Cross-Border Transportation – The Carmack Amendment

It’s 8:20 p.m. on a dark, cold night; a long-haul truck carrying heavy machinery makes a turn on the highway near Moose Jaw, Saskatchewan.  Unfortunately, the driver takes the corner too quickly and the trailer tips over, damaging the majority of the cargo.

The cargo originated in New Jersey and was destined for British Columbia and Alberta.  Liability insurers of the tractor-trailer are put on notice and are contacted by counsel for the cargo owners.  “The Carmack Amendment applies to this load and your insured cannot limit its liability”, the lawyer shouts. “If you do not provide the cargo owners with the full value of their cargo, we will commence an action in the U.S.”.

Insurers immediately contact a lawyer in Canada with the inevitable questions.  What is the Carmack Amendment?  Why can’t the insured limit its liability?  What can we do to ensure that the action remains in Canada?  How can we ensure that we can limit liability in the U.S?

Cross-border transportation between Canada and the United States has continued to grow.  Faced with the constant flow of cargo coming to and from each jurisdiction, courts, lawyers, insurers, brokers and carriers have had to consider limitation of liability in both jurisdictions.

The purpose of this paper is to provide the reader with an overview of the American limitation of liability regime, to discuss how Canadian carriers can limit their liability in the U.S., and to identify ways in which they can protect themselves against full liability findings under Carmack.

A.  What is the Carmack Amendment?

The Carmack Amendment was first enacted in 1906 as an amendment to the Interstate Commerce Act.  It governs the liability of truckers and others carriers that transport interstate shipments and shipments between the U.S. and a foreign country.  It is a uniform system of carrier liability and represents the shipper’s exclusive remedy against a carrier for goods lost or damaged during shipment.  Carmack also trumps any State law respecting carriers’ liability.

Carmack’s purpose is to relieve cargo owners from having to search out a particular negligent carrier from among the often numerous carriers handling interstate shipment of goods.

Like in Canada, a carrier is almost strictly liable under Carmack for any damage to cargo.  In order to make a prima facie case against the carrier under Carmack, the shipper must provide evidence of (a) delivery of the goods to the initial carrier in good condition; (b) damage to the goods before delivery to the final destination; and (c) the amount of damages.  Once these three requirements are met, the onus transfers to the carrier to show that it was not negligent and that the damage to the cargo was due to one of the five defences afforded to a carrier.

Of note, the available defences under Carmack are similar to those afforded to carriers in Canada.  A carrier can overcome the presumption of negligence on its part if it can demonstrate that the loss was caused by an act of God, act of public enemy, act of shipper, act of public authority, or the inherent nature or vice of the goods.

The key differences for carriers under Carmack pertain to limitation of liability rights, and the steps that carriers will need to take to enforce same under the American regime.

B.  Liability Imposed by Carmack

The Carmack Amendment operates first by imposing full liability on motor carriers for damaged cargo, and then by creating an exception under which carriers can limit their liability by satisfying certain criteria.

(a) General Liability. –

(1) MOTOR CARRIERS AND FREIGHT FORWARDERS. – A carrier providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 shall issue a receipt or bill of lading for property it receives for transportation under this part.  That carrier and any other carrier that delivers the property and is providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 or chapter 105 are liable to the person entitled to recover under the receipt or bill of lading.  The liability imposed under this paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States or from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading and, except in the case of a freight forward, applies to property reconsigned or diverted under a tariff under section 13702.  Failure to issue a receipt or bill of lading does not affect the liability of a carrier.  A delivering carrier is deemed to be the carrier performing the line-haul transportation nearest the destination but does not include a carrier providing only a switching service at the destination.

The liability provision provides that a shipper’s recovery is for the “actual loss or injury to the property”.  As such, carriers are not liable for any fees accrued for legal costs (“attorney fees”) or for other types of damages such as punitive damages.

C.  Limitation of Liability

Under Carmack, a carrier may limit its liability to the shipper for cargo damage if it does the following:

(a) gives the shipper a reasonable opportunity to choose between two or more levels of liability;

(b) obtains the shipper’s agreement to its choice of liability; and

(c) issues a bill of lading prior to moving the cargo that reflects the agreement.

