Why We Encourage Purchasing Cargo Insurance
It is factually undisputed that the activities of a freight forwarder which only makes arrangements — but does not issue a bill of lading — are at all times limited to those of a classic shipper’s-agent (also known as a “Type #1 Forwarder) which makes arrangements for shipping contracts to be entered upon with the actual carriers whose responsibility it is to move the goods and the actual custom’s broker whose responsibility is to arrange for the importation.
- When making transportation arrangements for, or implementing instructions on behalf of a shipper or consigneee, the role of the freight forwarder is legally defined as that of a “shipper’s-agent”. As a matter of law, the freight forwarder is responsible only for its own direct negligence and cannot be held vicariously liable for the errors and omissions of others, to include custodial carriers, down line agents, draymen, etc. This reality is fundamental in the law, as was made clear 50 years ago by the United States Supreme Court in Chicago, Milwaukee, St. Paul & Pacific Railroad v. Acme Fast Freight (1948) 336 U.S. 465. [The Restatement of Agency is in accord.]A shipper’s-agent relates to commercial cargo in exactly the same manner as a travel agent relates to an airline passenger. Once travel arrangements have been made, the airline issues a ticket to the passenger and becomes responsible for all aspects of carriage to destination. Likewise for the shipper’s-agent, the responsible carrier agrees to issue a bill of lading, takes possession of the commercial cargo, and becomes responsible for all aspects of carriage to destination. It is well settled in both law and logic that the direct relationships involved are those between the shipper and the ocean or air carrier. The authorities remove from discussion any notion that a shipper’s-agent has the responsibility, much less the liability, for care, custody, and/or control of freight moving under the aegis of a regulated ocean or air carrier. The same principles apply for a customs broker who arranges on-carriage for goods to the consignee following the customs entry process.TERMS & CONDITIONS OF SERVICE: As previously reviewed, the freight forwarder arranges prior freight movements for a shipper or a consigneee. These services are provided pursuant to the forwarders “Terms & Conditions of Service“, as promulgated by the National Customs Brokers and Forwarders Association of America, as founded 102 years ago. These “Terms & Conditions of Service” were originally formulated in keeping with the statutory scheme of such laws and treaties as the Warsaw Convention and Carriage of Goods By Sea Act (46 USC § 1300, et seq.), which variously limit ocean and air carrier responsibility for cargo loss, delay, and damage. As developed over the past couple of hundred years, these modern “Terms & Conditions of Service” are designed to reflect the uncertainties of international and domestic transportation and otherwise clarify where the lines of legal responsibility run as among multiple foreign and domestic carriers, agents, and vendors who may be involved with any given international move.
Indeed, the “Terms & Conditions” are the very contract existing between the shipper & the freight forwarrder. Among other things, “Terms & Conditions of Service” provide as follows:
- 1. SERVICES BY THIRD PARTIES. Unless the Company carries, stores or otherwise physically handles this shipment, and loss, damage, expense or delay occurs during such activity, the Company assumes no liability as a carrier and is not to be held responsible for any loss, damage, expense or delay to the goods to be forwarded or imported except as provided in ¶ 10 and subject to the limitations of ¶ 8 below, but undertakes only to use reasonable care in the selection of carriers, truckmen, lightermen, forwarders, customs brokers, agents, warehousemen and others to whom it may entrust the goods for transportation, cartage, handling and door deliverage and/or storage or otherwise.
- 2. LIABILITY LIMITATIONS OF THIRD PARTIES. The Company is authorized to select and engage carriers, truckmen, lightermen, forwarders, customs brokers, agents, warehousemen and others as required to transport, store, deal with and deliver the goods, all whom shall be considered as the agents of the customer, and the goods may be entrusted to such agencies subject to all conditions as to limitation of liability for loss, damage, expense or delay and to all rules, regulations, requirements and conditions, whether printed, written or stamped appearing in bills of lading, receipts or tariffs issued by such carriers, truckmen, lightermen, forwarders, customs brokers, agents, warehousemen and others. The Company shall under no circumstances be liable for any loss, damage, expense or delay to the goods for any reason whatsoever when such goods are in the custody, possession or control of third party selected by the Company to forward, enter and clear, transport or render other services with respect to such goods.”
These above cited provisions make clear further reasons why, as a matter of the contract, the agent-forwarder is not responsible for any alleged errors or omissions on the part of the responsible ocean carriers. While these “Terms & Conditions of Service” are highly instructive, they are otherwise a mere reflection of the international shipping industry and redundant to the laws which define legal responsibility, or lack thereof.
LIMITATION OF LIABILITY: As a reflection of the fact that U.S. law does not hold a shipper’s-agent liable for the errors of others, the entire forwarding industry adopted what has become a uniform damage limitation. The limitation is provided as follows:
- 8. Limitation of Liability for Loss, etc. (a) The Customer agrees that the Company shall only be liable for any loss, damage expense or delay to the goods resulting from the negligence or other fault of the Company; such liability shall be limited to an amount equal to the lesser of fifty dollars ($50.00) per entry or shipment or the fee(s) charged for the services, provided that, in the case of partial loss, such amount will be adjusted pro rata;
- (b) Where the Company issues its own bill of lading and receives freight charges as its compensation, Customer has the option of paying a special compensation and increasing the limit of Company’s liability up to the shipment’s actual value; however, such option must be exercised by written agreement, entered into prior to any covered transaction(s), setting forth the limit of the Company’s liability and the compensation received;
- (c) In instances other than in (b) above, unless the Customer makes specific written arrangements with the Company to pay special compensation and declare a higher value and Company agrees in writing, liability is limited to the amount set forth in (a) above;
- (d) Customer agrees that the Company shall, in no event, be liable for consequential, punitive, statutory or special damages in excess of the monetary limit provided for above.
- 10. LIABILITY OF COMPANY. It is agreed that any claim or demand for loss, damage, expense or delay shall be only against the carriers, truckmen, lightermen, forwarders, customs brokers, agents, warehousemen or others in whose actual custody or control the goods may be at the time of such loss, damage, expense or delay and that the Company shall not be liable or responsible for any claim or demand from any cause whatsoever, unless in each case the goods were in actual custody or control of the Company and the damages alleged to have been suffered to be proven to be caused by the negligence or other fault of the Company, its officers or employees, in which event the limitation of liability set forth in ¶ 8 herein shall apply.”It should be specifically appreciated that these “Terms & Conditions of Service” are not unique to one particular group of freight forwarders ir customs brokers. Instead, these trading conditions are followed by essentially every freight forwarder & custom’s broker in United States.LEGAL ENFORCEMENT OF “TERMS & CONDITIONS OF SERVICE“: The industry standard “Terms & Conditions of Service” as outlined in this presentation are routinely upheld by virtually all of the American Courts. It does not matter how damage occurred or to what theory the claim has been stated, except in a proper case of fraud.
Examples of court rulings in support of these exact “Terms & Conditions of Service” are numerous, but one recent case which explains the legal relationship between the freight forwarder and the shipper is Capitol Converting v. LEP Transport (1992) 752 F.Supp 862. See, also, General Electric v. Harper Robins (1993) 818 F.Supp. 31 and Her Majesty’s Ministry of Defense v. Northstar 1 F.Supp. 2d 521 (1998). Insurance Company of North America v. NNR Air Cargo Service, 2000 U.S. App. Lexis 1420 (9th Cir. 2000).
CONCLUSION: A substantial effort has been made to review the facts and law applicable to this case so that shippers can be in a position to truly understand the multiple reasons which compel application of “Terms & Conditions of Service“.