Recoverable Damages for Cargo Claims

KEVIN BRANCH

Partner Dennis, Corry, Porter & Smith LLP

Shipper/Claimants Burden of Proof

Under the Carmack Amendment
Prove that the cargo was tendered to the
carrier in good order
Prove that the cargo was not delivered in
the same good order
Prove the amount of damages

Theoretical Underpinning for Cargo

Claim Damages
When cargo is lost, stolen or damaged in
transit, the claim against the carrier
sounds in contract. Hector Martinez & Co.
v. Southern Pac. Transportation Co., 606
F.2d 106 (5th Cir. 1979).

Theoretical Underpinning for Cargo

Claim Damages
One who commits a breach of contract
must make compensation to the injured
party. In determining the amount of this
compensation as the ''damages'' to be
awarded, the aim in view is to put the
injured party in as good a position as that
party would have been in if performance
had been rendered as promised. 11-55
Corbin on Contracts 55.3

Carmack Amendment on Damages

The liability imposed under this paragraph
is for the actual loss or injury to the
property caused by (A) the receiving
carrier, (B) the delivering carrier, or (C)
another carrier over whose line or route
the property is transported. 49 U.S.C.
14706 (a)(1).

Common Law Rule Regarding

Recovery for Damaged Property
Where goods are damaged, the general
rule for determining the amount of
damages is the difference between the
market value of the property in the
condition in which it should have arrived at
destination and its market value at
destination in the damaged condition less
salvage collected. Saul Sorkin, Goods In
Transit citing, Gulf C. & S. F. Ry. Co. v.
Texas Packing Co., 244 U.S. 31 (1917).

Common Law Rule Regarding

Recovery for Lost or Stolen
Property
The general measure of damages for loss
of property is the value of the property at
the time and place at which it should have
been delivered or the market value at
destination. Saul Sorkin, Goods in
Transit, 11.03 citing, Chicago, M. St. P.
Ry. Co. v. McCaull-Dinsmore Co., 253
U.S. 97 (1920).

Nevertheless
The general rule of market value less salvage is not
always the best measure of actual loss. That measure of
damages may be discarded and other more accurate
means resorted to if, for special reasons, it is not exact
or otherwise not applicable. Brockway-Smith Co. v.
Boston and Marine Corp., 497 F. Supp. 814 (D. Mass.
1980).
It is incumbent on the carrier to show that the market
value rule will not result in a just measure of actual
damages. Custom Cartage, Inc. v. Motorola, Inc., 1999
U.S. Dist. 16462 (1999).

What Issue Most Often Creates

Disputes Regarding Application of
the Market Value Rule?
Manufacturing Price v. Wholesale Price
Wholesale Price v. Retail Price
The dispute raises the question of whether lost profits
are recoverable for the shipper.

Lost Profits
In deciding whether a shipper is entitled to lost
profits, the central issues to be considered are:
Was the shipper able to replace the shipment?
Is the shipper a lost volume seller? (i.e. can the
shipper sell every bit of product that it manufactures
or purchases on a wholesale basis.)

Case Where Lost Profits Were

Not Recoverable
Levi Strauss v. Sea-Land, 2003 U.S. Dist. LEXIS
8171 (S.D.N.Y. 2003)
A Shipment of Levi Strauss jeans was stolen in
transit.
Levi Strauss claimed that the stolen jeans were
manufactured for the 1999 holiday season and that it
could not remanufacture a replacement shipment
before the holiday shopping season ended.

Case Where Lost Profits Were

Not Recoverable
Levi Strauss v. Sea-Land, 2003 U.S. Dist. LEXIS
8171 (S.D.N.Y. 2003)
However, Levi Strauss could not produce any
evidence showing that it lost any sales during the
1999 holiday season.
This likely means that Levi Strauss had excess inventory of
that particular product at the end of the holiday shopping
season.

Therefore, damages were limited to Levi Strauss

manufacturing costs.

Case Where Lost Profits Were

Recovered
Eastman Kodak Company v. Westway Motor
Freight, Inc., 949 F.2d 317 (10th Cir. 1991).
Shipment of sensitized film was transported at the
wrong temperature thus destroying the product.
Kodak was able to replace the shipment in short
order.
However, Kodak showed that it sells all of the
sensitized film that it manufactures shortly after the
production is completed.