A reasonable opportunity to choose between two levels of liability means that the carrier has clearly offered its shipper the option of full carrier liability, which typically means a higher freight rate, and a limited liability regime.  One court described reasonable opportunity in the following way:

The shipper had both reasonable notice of the liability limitation and the opportunity to obtain information necessary to making a deliberate and well-informed choice.

Failure to meet any of these requirements can result in the motor carrier paying the full amount of the shipper’s claim.

What this means for Canadian carriers is that they can limit liability for cross-boarder shipments where Carmack applies but only if they meet the above criteria.  The problem is that the steps that a Canadian carrier typically takes to limit liability in Canada may not be sufficient to limit liability under Carmack.

D.  What are the Limitation Amounts?

Unlike the Canadian $2 per pound regime, there is no legislated amount that a carrier has to limit to under Carmack.  The amount to which a carrier may limit its liability is simply defined as a value that would be “reasonable under the circumstances”.

Of interest, transportation used to be heavily regulated in the U.S. up until 1995.  At one time a carrier had to file a “tariff” with the Interstate Trade Commission if it wanted to perform “common carriage” services.  In 1995, transportation was deregulated.  The ICC Termination Act of 1995 abolished the Interstate Commerce Act and the tariff-filing requirement.  Today, carriers adopt standard contractual terms, which some call “tariffs” out of habit, but which have no effect apart from their status as terms of the applicable contract of carriage.  Simply stated, it is much easier to limit liability under Carmack, as long as the three above-noted requirements are met.

Carmack simply provides as follows:

…a carrier providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 may, subject to the provisions of this chapter…establish rates for the transportation of property other than household goods described in section 13102 (10) (A) under which the liability of the carrier for such property is limited to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation. 

What can be defined as a reasonable amount appears to be quite liberal.  Provided that the carrier meets all requirements to limit liability, the carrier can limit to any reasonable amount, which may be an amount that is much less than $2 per pound (with some American courts enforcing limits as low as 10 cents per pound).

To strengthen the limitation argument, the limitation amount should be noted on the bill of lading and posted on the carrier’s website, which is readily accessible to the public.

Despite being able to limit to less than $2 per pound, we recommend that a Canadian carrier stay consistent and limit to $2 per pound even when attempting to fall within Carmack.  A stronger argument can be made that the $2 per pound limit is a reasonable amount based on the fact that it is common in the industry.

E. When Does It Apply?

Carmack applies to motor carriers subject to the jurisdiction of the Secretary of Transportation and the Surface Transportation Board.  The jurisdictional provisions of Carmack are contained in 49 U.S.C. section 13501 and state the following:

The Secretary and the Board have jurisdiction, as specified in this part, over transportation by motor carrier and the procurement of that transportation, to the extent that passengers, property, or both, are transported by motor carrier –

(1) between a place in –

(A) a State and place in another State;

(B) a State and another place in the same State through another State;

(C) the United Sates and a place in a territory or possession of the United States to the extent the transportation is in the United States;

(D) the United States and another place in the Unites States through a foreign country to the extent the transportation is in the United States; or

(E) the United States and a place in a foreign country to the extent the transportation is in the United States

[emphasis added]

Carmack is intended to apply to interstate surface transit occurring between two states (i.e., Texas to Georgia) and surface transit that originates in the U.S. and is destined for a foreign country (i.e., Alaska to Yukon).  There is a strong argument that Carmack should not apply to surface transit originating in a foreign country (i.e., Canada) and destined for the U.S.  That said, the jurisdiction provision and specifically section 13501 1(E), has left some U.S. courts to interpret Carmack’s reach in different ways, and has provided for much academic discussion.

By way of example, some U.S. courts have suggested that Carmack only applies to damage claims when the damage occurred within the United States, finding that the point of origin has no bearing on which liability regime will apply.   This would mean that Carmack would not apply to cargo damage claims when the shipment originated in the U.S. but damage occurred in Canada.  Other U.S. courts have determined that Carmack’s reach includes shipments between the United States and Canada in either direction.

