Acts of God and Carrier Liability
Apr 1, 2011 3:00PM GMT Colin Barrett
Source:

Question: I just finished reading something about the Japanese government setting up a 50-mile hazard zone around the nuclear power plant that had all those problems after the earthquake, and it got me thinking.

Our less-than-truckload company has a terminal within 50 miles of a U.S. nuclear power plant. I know this isn’t very likely, but suppose my area got hit by the same level of earthquake that Japan had. Suppose the plant had the same kind of destruction, and was emanating the same kind of radiation.

Well, that kind of event would pretty much zap any freight we have in our nearby terminal. I mean, nobody would want their stuff to glow in the dark and give people radiation poisoning, right? And with the earthquake messing up the roads and everybody who can
clogging up what’s left of them, trying to get out, there wouldn’t be much of a chance we’d
be able to move the freight out before the damage to the nuclear plant let out all that radiation and zapped the stuff.

So would we, as a carrier, be liable? I’m thinking we wouldn’t, that it would be an act of  God, which, as you know, is one of the excepted causes that get a carrier off the liability  hook. I mean, if an earthquake isn’t an act of God, what is? But I thought I might ask you  about it to be sure.

Answer: Well, the law is a little unsettled here — you’re postulating circumstances that have never occurred in this country — but I’m sorry to say I have to disagree with you. I think your carrier would indeed be liable.

Remember the legal aftermath when Hurricane Katrina clobbered New Orleans in 2005 and the levees gave way? Well, lots of homeowners there had regular insurance, which included coverage against storms up to and including hurricanes, but a lot fewer carried flood insurance. So the insurers quickly came up with a legal gimmick. All this damage, they argued, resulted from two events, not just one. Event No. 1 was the hurricane itself; if, like the big bad wolf, it blew your house down, the regular insurance covered you.

Most folks, however, didn’t lose their homes to wind but rather to flooding. Aha, the insurers said, well that was a separate event — admittedly caused by, but not the same as, the hurricane itself. So unless you also had flood insurance, you didn’t get a stinkin’ penny.

And the courts bought into that argument big-time. That meant the insurers were mostly off the hook, most homeowners who lost their homes couldn’t collect a thin dime, and what passes for justice in our country of legal nitpicking was nominally done. Your hypothetical situation is even more obviously segregable. You postulate two events: the earthquake and the resultant, but not necessary, breakdown of the nuclear reactor. The first is indisputably an act of God — “something in opposition to the act of man; … such act as could not happen by the intervention of man, as storms, lightning and tempests;” Forward v. Pittard, 1 T.R. 27 (1705).

The breakdown of the neighboring nuclear reactor, however, is a whole ’nother ball game. Whatever you care to call it, it isn’t an act of God, and nor does it fit comfortably into any other excepted cause to carrier liability. So, as a carrier, you’d be liable. Is that fair? Of course not, but it’s the law.

A while ago, I published a column discussing the Carmack Amendment to the Interstate Commerce Act, as relevant here 49 U.S.C. Section 14706, which the magazine saw fit to headline as “Carmack’s Broken Model?” (Feb. 28, 2011). Well, this is one of the reasons many believe the Carmack standard of carrier liability is “broken.” U.S. law, alone in the world, holds carriers liable irrespective of fault or negligence, even “though the force be ever so great, as if an irresistible multitude of people should rob him, nevertheless he (the carrier) is chargeable” — i.e., liable; Coggs v. Bernard, 2 Ld.Raym. 909 (1703).

Sure, the basic precedent is more than three centuries old, but it’s still the law of our land. And it means that if your nearby nukes go up, you’re liable for any damage to freight in your custody. It is, as you say, a pretty unlikely scenario; even Japan’s 50-mile radius is super-cautious; all they say is, stay indoors. But if escaping radiation did damage your freight, I’m afraid you’d have to pay.

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.

Question: Isn’t it time to scrap the antediluvian Carmack regime of motor and rail carrier liability for cargo and replace it with a North American Free Trade Agreement (NAFTA) scheme that more closely follows Canada’s model? I would be most interested in your comments. Also, could you expand upon the differences between the three countries?

Answer: I’m sure you won’t be surprised to learn that you’re by no means the first (nor, I’m sure, will you be the last) to suggest such a change in the law.

In fact, the U.S. is the only country in the world to assign full value liability to its domestic surface carriers, as is done under the Carmack Amendment to the Interstate Commerce Act (presently 49 U.S.C. 11706 as to railroads, 14706 as to motor carriers and domestic freight forwarders). All others, including Canada, have monetary ceilings; if you want more coverage, you buy insurance.

Carmack is indeed a leftover from a bygone era. It derives from the common law as inherited from Britain (though Britain has since abjured its rigors), whereby a carrier was deemed liable “against all events but acts of God and of the enemies of the King” (Coggs v. Bernard, 2 Ld.Raym. 909 (1703).

But it’s pretty firmly established is both law and commerce by now–so firmly that when Congress directed first the old Interstate Commerce Commission (1980-81) and subsequently the Department of Transportation (1996-98) to consider revising the standard, neither thought it should be changed. It ain’t broke, they basically held, so don’t fix it.

The Canadian model is favored by many carriers. It allows carriers to limit their liability unilaterally by tariff provision, and sets a fairly low ceiling–about $2 (in Canadian dollars) per pound–for motor carriers. In other regards, however, Canadian law (which is far less federalized than in the U.S.) varies sharply from one province to the next, so it’s at best an incomplete model.

In addition, adherence to a Canadian “scheme” wouldn’t put the U.S. in any closer compliance with the regimes of other countries. Probably the closest thing to an international “standard” is that of the European Economic Community, which has conventions limiting rail and motor carrier liability.

They’re a far cry from Canada’s approach, though. Railroads are liable for up to $10 or a bit more per pound, motor carriers a little over $5 a pound, and there are exceptions to carrier liability that go considerably beyond those allowed in the U.S. or Canada. And many other countries outside Europe–in particular, throughout Asia–don’t subscribe to anything like that, creating yet more variance.

Which brings us to your dream of a NAFTA standard that might at least apply throughout North America–the U.S., Canada and Mexico. Bluntly, forget about it; this simply isn’t going to happen.
Though Canadian and U.S. law diverge pretty sharply on this issue, the differences are as nothing when you bring Mexico into the picture. Mexican motor carrier cargo liability is capped by law at between two and three cents–that’s right, pennies–per pound, even less on small shipments, and the law’s biased against a shipper trying to collect even that pittance.

As to Mexican rail service, the whole situation is kind of unsettled since railroads were only recently privatized in Mexico. Basically shippers negotiate the best deal they can get with their railroads and otherwise buy separate insurance.
Even here, though, the shipper’s at a disadvantage. Only Mexican insurers are recognized in that country, and peculiarities of Mexican law place severe obstacles in the path of anyone trying to file an insurance claim.

You can pretty well bank on it that Mexico isn’t about to drastically expand levels and degrees of carrier liability to match even those of Canada, much less the U.S. Those two will of course not cut back to Mexico’s level. There’ll never be a NAFTA standard.
Nor is a cutback of the U.S. standard even to Canada’s level in the cards. If you haven’t noticed, NAFTA isn’t politically real popular these days; in an economy marked by high unemployment, it’s held in conservative circles to be responsible for job losses abroad. You won’t garner votes for a liability regime change by citing NAFTA.

All of which leave us with… Carmack. Antediluvian it may be, but it’s what everybody’s used to. It works. There’s no serious groundswell against it, and no widely accepted international standard for a beacon. So it’s here to stay for the foreseeable future.

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.