Legally Speaking – with Bob Mionske: Bad Shipping News: Part 1

By Bob Mionske

Dear Bob,
I experienced what a lot of us fear and dread: UPS losing your faithfulsteed. I was traveling back from holiday in Utah and a close friend offeredto ship my custom team issued Cannondale Scalpel MTB back home. The bikenever made it. It was in a hard case along with tools, spare tires, pump,and other accessories, about a $6000 total loss. My friend did not knowhow much it was worth and only insured it for $700. My question is: canI recover from UPS Corporation? UPS said they only cover the first $100,than the remainder falls on the shipping location. The manager said thatI would not get the remainder of the balance from her location.
C.A.
OhioDear C.A.,
Before we begin, let’s get some potentially confusing terminology outof the way. You, the owner of the goods being shipped, are the shipper.UPS is the carrier. It sounds like your friend took the bike to a retailshop, such as a commercial pack-and-ship store. These stores (even most“UPS Stores,” which are independent franchise locations licensed underthe UPS name) are called “freight forwarders” because they broker shipments,but do not carry the good themselves.

It sounds like both UPS and the pack-and-ship store are overstatingtheir cases, but in general, if your friend filled in the $700 value inthe receipt (technically known as a “bill of lading”) herself, it willbe very difficult to collect more than $700 (not $100) from UPS. On theother hand, the chances are slightly better that you can recover from thefreight forwarder, especially if you can prove that the staff of the shopwas not well trained in assisting amateur shippers in correctly determiningand declaring the value of their shipments. On the other hand, if theygave your friend a fair shot at getting the value of the bike correctly(as in “are you sure it’s not worth more than that?”), and she did,in fact, state the value as $700, the odds of recovery are very poor.Going all the way back to old English law, certain types of businesswere considered special: innkeepers, utilities such as water or canal companiesand what were called “common carriers.” Because these types of firms hada lot of control over their customers, they were expected to exercise almostparental responsibility on their behalf. Therefore, unlike other companies,these firms could not make their clients sign waivers absolving them ofliability for negligence, as a recent American court explained in Barnesv. New Hampshire Karting Association:

A defendant seeking to avoid liability must show that theexculpatory agreement does not contravene public policy, i.e. that no specialrelationship existed between the parties and there was no other disparityin bargaining power. Where the defendant is a common carrier, innkeeperor public utility, or is otherwise charged with a duty of public service,the defendant cannot by contract rid itself of its obligation of reasonablecare.

By the 1930’s American courts had extended this principle to customers’property as well as their physical safety. In F.A. Straus v. CanadianPacific Railroad, about $2000 in rare Chinese silk came up missingafter a sea voyage across the Pacific. The bill of lading statedthat “in no case shall carriers be liable for goods beyond the sum of $10per cubic foot, nor in any event exceeding $100 for any one package.” Therailroad offered $200 for the two lost bales of silk. The importer arguedthat a common carrier could not impose a blanket waiver of liability, andwon:

The general rule is that for damage resulting from the negligentloss of goods a carrier is liable for their value at the destination towhich it undertakes to carry them. A provision of a contract of shipmentwhich purports to arbitrarily limit a carrier’s liability, without consideration,and without choice of rates, is void. Here, the attempt to arbitrarilylimit liability to $100 per package was without consideration. Such attemptedabsolute limitation of liability, regardless of rate paid, makes the clausevoid.

Notice the important limiting language concerning “choice of rates.” Unlikethe Canadian Pacific Railroad, other carriers allowed the owners of goodsto claim larger losses if their very expensive goods were lost or damaged,but required them to pay more for the extra-careful handling such valuablecargo required. Some owners objected, arguing that a carrier should beresponsible for its negligence regardless of the value of the cargo orthe fee charged—a deal was a deal. The case went to the U.S. Supreme courtin 1884 in Hart v. Pennsylvania Railroad, who decided for the railroad:

There is no justice in allowing a shipper to be paid a largevalue for an article which he has induced the carrier to take at a lowrate of freight on the assertion and agreement that its value is a sumless than that claimed after a loss. It is just to hold the shipper [owner]to his agreement, fairly made as to value, even where the loss or injuryhas occurred through the negligence of the carrier.

When package delivery services expanded from business to homes in the 1940’sand 50’s, they tried to claim that the extra service they provided—to andfrom the front door—removed them from the category of common carriers.The argument didn’t get far, and the conclusion in Railway Express Agencyv. Cook (1945) was typical of the courts in most states:

An express company is a common carrier. The argument ofRailway Express, that in rendering “pick-up and delivery” service the companyuses its trucks, not in the capacity of a common carrier, but in a privatecapacity, and that the company while in the performance of this service,as a gratuitous volunteer, should not be held accountable, would appearuntenable. When a common carrier offers an additional benefit to customersdirectly connected with the purpose of its business, it is still a servicebeing rendered as a common carrier.

When you walk into your local UPS or FedEx office and ask to ship a package,they are going to ask you how much it’s worth and how much you want toinsure it for. The “insurance” is actually a fiction—the carrier is reallysetting a differential rate schedule based on the value of the cargo. Ifthe shipper leaves the declared value blank, or accepts the default “minimum”rate, he or she also accepts the default minimum liability from the carrier.One of the best capsule summaries of the rule was in a 1994 case, Wagmanv. Federal Express Corporation. FedEx’s standard bill of lading saidthat . . .

. . .we will not be responsible for any claim in excessof $100 per package, whether the result of loss, damage, delay or non-delivery,unless you specify a higher amount, pay 40 cents per additional $100, anddocument your actual loss.

