When is a shipper "sophisticated?"

By William J Augello -- Logistics Management, 8/1/1998

Some courts appear to be drawing a distinction between "sophisticated" and "unsophisticated" shippers when deciding whether or not to enforce a carrier's liability limitations against that shipper. Some courts have spoken in terms of the shipper's "economic stature and commercial awareness." Some have considered whether the shipper had prior dealings with carriers. Other courts have considered the fact that carriers are in the business to make a profit and the bill of lading is their "handiwork," so they have resolved ambiguities against the drafter. All courts recognize the bill of lading as a "contract of adhesion," which the shipper usually has no opportunity to change.

Even in the pre-ICC (Interstate Commerce Commission) era, when shippers were charged with constructive notice of ICC-filed tariffs, some courts had difficulty charging a small, unsophisticated shipper with knowledge of the terms on the back of a bill of lading, which were printed in small, nearly illegible print. Imagine their consternation today, when carriers attempt to enforce a liability limitation hidden in their tariffs, which can only be found at the carriers' headquarters and to which the shipper never concurred.

If sophistication is a lawful standard of liability, is it governed by the size of the corporation, or whether or not it employs a trained traffic manager, or whether it has outsourced its traffic function to a third party? If the shipper has delegated the transportation function to a third party, that will raise the question of whether the third party is affiliated with a carrier. If so, the shipper may be charged with the consequences of the third party's failure to determine the carrier's liability limits before shipping.

Courts probably will not be sympathetic to a shipper that signed a carrier's bill of lading or contract that incorporated by reference the carrier's tariffs and classification without first looking at the liability limitations, whether that shipper is "sophisticated" or not. If, however, a shipper can demonstrate that it had no actual notice of the limitations or that it requested a copy of the carrier's tariff but did not receive it before it shipped, some courts might be sympathetic enough to hold the carrier fully liable for any losses. Don't "bet the farm" on this outcome, however. Since Jan. 1, 1996, when the ICC was "sunset," the law has been unclear as to whether a carrier may limit its liability without the shipper's written consent.

The best remedy for shippers, of course, is to draft their own contract including full liability or to negotiate specific liability terms in return for reduced rates. Manufacturers should take into consideration packaging characteristics and the transportation environment when deciding whether or not to assume the risks of damage in transit. Manufacturers of products that are prone to theft or pilferage in transit, though, may wish to consider including limited liability for damage only, not for non-delivery. It doesn't make much sense to assume a risk of loss over which the owner has no control.

William J. Augello Esq. has practiced transportation law for 46 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 (516) 427-0100 or via e-mail at augello@transportlaw.com.