Q: We’re a broker, and a client is claiming for a shipment that was refused by its customer due to damage.

The driver delayed, without explanation, taking the shipment to a disposal facility for nearly six months, and we and our client waited on the disposal cost to include it in the claim. We finally got the information and filed a claim in the amount of $41,385.90, along with the backup documentation including the invoice, about seven months after the aborted delivery.

The carrier’s insurance adjuster now states that the claim should be revised for the damaged product at production cost instead of the full invoice amount.

This shipment was owned by our customer during the time of the accident. Our client issued reimbursement to its customer at the time of the accident. If this hadn’t been done, the customer who owned this product at the time of the accident would be charging the same value.

We need help on how to present our claim statement to the carrier’s insurance provider in order for them to pay the full invoice amount.

A: Your client’s claim is correct, and the insurance company is wrong.

I addressed this point extensively in my book, Manager’s Guide to Freight Loss and Damage Claims (Fort Valley, VA: 3rd ed., 2003), pp.180-184. Here’s a condensed version of what I wrote there:

“‘The general rule,’ said one court in attempting a broad-based answer, ‘is that, when goods delivered to a carrier for shipment are lost in transit, the carrier will be liable for the market value of the goods at the place of destination at the time when delivery of the goods should have been made … Anderson, Clayton & Co. v. Yazoo & M. V. R. Co., 141 So. 453, 455 …

“‘The most simple case would appear to be when goods were moving under the shipper’s invoice, payable on delivery … The law … is quite clear if a sale has been completed, to the point that the only remaining thing to be done to consummate it is physical delivery of the goods, the [invoice price] has already been earned by the shipper, and must be paid by the carrier as part of the claim … And this holds true without regard to whether a replacement shipment is made and accepted by the consignee … One of the leading court cases in this area involved a shipment of medication in a type of container known as a ‘carboy’ (a large glass vessel encased in protective wickerware), which was destroyed in transit. The court reasoned thus:

“‘It is true that plaintiff [i.e., the shipper] delivered to the carrier [for transportation to its customer] a carboy of medicine to substitute for the one which was destroyed, but we do not think that the defendant’s [carrier’s] liability should be fixed at the amount required to reimburse plaintiff merely for the cost of manufacturing one carboy of medicine. What would be the situation if the second carboy had been lost, or even a third or fourth? Could plaintiff be required to continue to manufacture goods for the defendant at cost?’ Gore Products, Inc. v. T. & N. O. R. Co., 34 So.2d 418.

“Further, as another court noted, ‘no duty rest[s] on [the buyer] to order another shipment to replace the lost goods.’ Nashville, C. & St. L. Ry. v. W. L. Halsey Grocery Co., 121 So. 16. So, it’s not unreasonable to ascribe some additional sales activity to the replacement shipment, which entails some level of cost for which the claimant is entitled to reimbursement.

“Another, and simpler, explanation of the rationale behind including [the shipper’s] profit [on the lost or destroyed goods] as a proper claim element is based on the self-evident thesis that a carrier’s liability should not be variable depending on such extraneous factors as the identity of the claimant.

“If goods are shipped F.O.B. origin, so that the consignee takes title when they are dispatched and is therefore their owner at the time of the loss or destruction, obviously the carrier will be liable for the vendor’s/shipper’s invoice price (including its profit element), which the consignee is obliged to pay notwithstanding the in-transit calamity. How can it be proper for the carrier to be liable for less merely because terms of sale are such that the shipper owned the goods in transit and therefore it is he, not the consignee, who files the claim.”

You mention this last, correctly, in your question, which I hope I’ve answered.

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; email, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.