Logistics Journal
The
A Publication of the Transportation Intermediaries Association
December 2014
Cargo Claims: When are Food Goods
Considered Damaged?
By Misty R. Martin, Esq.
I
t is an all too familiar issue. Your shipper reports
a load of food product has been rejected by its
customer because the seal, temperature, or packaging was compromised. Is the customer entitled to
reject and recover damages for the entire load simply
because a seal was broken, there was a minor temperature variance, or a cardboard box was damaged?
Maybe. Maybe not.
Damages Under Carmack Amendment:
Under the Carmack Amendment, 49 U.S.C. § 14706,
shippers can recover for “actual losses” to their property caused by carriers. In order to recover damages
under Carmack, the shipper must establish a prima
facie case that (1) the goods were delivered to the carrier in good condition; (2) the goods arrived at the
final destination in a damaged or diminished condition; and (3) the damages can be specified.
The general rule for determining the amount of
damages is the difference between the market value
of the property in the condition in which it should
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have arrived and its market value in the condition in
which it did arrive. Under certain circumstances, a
carrier may also be subject to liability for economic
damages that resulted from an untimely delivery of
otherwise conforming goods, the costs of transportation, special and consequential damages and attorneys’ fees.
Partial Loss or Damage to Cargo
When only a portion of a shipment is lost or damaged, a carrier is generally liable only for the portion
of the shipment that is actually damaged. For example, in Western Transit Company v. Leslie & Company,
242 U.S. 448 (1917), the carrier was transporting 25
tons of copper when one ton was stolen from the
carrier’s warehouse. The shipper argued the carrier’s
liability was for the entire load. The court disagreed
finding that the carrier was only liable for the single
missing ton.
However, full recovery may be had for undamaged property when damage to one part of a matched
set, pair, or unique item prevents the sale of the undamaged part. For example, in Railway Express Agency, Inc. v. Smith, 212 F.2d 47 (1954), the plaintiff was
entitled to recover for both vases in a matching set
although the carrier had only damaged one of two
vases during transit.
Acceptance vs. Rejection of Damaged Cargo
The law is well settled that where goods are shipped
by common carrier and become damaged in transit,
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Transportation
Intermediaries
Association
When Are Food Goods Considered Damaged?
posed, encased in the cardboard boxes in which it
was originally packaged. The court held a jury could
find that most of the butter was not damaged and the
20 percent that was deformed could have been resold
at or near the market price. Ultimately, the court held
a jury could find that the consignee failed to mitigate
its damages. The court distinguished the damaged
butter from cases in which damage occurred as a result of changed temperature where the entire shipment would be uniformly damaged.
Continued from page 1
the consignee nevertheless has the duty to accept the
shipment. Fraser-Smith Co. v. Chicago, R. I. & P. R. Co.,
435 F.2d 1396, 1399 (8th Cir. 1971). This rule is in
place because generally the consignee is in a much
better position to dispose of the damaged merchandise than the carrier who is not in the business of
buying and selling the product involved.
When a shipment is partially damaged, the consignee should accept and rely on an action for damages. However, where the shipment is so materially
damaged as to destroy its value entirely, the consignee may refuse to accept and sue for full value.
Often times, courts have found that damaged food
is “totally worthless.” For example, in Amstar Corp.
v. S.S. Naashi, 1978 AMC 1845 (S.D.N.Y. 1978) ,
the court upheld the rejection of 358,664 pounds of
sugar where the bottom 1 to 2 inches of sugar in the
hold was contaminated by diesel fuel, even though 8
to 10 feet of sugar piled on top appeared to be sound
and was later proven sound. In Kentucky Fried Chicken Int’l Corp., 1988 U.S. Dist. Lexis 3225, the court
upheld KFC’s rejection of shipment of chicken nuggets after finding “exposure to high temperatures had
changed the color and flavor of the product so as to
render it unfit for use in the franchise outlets.” In Atlanta Mutual Insurance Company v. CSX Lines, L.L.C.,
432 F.3d 428 (2d Cir. 2005), the court held containers of soda pop concentrate retained no market value
after having been submerged under seawater, given
owner’s inability to guarantee noncontamination.
However, wrongful rejection of all or part of a
load will subject a consignee to liability for damages
flowing from the wrongful rejection. If a portion of
the goods are not damaged, or are salvageable, then
the consignee’s ability to recover for damaged goods
will be reduced by the amount that it could have received, had it mitigated its damages.
