Who pays? Shipper Indemnity for People Claims

People claims on container stowage are most prevalent at origin and destination, when the container is open. So what protections, if any, are available for a carrier?

One appellate case out of New York^[i] found that a shipper owed a carrier indemnity for a personal injury claim under its bill of lading terms and conditions. The standard applied will turn on prior notice provided to the indemnitor or the party obligated to indemnify the other.

A forklift operator sustained injury when they hit their head on the side of the forklift, claiming a traumatic brain injury.^[ii] The claims were three-fold: (a) the poor packing of the cargo (marble slabs); (b) the inadequacy of the container flooring; and (c) the supporting chassis giving out and causing the cargo to shift. The two main defendants were the carrier and the local branch of the shipper, a freight forwarder, whose foreign affiliate loaded and stowed the cargo at origin.  

The subject indemnity provision stated:

The Merchant shall indemnity the Carrier against any loss, damage, liability or expense whatsoever and however arising concerning the manner or method of the Goods have been packed, stowed, stuffed or secured in the Container.^[iii]

The first inquiry is does the freight forwarder qualify as a “Merchant” and, if so, do the allegations come within the scope of the above clause? The terms define Merchant as anyone who could legally possess the cargo. A party listed on the master bill of lading, here the shipper, most certainly qualified as a “Merchant”. Neither party disputed this fact. Moreover, in terms of the main allegation concerning container stowage, the claim fell squarely within the scope of the above clause. Interestingly, the trial court concluded that neither of the other allegations, defective flooring and chassis failure, were the proximate cause of the loss. Defective flooring was a direct allegation (direct negligence) against the carrier, so for the court to disregard this is notable.

If the terms and conditions inquiry is satisfied, the next step is liability. The burden of proof for the carrier will hinge on the prior notice afforded to the freight forwarder. Prior notice is simply one party telling the other of the claim and that it expects the other party to settle the matter on its behalf. As with everything, the earlier notice is given the better and ideally before any settlement is agreed to. If a carrier does provide this prior notice, then it has a low burden of proof of only showing it is potentially liable. If not, the burden raises to actual liability. With this higher burden also comes more liability hypotheticals in an effort to defend the loss against indemnity.

The natural counter-argument to all of this is that the bill of lading terms and conditions should not apply with a port-to-port move – this injury happened inland. That is, since the carrier’s involvement ended at the port, so should its privileges and obligations under the bill of lading. This is a bit contrary to some of the other terms and conditions as these reference requirements or obligations for inland transit, for example, to stow a container sufficiently to endure the rigours of ocean transit. Stowage is done at an inland depot well before the container comes within the carrier’s control. As a principle of contract law, a court cannot enforce a contract in such a way that would render certain terms moot. So the court cannot say the terms and conditions ended at the port when there are provisions clearly geared toward inland transit.

Recommendations

It is refreshing to see bill of lading terms enforced for their intended purpose, whether or not the carrier remains involved for that portion of transit. Carriers regularly trade on port-to-port moves and can continue knowing this indemnity exists for people claims here in the United States. The lesson is two-fold, tender a claim early and tender often. This recommendation, if followed, will allow carriers to receive indemnity from shippers or freight forwarders while only showing their potential liability. If the first tender is declined or ignored, then keep that party closely advised of all developments and remind it of its indemnity obligations. If anything, this keeps another source of settlement funds in play at the negotiating table.

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[i] If the reader would like to review the case or discuss any facts or recommendations, please contact the New Jersey claims team.

[ii] The injury and specifics of the underlying people claim are changed, but the guiding principles of the indemnity claim remain the same.

[iii] For brevity and ease of reading, these are two bill of lading terms combined for the reader’s benefit.