Liability limitations are provisions in a carrier's tariff and/or bill of lading (the contract of carriage) that place a limit on the carrier's liability for loss, damage, or delay. They are rarely mentioned during negotiations for rates and services, but they are always raised during negotiations over the payment of claims.

Liability limitations often are the source of disagreements between shippers and carriers. A general understanding of the history of these limitations can be helpful to shippers when they are negotiating with motor carriers. Here's a brief synopsis:

Where did they originate? The roots of common carrier liability have been found in early Roman transportation contracts, circa A.D. 150. Carrier liability is a form of the law of bailments, under which the carrier is held to strict liability because it has complete knowledge and control of the goods during transit. English law followed Roman concepts of strict liability even when the carrier was "robbed" in transit because of the potential for collusion. (See Coggs v. Bernard, 1703.)

U.S. law adopted these concepts of strict liability when Congress provided for federal preemption of state laws governing interstate railroads in the Hepburn Act of 1906, which included the Carmack Amendment. In 1916, Congress required the Interstate Commerce Commission (ICC) to approve "released rates," which allowed carriers to reduce their liability in return for lower rates, on the condition that the rate differentials were reasonable.

Where do things stand now? Since the legislated demise of the ICC on Jan. 1, 1996, motor carriers and railroads have universally adopted liability limitations, many of which would never have been approved by the ICC. For example, virtually all LTL carriers limit their liability today to $25 per pound, "per piece." The ICC never permitted a maximum limit on carriers' liability because that would have violated the Carmack Amendment. Nor did the ICC generally approve limits on partial losses that did not permit the claimant to recover the full value of the lost or damaged piece.

Where did the "per piece" gimmick originate? Motor carriers got the idea for the "per piece" limitation from the international airlines. In 1977, the Civil Aeronautics Board (CAB) ordered the airlines to increase their unreasonably low liability limit of $0.50 per pound to the Warsaw Convention level of $9.07 per pound. International airlines applied that $9.07 limit only to the weight of the pieces that were lost or damaged, not to the weight of the entire shipment. Our domestic airlines subsequently adopted the "per piece" rule for partial losses for domestic cargo when they were deregulated. Motor carriers later adopted the same rule on partial losses, which substantially reduced claimants' recoveries without any reduction in freight rates.

How can shippers avoid these limitations? The only way to avoid these restrictions is through careful negotiation of contracts or rate agreements. There is no longer any federal oversight of these agreements to protect unsophisticated shippers or receivers from these or the many other types of exculpatory clauses found in carriers' tariffs today.