Wagman, a lawyer, waited until just before the statute of limitations expiredin a legal matter before sending the papers to the courthouse, and of coursethey didn’t make it. FedEx issued a check for the value of the parcel,15 cents per page. Wagman sued, and lost:

Several cases have upheld a carrier’s limitation on itsliability, especially where the shipper has been given reasonable noticeof the limitation and an opportunity to pay the higher rate in order tosecure greater protection. By ignoring a clear and valid limitation ofliability in a contract no relief will be forthcoming . . . Those usingdelivery services are in the best position to procure insurance or to otherwiseproceed at their own risk. It is unreasonable to subject a carrier to liabilityfor enormous and unforeseeable damages in return for an $11.75 shipmentfee. Wagman, having made a business judgment when he decided not to explorethe possibility of obtaining greater protection, and having made his ownbed, must now lie in it.

For several years now, the fees package delivery services may charge areregulated by the Interstate Commerce Commission, and the liability forlost or damaged shipments is thus covered by a federal statute, the “CarmackAmendment,” 49, Section 11707 of the United States Code (49 U.S.C. 11707).The liability of a delivery service is limited if:The carrier charges rates within ICC guidelines.The carrier obtains the shipper’s agreement as to his or her choice of liability.The carrier gives the shipper reasonable opportunity to choose between two or more levels of liability as reflected in shipping rates.The carrier issues a receipt or bill of lading prior to movement of the goods that accurately reflects the agreement.Most Carmak Amendment cases have turned on the definition of “reasonableopportunity to choose.” In Anton v. Greyhound, a moving companythat failed to issue any paperwork at all to a homeowner was not permittedto limit its liability to the default rate of 60 cents per pound:A carrier cannot limit liability by implication. There must be an absolute,deliberate, and well-informed choice by the shipper. Such arrangementsmust be carefully scrutinized and where they fail to fully comply withthe Carmak Amendment, it is clear they are ineffective to limit a carrier’sliability. . . The record here is clear that at no time did Col. Antondeclare in writing the released value of the goods as plainly required.The evidence at trial indicated that Greyhound failed even to issue anyreceipt or bill of lading.In Jones v. Yellow Freight Lines, a careless employee who toldthe shipper not to bother with the declared value box, waived his employer’slimitation of liability:

The carrier lost an oriental rug valued between $20,000 and $25,000. The owner, an unsophisticated shipper, told the carrier’s employee that therug was ‘very valuable.’ The employee explained the procedure for declaredvaluation, but assured the shipper she did not need to follow these procedures,as the carrier was “very reliable.”

Consequently, the owner left the declared value column on the bill of ladingblank.In other cases, an owner deleting the declared value at the suggestionof the carrier’s employee and the failure of an employee to fill in thedeclared value despite a clear request to do so by the owner resulted inunlimited liability for the carrier.In a case that may be relevant to your situation, C.A., in UnitedParcel System v. Smith, 645 N.E.2d 1 (Ind. App. 1994), Smith took oneof those “sex machine” jungle-gym things to Bruce & Bob’s Auto Parts,[no, I am not making this up] who had a “pack-and-ship” agreementwith UPS, to be boxed and shipped. The employee of Bruce and Bob’s, whowas not trained, screwed up the bill of lading, and when the machine disappeared,Smith was only entitled to the minimum claim. The court found that becauseBruce and Bob’s was acting as an agent for UPS, the carrier had a dutyto adequately train the staff of these franchise locations to carry outtheir Carmack Amendment responsibilities, and when they agreed to fillout the paperwork for Smith and messed it up, UPS waived their liabilitylimitation under the federal law:Only by granting its customers a fair opportunity to choose betweena higher or a lower liability by paying a correspondingly greater or lessercharge can a carrier lawfully limit recovery to an amount less than theactual loss sustained. A fair opportunity means that the shipper had bothreasonable notice of the liability limitation and the opportunity to obtaininformation necessary to making a deliberate and well-informed choice.

On the other hand, in Jackson v. Brook Ledge Farms, the ownerof a race horse arranged for its shipment from Florida to Kentucky. Theowner, Jackson, delegated the job of meeting the truck to his trainer,Daisey, who got the horse safely on the truck, but forgot to fill out thedeclared value column, defaulting the worth of the horse to $1000. Thecourt upheld the limitation:

Jackson and Daisey, as his agent, as experienced shippers,are presumed to have constructive knowledge of the liability limitationprovision. Even if Daisey, a trainer, was unaware of the law, we questionwhy Jackson chose to absent himself from the stable on this important daywithout leaving adequate instruction . . . One who signs a contract inthe absence of fraud or deceit cannot avoid it on the grounds that he didnot read it or that he took someone else’s word. It is not necessary thatan employee of the carrier explain the options to the shipper. Rather,the carrier must provide only reasonable notice of the opportunity to declarea higher value.

So, where does that leave you? It is a very close question that turns onsome very specific facts. A court will look at both your friend’s experiencein shipping expensive bicycles and yours. If either of you have done thisbefore, you will probably need to establish active misrepresentation ormalfeasance by UPS or the pack-and-ship store. If your friend is inexperiencedbut you have shipped your bike several times, UPS will certainly arguethat you were negligent in failing to give your friend adequate instructions.On the other hand, if you can establish that the declared value boxwas left blank, was filled in by a store employee without specific directionfrom your friend, or was filled in by your friend based upon a suggestionor instruction of the employee, you may have a viable case against eitherthe store or the carrier. But if your friend said “I don’t know what it’sworth,” and the employee said “you may want to wait until you do know,”or said nothing at all, it will be very hard to recover. It is very likelythat UPS has these independent stores videotape their counter transactionsand store the records just in case such disputes arise, so it is possiblethat evidence of what exactly happened can be sought if you decide to pursuea claim.
Good luck
Bob
(research and drafting provided by Bruce Epperson J.D.)

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