of Mexico." Landstar argued that these tariff provisions were incorporated by reference into the bill of lading. Tempel argued that the carrier's representatives never informed it of these tariff provisions.

The 7th Circuit Court upheld a lower court holding that actual notice was necessary for a limitation to be enforced, that the shipper must be given a reasonable opportunity to choose between two or more levels of liability, and that the shipper must agree in writing to a lower limitation in return for a lower rate. The court noted that the filed-rate doctrine had been repealed at the time of this shipment, and therefore, "...it is hard to envisage how a shipper could be said to agree to a limitation of liability of which it lacked actual knowledge." The court concluded that no statute "requires businesses to scrounge for limitations that have not been flagged by the carrier ... carriers can't just cancel the Carmack Amendment by their say-so."

In affirming the lower court ruling, the 7th Circuit Court concluded by stating that "Landstar, as an experienced carrier, should have realized that its 'tariff'was ineffectual for transit under a through bill of lading. Landstar had every right to issue a bill of lading that stopped at the U.S. border. Instead it entered into a competitive process, under which Tempel had invited carriers to bid for through transport of goods from Ohio to Mexico. Having agreed to through transport in order to obtain the business and having failed to offer Tempel a price schedule that linked rates to liability for loss, Landstar must accept the legal consequences under Sec. 14706."

There are several lessons to be learned from this decision. First, shippers should insist on disclosure of a carrier's liability limits before shipping. Second, if a claimant in a similar situation has a choice of venue between the 7th Circuit Court and another circuit court, it would be well advised to bring the action in the 7th Circuit. Further, claimants can prevail if they know the law and the background of the current statutes. Finally, carriers need to review their tariffs, bills of lading, and contracts to be certain any attempts to limit liability are in accord with the current law and thus will be enforceable.

William J. Augello Esq. has practiced transportation law for 47 years. He also is the executive director of the Transportation Consumer Protection Council, an organization that is devoted to protecting shippers and receivers in transportation matters, such as freight loss and damage, undercharges, and contracts. He can be reached at (631) 427-0100 or via e-mail at williamaugello@worldnet.att.net.