In our view, the point of origin plays a significant role in any analysis of whether or not Carmack should apply.  That said, we expect that American and Canadian courts may apply Carmack differently.

(i) American Perspective

From an American perspective, both point of origin and where the damage occurred appear to be important factors in determining Carmack’s applicability.  That said, it can be argued that point of origin should be given more weight.

There are strong arguments that point of origin is the determining factor and that cargo originating in the U.S. and shipped to a foreign country should always be governed by Carmack.  Similarly, it can be argued that cargo originating in a foreign country and shipped to the U.S. should not be covered under Carmack.

While many cases support the argument that point of origin is the determining factor regarding Carmack’s applicability, amendments to Carmack’s jurisdictional provisions in 1978 opened the door for debate, and have encouraged some courts to extend Carmack’s reach.

Prior to the 1978 amendments, Carmack’s liability provision applied to transportation “from any point in the United States to a point in an adjacent foreign county.” It was clear that point of origin was the deciding factor.  The change to “between the United States and an adjacent foreign country, to the extent the transportation was in the United States”, may broaden Carmack’s reach to shipments entering the U.S. from a foreign country, and appears to emphasize the significance of location of damage.  There has been strong debate regarding the impact of the legislative change, with some argument in support of the change in focus outlined above, and conflicting argument supporting a position that the new wording has not changed anything, and that point of origin remains the deciding factor.

While the point of origin argument can still be applied, the language used in the most recent amendment to the jurisdictional provision creates some uncertainty.  These changes have left academics and some American courts to suggest that origin alone is no longer the deciding factor, and that more emphasis should be placed on where the damage occurred.  For example, one American court found that Carmack applied when damage to cargo occurred in Kansas despite the fact that the point of origin was Ontario.  While there has been extensive debate regarding whether this case was properly decided, the precedent has been established.

We are of the view that there are stronger arguments that point of origin remains the deciding factor, but as you can see from the discussion above there have been inconsistent findings by American courts that apply Carmack based on location of damage despite a foreign point of origin.

(ii) Canadian Perspective

From a Canadian perspective, one has to look at much more than point of origin.  That said, if the point of origin is Canada, there are likely stronger arguments that Canadian law should apply, and not Carmack.

  1. (a) U.S. to Canada Shipment: Canadian Perspective

It will be difficult to establish that Canadian law should apply to a cargo damage claim where a shipment originates in the U.S..  That said, if your carrier finds itself without limitation arguments under Carmack for a U.S. to Canada shipment, the right set of facts might support an argument to apply Canadian laws over Carmack.

When dealing with international transactions, a Canadian court will apply the conflict of laws rules, which include consideration of where the contract was formed.  As such, it may be possible to argue that a Canadian court has jurisdiction, and that a Canadian limitation of liability provision ought to apply as opposed to Carmack.

In determining whether a particular Canadian court has jurisdiction over a matter, the court will consider whether there is a real and substantial connection between the particular province and the facts on which a proceeding is based.  There are a number of indicia which the court will look at to determine jurisdiction, namely, where the contract was formed, where the parties reside and where the incident arose.  Once the court determines that it has jurisdiction to hear the matter, it will have to decide what law will ultimately apply to determine the case (i.e., Carmack or the law of the province).

The Law of the Contract

One way to attempt to have Canadian law apply is to show that the contract is governed by the law of a particular province.

The law governing a contract is described as “the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection.” If there is no express choice of law clause in any documents, then it will be “the system of law with which the transaction has its closest and most real connection” that will likely be applied.  To identify the system of law that should apply, the Supreme Court of Canada adopted the following indicia:

The court must take into account, for instance, the following matters: the domicile and even the residence of the parties; the national character of a corporation and the place where its principal place of business is situated; the place where the contract is made and the place where it is to be performed; the style in which the contract is drafted, as, for instance, whether the language is appropriate to one system of law, but inappropriate to another; the fact that a certain stipulation is valid under one law but void under another; … the economic connection of the contract with some other transaction; … the nature of the subject matter or its situs; the head office of an insurance company, whose activities range over many countries; and, in short, any other fact which serves to localize the contract.

