Q&A: Filling the Gaps on Shipper Insurance

Q: You recently wrote about readers’ suggestions that shippers purchase their own cargo insurance for goods moving by rail and motor carrier. In debunking the idea you made reference to the Carmack Amendment.

The Carmack Amendment isn’t what it used to be, for railroads and motor carriers now can limit their liability by the rates they assess. If the shipper wants to recover the full actual value of the freight lost or damaged in transit, he has to pay a premium rate. The courts have given their stamp of approval so long as the carrier clearly advises the shipper of the alternatives.

That’s why it makes sense for shippers to carry cargo insurance, for the premium likely is less than the higher rate the carrier would charge for full actual value liability. Motor carrier shippers are a little slow in catching on, for they evidently recall the days when trucking companies had to carry cargo insurance. Shippers who make much use of truck transportation, I have no doubt, self-insure just as shippers by rail do.


A: You have a point, although I don’t think it’s for the reason you say.

For decades, carriers have been able to limit their liability based on their rates, although in days of yore, when their tariffs had to be filed with the Interstate Commerce Commission, they could do so only with ICC approval. No regulatory approval is required today, but otherwise things haven’t changed.

Your thoughtful comments, however, don’t take into account more recent court decisions allowing carriers to limit their liability by tariffs without regard to rate reductions. This is by no means universal, but some courts have so ruled, and many carriers take advantage of these rulings in their tariffs.

My previous correspondents, however, were talking about a change in the underlying law that would leave shippers in the position of being compelled to cover their loss-and-damage risk with their own insurance; and I was disagreeing with that idea.

By its words, the statute requires carriers to assume liability for full value of the goods in the absence of an agreed rate trade-off. That some courts have chosen to in effect rewrite the law in this regard doesn’t alter the situation in my view. I believe shippers should be entitled to regard the law as unchanged in terms of making carriers liable to them for any loss of or damage to their goods while in transit unless they expressly agree otherwise.

I’m also not sure I agree with your proposition that it’s usually cheaper for shippers to purchase insurance even in cases where carriers have taken advantage of the opportunity to charge extra for full liability as opposed to some reduced amount. This may be the case sometimes, but the current language of the law does seem to allow shippers to make that judgment on a case-by-case basis in accordance with the specific economics of their circumstance.

What I was intending to say in my previous columns is that I see no reason for the loss of change in this regard. I don’t believe shippers should be under a requirement to buy separate insurance each time they ship their goods as a matter of statutory mandate.

The Carmack Amendment has long protected shippers from this obligation, and I don’t believe that situation should change. As I expect is obvious, I strongly disagree with the courts that have allowed carriers to escape from the Carmack requirement that they assume full liability in the absence of a super agreement to trade lower rates for lower liability. Until the Supreme Court weighs in on this issue, though, that question will remain in limbo.

Meanwhile, as long as the courts remain divided about whether liability limitations imposed by tariff fiat are or aren’t enforceable, prudent shippers would be well-advised to be aware of all such limitations and to take out insurance of their own to cover any shortfall in value. I have long said that carriers can’t count on these liability provisions in their tariffs, but also that shippers need to pay attention to them. That continues to hold true, and no amount of statutory wording can avoid this dilemma.

So to that extent, I agree entirely with my correspondent that the wise shipper does indeed have to protect himself against loss of or damage to cargoes entrusted to carriers that purport to restrict their liability, whether by agreement with shippers in exchange for reduced rates or without such an agreement and/or rate reduction.

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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