Case Where Lost Profits Were

Recovered
Eastman Kodak Company v. Westway
Motor Freight, Inc., 949 F.2d 317 (10th Cir.
1991).
Kodak was therefore able to show that it is a
lost volume seller.
Lost Profits were awarded.

Other Examples of Lost

Profit Cases
Fiber Optic Cable Shipment in the 1990s
Spool of cable was damaged while in transit from
Atlanta, Georgia to Texas.
Manufacturer was unable to replace the shipment
because it had six months of backorders for that type
of fiber optic cable.
Lost profits for the shipment were recoverable.

Other Examples of Lost

Profit Cases
Fiber Optic Cable Shipment in the 2004 (Same
Manufacturer)
Spool of cable was damaged while in transit from Atlanta,
Georgia to Louisiana.
Manufacturer was able to replace the damaged shipment from
existing inventory.
Inventory records produced by the manufacturer showed a large
and dated inventory of that fiber optic cable with no orders
pending.
Lost Profits were not recoverable.

Another Example of a Lost

Profit Case
Container shipment of 1950s style poodle sweaters was
stolen in transit.
Claimant was the retailer who had purchased the shipment.
Claimant was able to show that it could not replace the shipment
because wholesaler did not have any more inventory of the
poodle sweaters.
Retailer was a low end seller whose sales records showed that it
generally sold a small percentage of product at full price and
then sold the remaining product at escalating discounts.
Should this retailer recover lost profits and if so, how much?

Repair of Damaged Cargo

If the shipper decides to repair cargo that
has been damaged in transit, the cost of
repair is recoverable as long as it does not
exceed the market value of the product.

Consequential Damages
It is basic that, in contract law, the defendant's
liability to a plaintiff arises from the contractual
agreement between the parties. Tort liability,
however, arises from "general obligations that
are imposed by law - apart from and
independent of promises made and therefore
apart from the manifested intention of the parties
- to avoid injury to others." Prosser at 92.
Hampton v. Federal Express Corp., 917 F.2d
1119 (8th Cir. 1990).

Consequential Damages
It is a fundamental principle of the law of
damages that, in contract cases, a plaintiff can
only recover for a loss which, in the ordinary
course of events, would result from the
defendant's breach or for a loss which was in the
contemplation of the parties. In the words of the
Restatement, "damages are not recoverable for
loss that the party in breach did not have reason
to foresee as a probable result of the breach
when the contract was made." Hampton v.
Federal Express Corp., 917 F.2d 1119 (8th Cir.
1990).

Consequential Damages
There are two tests for consequential damages.
The less accepted, restrictive test requires a plaintiff to show that
the carrier was made aware of the special damages that would
arise from a breach of the contract of carriage and that the
carrier impliedly or expressly agreed to bear that risk of
damages. Globe Ref. Landa Cotton Oil Co., 190 U.S. 540
(1903).
The more commonly used test does not require a showing that
the carrier agreed to accept the risk as long as it can be shown
that the carrier was, or should have been aware that special
damages would occur if the cargo was lost or damaged.

Consequential Damages
Burlington Air Express v. Truck Air of the Carolinas, 8 F.
Supp. 2d 508, 512 (D.S.C. 1998).
Under the Carmack Amendment, the common law rule that
special or consequential damages are not usually recoverable
from a motor carrier has not been altered. Special damages are
those that the carrier did not have reason to foresee as ordinary,
natural consequences of a breach of the contract of carriage
when such contract was formed. Damage is foreseeable by the
carrier if it is the proximate and usual consequence of the
carrier's action. In other words, special damages are those
damages other than physical damage to the cargo which can be
measured by the value of the cargo in the market place or
otherwise. Citing, Saul Sorkin, Goods in Transit 11.09[1].

Consequential Damages
If the carrier is told that special damages will
occur if the cargo is lost of damaged in transit,
the claimant will have a good argument that
those damages can be recovered. However, the
carrier must be told about the special damages
at the time that the contract for carriage is
entered. Advising the carrier of the special
circumstances while the cargo is in transit is
insufficient. Mrs. Sullivans Pies, Inc. v. T.I.M.E.
D.C., Inc., 1971 U.S. Dist. LEXIS 11893 (W.D.
Tenn. 1971).

