Limiting Motor Carrier Liability for Loss or Damage to Cargo to $500 via COGSA

Limiting Motor Carrier Liability for Loss or Damage to Cargo to $500 via COGSA

By Brian Schrumpf from The Fuentes Firm published on November 11, 2016.

Motor carriers, freight forwarders, and other transportation and logistics service providers face exposure for loss or damage to cargo, and this exposure can reach into the millions of dollars, depending on the cargo value and the extent of damages. This article explains how motor carriers and other transportation service providers can benefit from the $500 per package limitation of liability in an ocean carrier’s Bill of Lading.

There are several methods that motor carriers and other transportation service providers can use to limit their liability for cargo damage. One method, which is often overlooked at the time of liability evaluation, is the per package limitation of liability allowed under the Carriage of Goods by Sea Act (“COGSA”). COGSA is a federal statute that governs liability for loss or damage to cargo during ocean transportation. It is the maritime equivalent of the Carmack Amendment (the federal statute governing motor carrier liability for loss or damage to cargo).

COGSA allows ocean carriers to limit their liability to $500 per package, and many ocean carriers’ Bills of Lading incorporate the $500 per package limitation (typically on the terms and conditions on the back of the Bill of Lading). A “package” can range from a container, a pallet, or an individual unit, and it is determined on a case-by-case basis.

While a variety of factors affect whether the $500 per package limitation applies to motor carriers and other transportation service providers, the key component is that the ocean carrier’s Bill of Lading contain terms that pass on the limitation. This is typically accomplished through what is known as a Himalaya Clause, and it is relatively common for an ocean carrier’s Bill of Lading to contain a Himalaya Clause.

Many motor carriers, other transportation service providers, and insurers overlook the COGSA limitation when evaluating claims. If a motor carrier or other service provider receives a cargo claim for a shipment that was transported over ocean, the ocean carrier’s Bill of Lading should be obtained and analyzed to identify whether the motor carrier or other service provider can benefit from the COGSA limitation.