A set of factors that may result in a finding of Canadian jurisdiction and law despite U.S. origin are:

    • The shipper has a place of business in a particular province;
    • The carrier is a provincial company;
    • The contract of carriage was executed in the province;
    • The bill of lading discusses limiting liability to $2 per pound or any other detail with specific ties to the particular province; and
    • Anything else indicating intention of parties or location at which the contract of carriage was formed.

Tort and Conflict of Law

Another way to attempt to have Canadian law apply is to advance an argument that the proper law is the law of the province in which the incident occurred.  The general rule in Canada is that the law to be applied in claims is the law of the place where the activity occurred, the lex loci delicti.  The majority of the Supreme Court of Canada has held that, at least in inter-provincial matters, it requires that there be no exceptions to this general rule.  Accordingly, if the cargo is damaged in Canada, a carrier may be able to argue that the proper law to apply is the law of the province in which the damage occurred, even if the origin of the shipment is in the U.S.

All that said, the “location of the tort” argument is likely stronger support to ground jurisdiction to hear the case in Canada.  It may not succeed in having courts apply Canadian law to interpret the contract of carriage.

(b) Canada to U.S. shipment: Canadian Perspective

When goods are moving from one Canadian province to another, the relevant legislation provides that the law to be applied is that of the place of origin of the cargo.  An application of that legislation by analogy seems to support an argument that Canadian law should apply to Canada – U.S. shipments.  That said, Canadian courts may take the broader approach discussed in the section above to determine the applicable law even in a Canada to U.S. shipment, since the province to province legislation is silent on transport to a foreign jurisdiction.

F. Six tips when dealing with cross-boarder shipments

1. Carriers should take all steps to limit liability in the U.S., particularly if transportation originates in the U.S.

Example:

A carrier should do the following:

    • Ensure that its rules and rates are on its website and noted on the bill of lading which it issues prior to shipment;
    • Ensure that it has provided the shipper with an opportunity to chose between two levels of liability (i.e., $2 per pound or a declared value); and
    • Ensure that it has obtained the shipper’s agreement to the level of liability by having the shipper execute the bill of lading.

2. Carriers should ensure that their bills are in a proper form to comply with Carmack

Under Carmack, the Bill of Lading ought to have the following items:

    • Place of origin
    •  Destination
    • Name of shipper
    • Name of carrier
    • Description of the cargo
    • Weight of cargo
    • Option to declare a value
    • Carrier’s signature
    • Shipper’s signature

From a review of the case law, providing a declared value box is extremely important in order to show that the shipper has been provided with a reasonable opportunity to choose a higher level of liability.

3. Carriers may want to include a Canadian choice of law clause and jurisdiction clause

Having a choice of law clause and a jurisdiction clause citing a particular province as the proper law to govern the contract of carriage will assist in ensuring that that particular law is applied.  This will only be a preferred option if the law of a particular province is preferable to Carmack (i.e., Alberta but maybe not B.C.).

4. Claims examiners will need to determine whether Carmack or the law of a specific province applies to losses

Claims examiners will want to focus on point of origin initially but will also want to look at where the contract was formed and where the damage occurred.

5. If Carmack will result in full liability, claims examiners will need to consider whether any arguments can be made to apply a preferable law of a specific province

We have been successful in establishing that certain Canadian limitation amounts should apply based on arguments pertaining to where the contract was formed and where the tort occurred.  In a recent case, we were successful in reducing the quantum of damages for a shipment of goods that originated in North Carolina, was destined for Alberta and was damaged in Saskatchewan.

6. If a provincial law is preferable, a claims examiner will want to attempt to ground jurisdiction in Canada by commencing a pre-emptive action in Canada

Another way in which we have been successful in reducing the amount paid on behalf of a carrier has been to commence an action in Canada before an action in the U.S. has been commenced and to then argue for the application of Canadian law.

For example, an action in Alberta for a declaratory finding that Alberta is the proper jurisdiction and law to apply may provide the carrier with some leverage.  Not only will it force American parties to defend an action in Canada, but the fact that the action has been commenced in Canada prior to the U.S. may constitute another factor suggesting that Canada is the proper jurisdiction and law to apply.

This article is written by Megan Whittle, former lawyer at Whitelaw Twining