Consequential Damages
If the carrier was not specifically told about
the special damages, then the shipper
must prove that they were foreseeable.
That generally raises the question of
whether the carrier should have known
that the damages would arise from a
breach of the contract for carriage.

Consequential Damages
Examples of Consequential Damages
Include:
Loss of market due to delay
Loss of good will or business reputation
Loss of future business
Loss of rental income
Lease payments for rented property
Loss of use
Alternate transportation

Consequential Damages Cases

The Paper Magic Group, Inc. v. J.B. Hunt Transport, Inc.,
2001 U.S. Dist. LEXIS 13494 (E.D. Pa. 2001)
Shipper, which was the manufacturer of greeting cards,
delivered 2432 cartons of Christmas cards to carrier.
Carrier had been hauling shippers cargo for ten years.
The bill of lading did not indicate that the shipment was time
sensitive or that the goods were seasonal.
The normal transit time for the shipment was two to three days.
Carrier misplaced the goods for four months and attempted to
deliver them approximately two months after the holiday season.

Consequential Damages Cases

The Paper Magic Group, Inc. v. J.B. Hunt Transport, Inc.,
2001 U.S. Dist. LEXIS 13494 (E.D. Pa. 2001)
Consignee, which was a large retailer, rejected the shipment.
The cards had been packaged and printed with the retailers
label on them.
Invoice Value of the cards was $130,080.48.
Carrier sold the cards for salvage value of $49,645.96.

Consequential Damages Cases

The Paper Magic Group, Inc. v. J.B. Hunt
Transport, Inc., 2001 U.S. Dist. LEXIS 13494
(E.D. Pa. 2001).
When shipper sought the full value of the goods,
carrier argued that shipper was seeking special
damages.
Court held that it was foreseeable to carrier that a four
month delay in transit would render the product
worthless and shipper was awarded $130,080,48.

Consequential Damages Cases

Starmakers Publishing Corp. v. ACME Fast
Freight, Inc., 646 F. Supp. 780 (S.D.N.Y. 1986).
Shipper manufactured posters depicting characters
for a newly released movie.
The posters were delayed in transit for approximately
three weeks.
Once the cargo was located, the consignee rejected
the shipment because the movie had already been
released.

Consequential Damages Cases

Starmakers Publishing Corp. v. ACME Fast Freight, Inc.,
646 F. Supp. 780 (S.D.N.Y. 1986).
The bill of lading only identified Printed Matter and did not
make any reference to a time sensitive nature for the cargo.
The shipper claimed that the cargo lost all value because it was
not timely delivered.
The court held that the shippers claim constituted special
damages and that there was no evidence that the carrier was
aware that such damages would arise if the items were delayed
for three weeks.

Consequential Damages Cases

Main Road Bakery, Inc. v. Consolidated Freigthways,
Inc., 799 F. Supp. 26 (D.N.J. 1992)
Manufacturer in Illinois delivered oven to carrier for
transportation to a bakery in New Jersey.
Bill of lading stated Express Delivery and Do Not Delay.
While the oven was in transit, the consignee bakery advised the
carrier that it planned to disassemble its existing oven the day
before the shipment was scheduled to arrive.
The oven was damaged and rendered a total loss in transit.

Consequential Damages Cases

Main Road Bakery, Inc. v. Consolidated
Freigthways, Inc., 799 F. Supp. 26 (D.N.J.
1992)
Carrier paid shipper the value of the damaged oven.
Consignee bakery sued carrier for:
Cost of experts hired to install the new oven; and
Lost profits for seven days because bakery was closed while
it waited for a new oven to arrive.

Consequential Damages Cases

Main Road Bakery, Inc. v. Consolidated
Freightways, Inc., 799 F. Supp. 26 (D.N.J.
1992)
Court dismissed the bakerys claim finding that:
Carrier was not notified that existing oven would be
disassembled until the new oven was in transit.
Express Delivery and Do Not Delay on bill of lading was
insufficient to notify the carrier that existing oven would be
disassembled and oven installment experts hired.

Consequential Damages Cases

Hypothetical Number 1:
Carrier specializes in hauling oversized loads.
Generally, all of the carriers loads have to be unloaded by a crane.
From experience, carrier knows that the load at issue will be unloaded by a
crane. However, carrier is not given any details about the crane that will be
used.
The cargo is damaged and rendered a total loss on the morning that it is
scheduled to be delivered.
Consignee files a claim for the cost of leasing a crane on the scheduled delivery
date.
Is this amount recoverable against the carrier?

