Material Deviation: A Fallacious Argument Against Limitations of Motor Carrier Liability
Craig J. Helmreich and Nathaniel G. Saylor *
motor carrier liability for cargo claim damages, increasingly more shippers, or their subrogated insurers, argue the concept of material deviation can be used to render the carrier’s limitation of liability unenforceable. Fortunately for carriers, despite the increase in use of this argument by shippers, the Imagine this – your client is a majority of recent court decisions A later court explained motor carrier that transported high- refuse to apply the doctrine of material “[a]lthough the material deviation value cargo pursuant to a shipper/ deviation in the context of motor doctrine in admiralty law and the carrier agreement that contained a carrier transportation. released value doctrine in motor car- limitation of liability provision setting rier law have coexisted for nearly 100 its maximum liability at $100,000 The Origin of the Doctrine years, it is only recently that a hand- per shipment. Unfortunately, the Material deviation is a concept ful of courts has decided to merge the shipment of televisions (or computers, borrowed from maritime law. Under two.”4 The courts that have accepted or pharmaceuticals) the carrier was the Carriage of Goods by Sea Act the plaintiff’s invitation to borrow transporting across the country was (“COGSA”) an ocean carrier’s material deviation from admiralty and stolen when its driver took a shower liability for lost or damaged cargo apply the doctrine to surface transpor- at a truck stop. Apparently the driver is limited. An ocean carrier can tation hold where a motor carrier has did not know the shipper/carrier lose the benefit of this limitation of made a separate, risk-related promise, agreement contained a provision liability if it materially deviates from specific to the particular shipment at requiring the driver attend the vehicle the specifications of the contract of issue, and fails to perform the prom- at all times. carriage. In the context of ocean ised risk-related duties, material devia- tion may be used to rescind a carrier’s By the time the driver had dried transport, the theory is supported by otherwise enforceable limitation of off, the truck, trailer and several significant case law and the governing million dollars in cargo had vanished. liability.5 statute itself.1 Knowing its contract limited its The Southern District of New liability to $100,000, the motor carrier In contrast, the Carmack York was among the first courts to wrote its shipper customer a check Amendment, the federal statute adopt material deviation in the motor for $100,000 and considered the governing carrier liability for loss or carrier context with its decision in matter closed. However, much to the damage in interstate transportation where it stated: carrier’s surprise, almost two years by motor carrier, contains no such In cases of shipments by air, rail later a complaint was filed against it provision.2 One of the first courts and truck where the shipper paid by the shipper’s subrogated insurer asked to apply material deviation an additional charge to ensure for the full value of the shipment, to transportation by motor carrier specialized safety measures to minus the $100,000 the carrier already rejected the doctrine in the context reduce the risk of damage to paid. In the lawsuit the subrogated of surface transportation and held its cargo, the carrier’s failure to insurer argues the doctrine of material this “[a]dmiralty law doctrine has perform those very measures deviation invalidates the contractual no application in the context of which resulted in damage to the limitation of liability. regulated interstate commerce, which cargo has been found to be a In an attempt to avoid an is governed by the overriding federal sufficient basis upon which the otherwise enforceable limitation of policy of uniformity.”3 liability limitation provision of the shipping agreement may be *Scopelitis, Garvin, Light, Hanson & Feary, Indianapolis, Indiana rescinded.6
28 Transportation Lawyers Association Canadian Transport Lawyers’ Association The Transportation Lawyer A decade later, in negotiated security measure for which shipments on a particular route would , this same court relied heavily a specific charge was paid to the motor never be left unattended.16 Despite on the decision in when it carrier required to invoke material this contractual promise, a shipment again used material deviation to void deviation.11 Likewise, in was left unattended and was stolen. a contractual limitation of liability Watson took the position that the between a motor carrier and its shipper the Southern District contractual limitation of liability of customer.7 In the court held of Texas refused to adopt the doctrine $100,000 was void and sought the full the agreed upon limitation of carrier of material deviation under the facts value of the stolen cargo. liability was not enforceable because before it holding “[h]aving gained the The district court refused to apply a) the contract contained specific benefit of the contract, Plaintiff should the material deviation doctrine to security provisions, b) Watkins failed be bound by the provisions governing transportation by motor carrier. The to comply with these provisions, and, [the carrier’s] limited liability.”12 8 court stated “Congress has statutorily c) the cargo was stolen. In fact, even the court responsible regulated both admiralty and motor After and , for the decisions in and carrier law, and it has never seen fit to shippers and their subrogated insurers occasionally finds material adopt a material deviation doctrine in have more frequently argued material deviation is not appropriate. In the latter context.”17 After recognizing deviation should invalidate a carrier’s that to hold otherwise would upset the purported limitation of liability. the court refused to apply material overriding federal policy of uniformity, However, the vast majority of recent deviation in the air cargo context the court held: decisions hold either (1) material because no additional fee was paid In the present case, there deviation is not appropriate under the 13 for an additional service. In fact, the is nothing in the contract facts before the court; or (2) material court notes “[n]o court has used the to suggest that the security deviation is not appropriate in the material deviation doctrine in a case provision trumps the liability context of surface transportation by where international air carriage was limit, and unlike admiralty motor carrier. governed by an international treaty. where the material deviation As the Second Circuit stated…the doctrine has long been Recent Decisions Rejecting Montreal Convention was designed to Material Deviation Under recognized and is reflected ‘establish uniformity in the aviation in the United States Code, 14 Particular Facts industry.’ ” the parties to this contract Several courts have avoided Curiously, significant case would have had no reason to addressing the larger question of law exists describing the Carmack anticipate that the law would whether material deviation applies Amendment’s impact on surface imply such an intent. to surface transportation by finding transportation using similar language 15 Late last year, in that, even if it does, the facts before found in the decision. , another the court do not support using the Yet, the Southern District of New federal district court followed the doctrine to avoid a carrier’s limitation York has failed to apply analogous rationale set forth in and 9 of liability. In the 2009 decision in reasoning in Carmack Amendment held material deviation did not apply cases. to surface transportation by motor , the court 18 Recent Decisions Rejecting carrier. In this case, McKesson, held: another pharmaceutical shipper, Assuming that it can be Material Deviation Outright sought to use material deviation to applied outside of the In the past two years, at least invalidate a $500,000 contractual admiralty context, the three courts have found material devi- limitation of liability when two “material deviation” doctrine ation wholly inapplicable to surface shipments were stolen while parked does not control here because transportation by motor carrier. at the carrier’s terminal. The motor there was no “separate, risk- In carrier paid McKesson the contractual related promise.” As a result, , pharmaceutical manufacturer limitation of liability, but was later the doctrine does not bar the and distributor Watson entered into sued by McKesson’s subrogated insurer defendants’ attempts to rely who was attempting to recover the 10 a transportation agreement with on their liability limitations.” motor carrier KLLM. The contract $22,000,000+ it paid to McKesson. A similar result was reached in contained a limitation of liability for Interestingly, in this case, the when the cargo loss or damage of $100,000 per evidence showed McKesson had court found a general security protocol occurrence and contained a security selected the limitation of liability after was not the type of specifically provision under which KLLM agreed considering higher levels of liability
Transportation Lawyers Association Canadian Transport Lawyers’ Association 29 and the impact higher levels of liability to negotiate a higher – or Conclusion would have on the transportation “full value” – level of liability, A growing number of courts have it should do so (and more rates. McKesson chose the contractual rejected the invitation of shippers than likely expect to pay limitation of liability because higher and their insurers to invalidate commensurately higher levels of liability would increase its contractual limitations of liability in freight rates). Given that transportation expense and because contracts with motor carriers. With the Carmack Amendment any losses over the limitation would the Rotterdam Rules, the proposed 19 imposes a regime akin to strict be covered by McKesson’s insurer. successor to COGSA, recommending liability upon the carrier, it is The court noted this was exactly what elimination of the statutory basis for happened and rejected McKesson’s only fair that the shipper, the party with the real knowledge material deviation over the water, it insurer’s attempt to avoid the is a shame motor carriers continue to limitation of liability through use of of the value of the cargo be held to its agreement on the have to address its application over the material deviation doctrine. The 23 20 land. court stated “There is no indication level of liability. in the Carmack Amendment itself Finally, in another decision However, because the doctrine 24 showing Congress intended to apply late last year, the court in remains viable in a few jurisdictions , the material deviation doctrine to the a motor carrier should always get a overland motor carrier context.” The refused to accept full release from its shipper customer court held: a shipper’s invitation to ignore a when paying a cargo claim at a contractual limitation of liability Where, as here, the shipper has limitation of motor carrier liability 21 to avoid the surprise claim by the the opportunity to negotiate using material deviation. The court shipper’s subrogated insurer years the limitation liability and found the Ninth Circuit has never later. In addition, motor carriers and consider various higher levels extended the “admiralty concept their counsel should consider contract of liability it should be bound of material deviation to Carmack Amendment cases… To the contrary, provisions closely – particularly by its agreement to limit the the Ninth Circuit has applied security provisions – and analyze the liability to a specified level. Carmack Amendment limitations of potential for exposure to claims of The shipper is in the position liability even when a carrier fails to material deviation that could be used to know the real value of provide a special condition in the to avoid bargained for limitations of the cargo. Should it desire contract of carriage.”22 carrier liability.
Endnotes 1. 46 U.S.C. §30701, Section 4(4). 2. 49 U.S.C. §14706 3. , 501 F.2d 1369, 1372 (8 th Cir 1974). 4. , 634 F. Supp. 2d 699, 708-09 (S.D. Miss. 2009). 5. See , 919 F. Supp. 650, 656 (S.D.N.Y. 1996); 431 F.Supp. 2nd 411, 418 (S.D.N.Y. 2006). 6. , 919 F. Supp. 650, 656 (S.D.N.Y. 1996). 7. 431 F.Supp. 2 nd 411, 418 (S.D.N.Y. 2006). 8. . 9. , 2008 WL 2168760 (D. S.C. May 20, 2008). 10. Mingtai Fire and Marine Insurance Co. v. Expeditors International of Washington, Inc., 2009 U.S. Dist. LEXIS 129830 *3 (S.D. Fla. August 18, 2009). 11. , 2010 WL 3542017 (S.D.Fla. July 2, 2010). 12. , 2007 WL 173904 (S.D. Tex. Jan. 19, 2007). 13. , 2008 WL 2332343 (S.D.N.Y. June 4, 2008). 14. at *7. 15. , 501 F.2d 1369, 1372 (8 th Cir 1974). 16 , 634 F. Supp. 2d 699, 708-09 (S.D. Miss. 2009). 17. . 18. , Case No. 5:09-cv-250-F (E.D.N.C. November 4, 2010). 19. at 4-5. 20. at 20. 21. , 2010 WL 3489165 (C.D.Cal. Sept. 3, 2010). 22. citing , 970 F.2d 609, 610-13 (9 th Cir. 1992). 23. The Rotterdam Rules expressly do away with the doctrine of deviation as a means of avoiding an ocean carrier’s limitation of liability. Rotterdam Rules Article 24. 24. , 2011 U.S. Dist. LEXIS 14530 (S.D.N.Y. February 14, 2011)(When a carrier breaches a material provision of its contract a limitation of liability is not enforceable).
30 Transportation Lawyers Association Canadian Transport Lawyers’ Association