First State Depository provides shipping and other services for coins and special metals. It shipped product with UPS. Its insurers alleged 27 of First State’s shipments worth $150,000 were lost or stolen by UPS or its employees during an eight-week period in 2012.
When the insurers brought state law claims against UPS in district court for breach of contract, negligence, negligent supervision of employees, and “true fraudulent conversion,” their amended complaint was dismissed for failure to state a claim upon which relief could be granted.
The court held the Carmack Amendment to the Interstate Commerce Act preempted insurers’ state law claims. While some courts have found Carmack’s liability limitations do not apply when a common carrier has committed a true conversion of goods, the district court held this exception did not permit an action based on state law, but rather abrogated the limitation of liability for causes of action brought under Carmack itself.
Because the underwriters only brought state law claims, the district court held that the exception did not save their complaint. And it found the underwriters failed to plead their true and fraudulent conversion claim with the particularity demanded by the Federal Rules of Civil Procedure.
On appeal the court explained (Lloyds of London v. UPS. 3rd Circuit. No. 13–4515. Aug. 12.) Carmack strikes a compromise between shippers and carriers. In exchange for making carriers strictly liable for damage to or loss of goods, carriers obtain a uniform, nationwide scheme of liability, with damages limited to actual loss—or less if the shipper and carrier agree to a lower declared value of the shipment.
Making carriers strictly liable relieves a shipper of the burden of having to determine which carrier damaged or lost its goods if a shipment is carried by multiple carriers along a route, and it also eliminates the potentially difficult task of proving negligence.
In return, carriers can more easily predict their potential liability without closely studying the tort law of each state through which a shipment might pass. Carriers’ liability is limited to the actual value of the goods shipped—punitive damages are not available.
The Supreme Court has consistently described Carmack’s preemptive force as “exceedingly broad” and said state laws are preempted regardless of whether they contradict or supplement Carmack relief.
UPS contended that because First State’s property was lost or stolen while it was in transit, all of the common law claims the insurers asserted were preempted and the 3rd Circuit said it agreed.
This column was published in the December 2014 issue of American Shipper.
