Q&A: Crash Course in Salvage

Q: We sent out a load of our products, consumer electronics, via a motor carrier. En route the truck was involved in an accident, which did a lot of damage to our shipment. The trailer came open and many cartons spilled out; others were tossed around with some coming open. It was a real mess.

Many of the individual units were damaged beyond repair, some with cosmetic damage bad enough that they couldn’t be sold as new, and others with electronic damage inside. Even the units that appeared undamaged had possible injury to the electronic components that would affect useful life or possibly cause immediate failure. Our people determined it would be too costly and uncertain to test each unit for damage, and that none of the units could be recovered safely.

After a good deal of discussion and negotiation with the carrier and its cargo insurance company, it was determined to declare the loss total. At that point, we filed a claim with the carrier for the full value of the load. The insurance company agreed to pay, but it demanded that we release the damaged goods to them for disposal. They said it was their intention to sell the units as salvage.

Our company has a policy that damaged or potentially damaged units aren’t to be sold as salvage. Our view is that, first, having imperfect units on the market hurts our reputation, and in fact could open us up to possible product liability litigation. In addition, the salvaged units will compete with our new products in the marketplace, which can affect our sales. For that reason, we refused the insurance company’s request. It told us that in this case it would deny our claim.

Does the insurance company have the right to make this demand? Its view is that because it’s paying our claim, it has the right to the merchandise and the right to dispose of it as it sees fit. Is it correct?

A: The insurance company seems to have spent too much time reading those signs you see in low-end retail establishments and believing what they say.

You know the ones I mean: those ubiquitous little gift shops with all the displays of fragile doodads positioned carefully on shelves just where your coat sleeve is likely to catch them along with prominently displayed notices stating, “If you break it, you’ve bought it.” And if you do have the misfortune of breaking something, they’ll happily box up the shards and wrap them once you hand over your money.

That’s not how freight loss-and-damage liability works. A carrier doesn’t suddenly become your customer by paying a claim. It’s therefore not entitled to possession of anything; it’s merely compensating you for injury to your goods. It’s not buying anything from you with its payment.

A common situation in the transportation industry is for carriers to take on the responsibility of disposing of damaged goods after paying a claim, but this isn’t a matter of right; it’s simply something many carriers do to accommodate their shippers. If the carrier’s manner of disposition doesn’t satisfy the shipper, the shipper may veto the carrier’s choice or may handle the disposal itself.

Any right the carrier’s insurance company has derives from the carrier’s own rights, and therefore it has no right to salvage your damaged goods.

At the same time, the carrier (or its alter ego, its cargo insurer) is obliged to pay you only for the actual damage. If the damaged merchandise retains some value, even as salvage, then the carrier (or insurer) is entitled to deduct that from any claim payment to you. That is, it’s entitled to a “salvage allowance” equal to the retained value of the damaged goods, which is to be deducted from the amount of your claim.

In this case, the insurer apparently has an offer, or thinks it can get one, for the damaged units. If it documents this amount to you, then you should deduct it from your claim; that’s a fair measure
of the current value of this load. The insurer then owes you the difference between the original worth of your shipment and that value.

You, however, retain ownership of the damaged units, and the right to dispose of them as you choose, including by destroying them if that’s your choice. The insurer, having been compensated for the units’ retained value, has no further say in the matter.  

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.

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