Commentary: Be Wary of Salvage Deal

Q: We’re a manufacturer of high-end kitchen appliances and face what I think is a very unusual situation regarding a claim.

We shipped one of our top-of-the-line units to a retailer via motor carrier. I’m not sure what happened — and the carrier won’t tell us — but somehow the unit was damaged en route. The packaging was destroyed on one side, and the unit itself was scratched and slightly dented.

When we filed a claim, the carrier acknowledged liability and said it would pay the full amount, but only if we turned over the damaged unit to it. Now, it’s our policy not to allow salvage of any damaged equipment. First, salvage sales compete with our new equipment; second, having damaged units offered for sale is harmful to our market reputation; and third, there’s always the possibility of internal damage that might result in malfunction for which we could be sued.

We explained this to the carrier, but it’s adamant. When we pressed, it said it has the opportunity to completely offset our claim via a salvage sale (our claim is for the wholesale value, not the retail markup). Doubting this, we asked for the name of the buyer, but the carrier wouldn’t give it to us.

So we’re at an impasse. We don’t want to give the unit to the carrier for sale to an unknown party, but the carrier refuses to pay our claim unless we do. The amount in question is in the low five figures, enough that we don’t want to let it go, but not enough to warrant taking our case to court.

You’ve written before that the carrier has no right to take possession of damaged goods. Wouldn’t that apply here?

A: This is (a) a mess, and (b) as funky as all get-out. Because of (b), I’d suggest you sue anyway and expect a settlement that will more than offset your legal expenses (though it won’t make you whole for the loss).

To answer the question in your last paragraph, no, the carrier has no right to take possession of the goods, but it does have the right to a legitimate salvage allowance equal to what the goods are worth in the market in their current condition. Here, the carrier is simply telling you that allowance should equal the full amount of your claim.

If it’s correct, then its declination of your claim is proper; your reasons for not allowing salvage sales are perfectly good ones from your perspective, but you can’t ask the carrier to underwrite your corporate protection. But then we get to the funky part, highlighted by the carrier’s refusal to give you the name of its alleged buyer. And that makes me more than a bit suspicious.

You don’t say whether this unit is for home or restaurant use, but it doesn’t matter. If the former, suppose this “buyer” is actually the carrier owner’s wife, or the wife of one of his golfing buddies or something like that. If the latter, well, perhaps one of them owns or has an interest in a restaurant.

Do you see where I’m going with this? Indeed, I can carry it quite a bit further. This carrier does seem willing to pay your claim in full if only you turn over the unit to it. But I’m sure the carrier has cargo insurance sufficient to cover this five-figure claim.

So: Carrier pays your claim, tells its insurer the unit was totaled, collects from said insurer for its outlay, and there’s the owner (or buddy) with an expensive kitchen appliance that has only cosmetic damage free and clear.

Or maybe I’m just being cynical. But the fact the carrier abruptly turned taciturn when you asked for the name of the salvor who’s kindly agreed to buy this damaged unit for what seems an exorbitant sum makes me think such dark thoughts.

If what I’ve speculated is indeed what’s going on, the carrier’s bluffing. It (or, more accurately, the owner or other official who’s involved in this would-be scam) can’t afford to have such machinations exposed in open court. Somebody’s counting on your being unwilling to sue.

That’s why I advise you to confound that expectation and sue anyway. If I’m correct, the carrier will begin beating a hasty retreat and offer to settle, at which point you can insist on big bucks. If I’m wrong, at least you’ll then learn the name of the salvor. You’ll have to judge this for yourself.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.