Insurers and customs brokers/forwarders want the Federal Maritime Commission to rule that the extent of liability under ocean freight forwarder bonds is what the documents state and not the total of individual claims.
That issue, they say, was settled more than a decade ago by the agency, but has been reopened in a U.S. District Court case brought by Lykes Bros. Steamship Co., American Cast Iron Pipe Co. and Kristin Shipping Co.The insurers and broker/forwarders say the FMC should reaffirm its position. They claim that a court decision upholding the Lykes position would immediately jeopardize all existing freight forwarder surety bond coverage and thereby create havoc in the industry.
Lykes and the others, because of their unsuccessful efforts to collect freight charges due for a number of shipments that exceeded the arguable face value of the surety bond at stake, contended that the maximum $30,000 of the bond should be paid per claim.
The Old Republic Insurance Co., the Surety Association of America and the National Customs Brokers and Forwarders Association of America together petitioned the FMC for a declaratory order.
Over the years, the petitioners pointed out, the understanding of those providing the bonds was that their maximum potential exposure under the bond was the face amount of the bond.
If that were not the case and the limit of the exposure unknown, there would be catastrophic disruption in the freight forwarding and surety bonding industries, the petition said.
The petition urged the FMC to quickly reaffirm its longstanding position on the limit of exposure so the trial judge may have the benefit of a clear statement by the commission of its consistent interpretation of the forwarder bonding required by the 1916 and 1984 shipping acts.
It also was pointed out that U.S. Treasury rules governing surety bonds forbid the issuance of such bonds where the risk is greater than 10 percent of the company's paid-in capital and surplus, unless further reinsurance is obtained.
Thus a decision that the forwarder sureties were not of fixed liability but open-ended would appear to necessitate immediate cancellation of all such bonds and to preclude the issuance of any new bonds in such form, Old Republic, the association and the customs brokers and forwarders added.
They insisted that the intention of Congress and the commission was to require bonding of forwarders to the extent of $30,000 each, plus an additional $10,000 for each unincorporated office of the licensed forwarder.
That, they argued, fixed the extent of liability under the bond.