FDA regulations provide that
“adulterated” goods are unsellable
under federal law. However, whether
goods are considered “adulterated”
is a question of fact.
Broken Seals or Containers:
Existing case law provides no indication that a broken seal or container per se results in adulteration or
contamination of a food product. Courts often examine the potential for contamination based on the
facts of a case. In some situations, courts have found
liability even when seals have been intact. Leather’s
Best Intern., Inc. v. MY Lloyd Sergipe, 760 F. Supp. 301,
312 (holding carrier liable even though it delivered
sealed container). In Land O’Lakes, supra, the court
noted the shipper was required to establish that shipment was delivered in good condition, not that the
load was in fact sealed. This particular court noted “a
seal is intended to protect the shipment from tampering, but its absence does not mean that the shipment
is contaminated or otherwise damaged.” As such,
the breaking of a seal does not automatically trigger
Carmack liability.
Duty to Mitigate Damages
Plaintiffs generally have a duty to mitigate damages
under both Carmack and common law principles.
However, a duty to mitigate only requires that reasonable steps be taken under the circumstances of
a particular case to mitigate its damages. When a
plaintiff’s reputation will be harmed if the damaged
goods are sold or used, the plaintiff may not have a
duty to sell the damaged merchandise.
In Land O’Lakes, Inc. v. Superior Serv. Transp of
Wis., Inc., 500 F. Supp. 2d 1150, 1156 (E.D. Wis.
2007), a truck carrying shipment of butter was
partially damaged in a crash. Evidence in the case
showed that roughly 20 percent of the load was deformed as a result of a crash, but the rest maintained
its original shape. All of the butter remained unexTransportation Intermediaries Association
Federal Food, Drug and Cosmetic Act (“FDA”):
Under the FDA, “food” in transportation means articles used for food or drink for man or other animals,
and their components. FDA regulations provide that
“adulterated” goods are unsellable under federal law.
However, whether goods are considered “adulterated” is a question of fact. Notably, the law requires
only that the shipment “may” have been contaminated. Whether food products are damaged is frequently
answered by federal regulations that mandate the destruction of contaminated goods. In order to secure
condemnation of a food under 21 U.S.C. § 342, the
government must prove, by a preponderance of the
evidence, that there is a “possibility” that the articles
of food may be injurious to health. Food intended
for human consumption is held to very strict sanitary
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The Logistics Journal
standards. For example, one regulation holds that
food shall be deemed adulterated if it has been prepared, packed, or held under unsanitary conditions
whereby it may have become contaminated with
filth, or whereby it may have been rendered injurious
to health. 21 U.S.C. § 342(a)(4). In Pillsbury Co. v. Illinois Central Gulf R.R., 687 F.2d 241 (8th Cir. 1982),
bags of flour were infested with foreign grain beetles.
Although there was no damage to the flour itself, the
flour was deemed unfit for human consumption as a
matter of law.
consignee to conduct and document a thorough
inspection of the allegedly damaged goods and
demand preservation for forensic/expert analysis.
4. Notify all parties of their general duty to mitigate damages.
5. Evaluate what FDA regulations may apply to the
goods, and, if contaminated, what are the steps
that need to be taken to properly dispose of said
goods.
6. Carefully evaluate the provisions of your contract with your shipper and carrier. Did you
contractually agree to be bound by a different
measure of damages?
While you, as the broker, may never see or handle the goods, it is possible that you have liability
exposure based on a contract you have with your
shipper or carrier. Therefore, it is important that you
are aware of the rights, obligations, and possible defense of each party when food goods are potentially
damaged.
Recommendations:
Unfortunately, there is no clear answer to whether a
broken seal or partially damaged load entitles a party
to reject the entire load. The analysis requires a careful evaluation of the facts of each particular claim.
So what should you do when faced with a claim for
damaged food cargo? Here are some suggestions:
1. Act quickly and require others to act quickly!
Many food products have a short shelf life.
2. Obtain as much detail as possible regarding
the steps taken by the shipper and carrier to
maintain the integrity of the goods to determine
all possible alternative causes to set up a risk
transfer plan, if possible.
3. Obtain as much documentation and information regarding the alleged damage. Ask the
Misty R. Martin is an attorney with Segal McCambridge
Singer & Mahoney, Ltd., a national law firm specializing in the representation and defense of transportation
and logistics companies. www.smsm.com (312) 6457800.
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