An ongoing concern in the transportation industry is limitations of liability. Many Ocean Freight Forwarders have a limitation of liability. Ocean Freight Forwarders are not carriers. They act as an intermediary and are travel agents for cargo.
Customs Brokers typically deal with the entry of goods into the country and will also typically have limitations of liability. Ocean Freight Forwarders and Customs Brokers often have a $50.00 per limitation of liability on their documents. The limitation of liability will appear on invoices and/or contracts.
These limitations do state that the cargo interest can declare a higher value. The standard form developed by the National Custom Brokers and Freight Forwarders Association has a provision for a limitation of liability.
The facts of the situation will determine if the claim is for ordinary negligence or gross negligence which affects the use of the limitation of liability. Intentional actions causing liability are not likely to succeed in the assertion of this liability. The cargo interest should have an opportunity to declare a higher value.
NVOCCs are not addressed extensively in this article, but can assert the $500.00 per package limitation as an carrier on international shipments. What is or is not a package or customary freight unit has been addressed in numerous cases.
There are a number of cases that deal with this issue. Some of them are discussed in this section.
Some cases are actually decided in large part by state law. One such case is United B Int’l Corp. v. UTI U.S., Inc., 2004 NY Slip Op 51362(U), 5 Misc. 3d 1013(A), 798 N.Y.S.2d 714 (Sup. Ct.) which is a New York state case that deals with the $50.00 per shipment liability for a Customs Broker. Goods that were supposed to be cleared within one month were subsequently sold by a warehouse as it took five months to clear the goods. The court partially granted a motion for summary judgment by limiting the broker’s liability to the $50.00 limit stated in the invoice if the broker was found guilty of ordinary negligence. The Court partially based its decision on the prior course of dealings between the parties. The Court did however grant leave to amend the Complaint to sue for gross negligence which would not be subject to the limitation of liability.
Morgan Home Fashions, Inc. v. UTI, United States, Inc., Civil Action No. 03-0772 (JLL), 2004 U.S. Dist. LEXIS 13412, at *7-8 (D.N.J. Feb. 9, 2004) which was decided by a New Jersey federal court addressed the limitation issue and how it has developed with regard to Custom Brokers by stating:
“For some time, federal regulations specifically prevented Customs Brokers like Defendant from limiting their liability. See 19 C.F.R. § 111.44; Qualimetrics, Inc. v. LEP Profit Int’l, 1996 U.S. Dist. LEXIS 15087, 1996 WL 586330, at *3 (S.D.N.Y. Oct. 11, 1996); General Elec. Co. v. Harper Robinson & Co., 818 F. Supp. 31 (E.D.N.Y. 1993). [*8] However, those regulations were overturned in 1993, thereby permitting Custom Brokers to use exculpatory clauses for protection from liability. See Hurco Cos., v. Kuehne & Nagel, Inc., 2001 U.S. Dist. LEXIS 18168, 2001 WL 1386077, at *5 (S.D. Ind. Sept. 28, 2001). No longer barred by federal regulations, the legality of a given exculpatory clause now hinges upon the applicable state law.”
The New York and New Jersey courts do allow this limitation of liability.
Another case of interest is Tuscany S. Am. Ltd. v. Pentagon Freight Sys., Inc., No. 4:12-CV-1309, 2014 WL 4794695, at *4 (S.D. Tex. Sept. 24, 2014) that was decided by a Texas federal court and upheld a limitation of liability. This had to do with cargo being detained in Brazilian Customs due to alleged improper documentation that was submitted by Pentagon Freight Sys., Inc. presumably as an ocean freight forwarder. What is interesting about this case is that it was not clear that there was even a specific invoice or a contract dealing with the limitation of liability, but yet it was applied anyway. The court in ruling held:
“Given the nature of its contract, Tuscany may be presumed to have been alerted to possible limitations of liability, more so than a retail iPhone purchaser (Trujillo) or ship agent making a routine berth application (Orduna). Unlike plaintiffs in those cases, Tuscany was notified of a particular document containing limitations, one which has been widely used and cited by courts.”
The court also noted that Tuscany was a sophisticated shipper who was familiar with shipping goods. A shipper cannot assume that it will not have to deal with this limitation even if there is not a contract or invoice. This is a reason for the owner of the cargo to have insurance.
ABN Amro Verzekeringen BV v. Geologistics Ams., Inc., 253 F. Supp. 2d 757, 765 (S.D.N.Y. 2003) is a New York federal court case that looked at this issue with regard to ocean freight forwarders and upheld the limitation of liability stating that it does apply to ordinary negligence but not gross negligence. The issue in this case related to the alleged negligent selection of a carrier by the Custom Broker/ Ocean Freight Forwarder. A reckless indifference to the rights of others would not qualify for the limitation of liability. The court specifically stated that:
“New York law does not restrict the ability of non-carrier freight forwarders to limit their liability through contract. In the commercial context generally, the Court of Appeals has held that “it is the public policy of this State, however, that a party may not insulate itself from damages caused by grossly negligent conduct,” a principle that “applies equally to contract clauses purporting to exonerate a party from liability and clauses limiting damages to a nominal sum. Gross negligence, when invoked to pierce an agreed-upon limitation of liability in a commercial contract, must ‘smack  of intentional wrongdoing'” and “evince  a reckless indifference to the rights of others.” Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 583 N.Y.S.2d 957, 963, 593 N.E.2d 1365 (N.Y. 1992) (quoting Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 461 N.Y.S.2d 746, 750, 448 N.E.2d 413 (N.Y. 1983)) (citations omitted).”
This standard of ordinary versus gross negligence is an issue with this limitation of liability.
As an Ocean Freight Forwarder or a Custom Broker, you need to check to make sure that you have a limitation of liability in your contracts and invoices along with an opportunity to declare a higher value. Such a limitation of liability will be appreciated by your professional liability insurer. This limitation would be applicable to ordinary negligence, but not gross negligence. In asserting this defense, you will want to look at the law in the specific state in which you are operating to see if a limitation of liability is acceptable. The Uniform Commercial Code does provide for limitations of liability and might be liable by analogy. The Uniform Commercial Code has been adopted throughout the United States. As with other limitations of liability, a shipper cannot claim a limitation of liability for intentional torts such as theft as that could encourage bad actions by the broker or forwarder. If you are a shipper or importer, this would be another reason to purchase cargo insurance. You do not want to be limited to $50.00 per shipment. If you are the owner of the shipment, you could also inquire to see the cost of declaring a higher value.
Daniel W. Raab, Esq., is an attorney with offices in Miami Dade County, Florida. He has represented various companies in the field of transportation including ocean carriers, third party transportation intermediaries, motor carriers, surface transportation brokers, shippers, warehouses, and insurance companies. He is a graduate of The Johns Hopkins University and the University Of Miami School Of Law. His publications include “Transportation Terms and Conditions” and Chapter 5 of the Benedict on Admiralty Desk Reference Book entitled “Carriage of Goods by Sea.” He is also a contributing author to “Goods In Transit,” Volumes 5 and 6 dealing with Transportation Insurance. He has taught as an Adjunct Professor of Law at the University of Miami School of Law, St. Thomas University School of Law, and the Florida International College of Law as well as Florida Coastal School of Law. Mr. Raab is currently an Adjunct Professor at Truckee Meadows Community College where he teaches a class in Legal Concepts for Transportation and Logistics Management.