Consequential Damages Cases

Hypothetical Number 2:
Carrier is hired to transport the compulsion system for a rocket that will deploy a
satellite.
Carriers truck is involved in an accident while transporting the compulsion
system.
Industry experts agree that because the truck was involved in an accident, the
compulsion system cannot be used until it is subjected to an x-ray scan and the
only place to do that is in France.
The costs associated with transporting the compulsion system to France, and
performing the test are approximately $100,000.00. The test reveals that the
compulsion system is not damaged.
Can the consignee recover the transportation and testing expenses from the
carrier?

Other Elements of Recoverable

Damages
Freight Charges
Can be recovered if the freight charges comprise an
element of the market value of the cargo at
destination.

Inspection and Salvaging Expenses

These expenses can be recovered if they are
necessary for mitigation issues such as separating
damaged from undamaged cargo.

Costs that May Subtract From

Recoverable Damages
Broker commissions and other expenses
that the claimant may incur at destination
to sell or dispose of the goods. Missouri
Pacific Railroad Co. v. H. Rouw Co., 258
F.2d 445 (5th Cir. 1958).

Damage to Part of a Shipment

Consignee special orders 276 colored glass panels to install on a building.
10 of the panels are damaged in transit.
The consignee is unable to complete the building with the undamaged panels.
Because the colored glass panels are specially made in lots, the manufacturer cannot make
replacement panels of the exact same color and appearance.
Consignee claims the 266 undamaged panels are unusable and have no value. Consignee
therefore pursues a claim against the carrier for the full value of the 276 panels. Efforts to salvage
the specialty glass panels does not reveal a secondary market.
What are the recoverable damages in this situation?
Issue may turn on whether the panels are determined to be worthless for their intended purpose.
Courts have held that worthless for an intended purpose is not distinguishable from totally
worthless as a matter of law. See, Oak Hall Cap and Gown Co. Inc. v. Old Dominion Freight Line,
Inc., 899 F.2d 291 (4th Cir. 1990).

Mitigation of Damages
Oak Hall Cap and Gown Co. Inc. v. Old
Dominion Freight Line, Inc., 899 F.2d 291
(4th Cir. 1990).
When damaged goods arrive at destination,
the consignee has a duty to accept them and
mitigate damages unless the goods are
deemed totally worthless.

Mitigation of Damages
Tokio Marine and Fire Ins. Co. v. Norfolk
and Western Railway Co., 1996 U.S. Dist.
LEXIS 22389 (M.D.N.C. 1996).
The Carmack Amendment generally imposes
upon a shipper of goods a duty of reasonable
mitigation of damages.

Mitigation of Damages
Tokio Marine and Fire Ins. Co. v. Norfolk and Western
Railway Co., 1996 U.S. Dist. LEXIS 22389 (M.D.N.C.
1996).
The reasonableness standard in the mitigation context is much
like the reasonable man standard in negligence.
Reasonableness is an objective standard. It is generally judged
by taking all of the relevant circumstances into account. The factfinder should consider the loss that might be averted by acting,
the loss that might be caused by acting (both to the parties and
to third parties), and the probabilities that those losses might
occur. This fact-intensive decision is to be left to the jury except
in the clearest of cases.

Mitigation of Damages
Land OLakes, Inc. v. Superior Service Transportation of Wisconsin, Inc.,
500 F. Supp. 2d 1150 (E.D. Wis. 2007).
A truck carrying a load of butter wrecked in transit.
The shipper refused to take redelivery of the butter and attempt to salvage it.
Shipper argued that its policy prohibited it from accepting product that had been
involved in an accident because of the risk of contamination, and market
reputation damage that it could suffer for doing so.
Carrier introduced evidence that only 20% of the load had been deformed, that
the butter was in its original packaging, that none of the butter had been
exposed, and that the trailer remained in tact with the refrigerator unit working.
The court held that a fact question existed regarding whether the shipper had
acted reasonably to mitigate damages.

Kevin P. Branch
Dennis, Corry, Porter & Smith, LLP
Piedmont 14
3535 Piedmont Road, Suite 900
Atlanta, Georgia 30305
404-365-0102