How much of a loss can be recovered?

By William J. Augello -- Logistics Management, 8/1/2000

Determining whether or not a carrier is liable for a loss in transit is only half of the problem associated with freight claims. Once carrier liability has been established, the next step is to determine how much money can be recovered under the law.

The basic rule is that a claimant must be "made whole." In other words, the claimant must be put in the same position it would have been in but for the loss. This rule produces different results under different circumstances.

Take, for example, a recent claim case involving the loss of a containerload of Nike shoes moving on a single through bill of lading from Indonesia to Memphis, Tenn. In that instance, the railroads were found to be liable for the loss, but soon another difficult question arose. That question was whether the railroads were liable for the replacement cost of the shoes (the manufacturer's cost) or the destination wholesale value, which was nearly double the manufacturer's cost.

Nike proved that it had pre-sold 90 percent of the shoes in that shipment. The remaining 10 percent would have been sold shortly after being imported. The ocean carrier, Neptune Orient Lines, paid Nike its claimed damages, based on its destination wholesale price, and sued the railroads for reimbursement. But the railroads argued that they were liable only for the replacement costs.

The Ninth Circuit Court of Appeals held that the Carmack Amendment's strict liability terms applied to a single "through" bill of lading when the loss occurred beyond the dominion of the Carriage of Goods by Sea Act (that is, after they had been discharged from the vessel). Under Carmack, Nike was found to be entitled to recover the destination wholesale value-the amount it would have received if the shoes had arrived at their ultimate destination-even if the shipment would have been delivered to a warehouse or distribution center.

In rejecting the railroads' claim that only replacement costs were owed, the court held that Nike could not replace the lost goods because it changed models too frequently. "Replacement cost is an appropriate measure of damages where the injured party could mitigate the loss by replacing the goods. Where the cargo owner is unable to replace the goods, mere replacement costs deprive a manufacturer of expected profit ... and do not compensate him for what he would have had if the [delivery] contract had been performed ...."

The court also rejected the railroads' attempt to characterize the claimant's "markup" as special or consequential damages that were unknown to the carrier at the time of shipment. The court held that the rule only applied when the claimant was seeking damages for "lost productivity."

For a more extensive review of this issue, see the "Measure of Damages" section in Freight Claims in Plain English, 3rd Edition, by Augello and Pezold, published by the Transportation Consumer Protection Council Inc.

William J. Augello is an adjunct professor of transportation law at the University of Arizona. He also practices law and serves as executive director of the Transportation Consumer Protection Council Inc., an organization devoted to protecting shippers' interests. He may be reached at (631) 427-0100 or via e-mail at williamaugello@worldnet.att.net.