In a dispute involving cargo damaged during Hurricane Sandy in 2012, a federal judge found the storm was an “Act of God,” absolving the defendant from liability. (Lord & Taylor v. Zim Integrated Shipping Services and New York Container Terminal. U.S. District Court, SDNY. 13 Civ. 3478. 6/18)
The retailer Lord & Taylor sued ZIM for damage to 211 cartons of sweaters that were ruined from flooding at New York Container Terminal.
Based on the retail value of the sweaters, Lord & Taylor said it suffered a loss of $206,972. That amount was paid by its cargo underwriter, which was subrogated to the plaintiff’s rights to the claim under the cargo policy.
The decision “is one of maybe 30 cargo cases that were filed after Hurricane Sandy, but it is the first maritime case, as far as I am aware, to be tried before the federal court,” said Vincent DeOrchis of Montgomery McCracken Walker & Rhoads, who represented ZIM.
Judge Analisa Torres “apparently took a lot of time writing the 58-page decision because of its importance to the maritime industry and perhaps to other land-based businesses within the Port of New York which also suffered damages,” even visiting the Staten Island terminal, DeOrchis said.
Cargo underwriters made many arguments about why the Act of God defense should not apply and DeOrchis thought “the industry will be much relieved” by the decision.
As subcontractor, the terminal was dismissed as a defendant. ZIM and Lord & Taylor stipulated the case was governed by the Carriage of Goods at Sea Act (COGSA).
Under COGSA, the burden shifted to ZIM to show the damage was caused by one of the exceptions listed in COGSA, which includes Acts of God.
Torres cited a 1966 decision that explained, “To prevail on an Act of God defense under COGSA, a carrier must show that ‘the damage from the natural event could not have been prevented by the exercise of reasonable care.’”
ZIM argued, “Hurricane Sandy was a storm of such ‘catastrophic proportions’ that it was an Act of God that could not have been reasonably prepared for,” while the plaintiff argued, “Hurricane Sandy was foreseeable and that NYCT did not take reasonable precautions” to protect its goods.
Torres found, “Because Sandy was unusually destructive and because the relevant forecasts predicting this destruction did not arrive until late in the weekend (the storm made landfall in southern New Jersey on Monday, Oct. 29, 2012), when nothing more could have been done, neither NYCT nor ZIM was negligent in its attempts to prepare for Sandy.”
Various steps the terminal could have taken to prevent damage were suggested, but Torres said, “The mere possibility of a hurricane cannot, by itself, warrant preparations on the massive scale proposed by plaintiff.
“NYCT had no reasonable or practical way to move or protect over 2,200 containers located on the terminal in the hours before landfall,” she said.
Torres concluded, “Hurricane Sandy was an Act of God, that its severity and—in particular—its storm surge, were not reasonably foreseeable, and that no exercise of reasonable care could have prevented the loss.”
However, the decision “raises the question about what happens the next time a similar hurricane hits New York and floods the terminals,” DeOrchis said. “One can argue that the pier terminals in New York may have a problem with vulnerability to increasing hurricane strengths.”
Waivers Don’t Apply. Knobelsdorff Electric purchased cargo in Texas and arranged for Con-way Freight to transport it to Minnesota. Sometime during transit the shipment was damaged.
Federated, Knobelsdorff’s insurer, paid $32,405.28 for the damage.
Con-way and Federated had agreed to “forego litigation and submit any personal, commercial, or self-insured property subrogation claims to Arbitration Forums” as members of the forum.
Federated commenced an arbitration to recover the $32,405.28. Con-way did not participate in the proceeding, but the arbitrator determined Con-way failed to adequately care and protect the cargo and Federated was entitled to recover the full amount.
Unable to collect the arbitration award directly from Con-way, Federated brought a motion in a Minnesota state court to confirm the award.
Con-way sought to remove the dispute to federal court, arguing federal jurisdiction was proper because the claim was governed by the Carmack Amendment to the Interstate Commerce Act.
After removal Con-way filed a motion to vacate, stating the Arbitration Forums arbitrator lacked jurisdiction because the claims were preempted by Carmack.
Federated disagreed, arguing the arbitrator acted with authority and the case should be remanded because Con-way expressly waived its Carmack rights.
The judge writing this decision (Federated Mutual Insurance Company v. Con–way Freight, Inc. U.S. District Court. D. Minn. Civ. No. 15–450. May 21.) noted while courts have routinely found Carmack preempts state law if the cause of action involves loss or damage to goods in an interstate shipment by a common carrier, rights and remedies under Carmack can be waived if certain conditions are met.
In this instance, the court found Con-way’s membership in Arbitration Forums did not act to expressly waive application of the Carmack Amendment for Federated’s claims.
A waiver under Carmack must be between the shipper and carrier.
Since Federated provided no evidence showing any written agreement between Con-way and the shipper limiting Con-way’s rights under Carmack, the terms of the agreement with Arbitration Forums could not be construed against Con-way.
Federated’s membership in Arbitration Forum “does not change the outcome because Federated is not the shipper. Rather, it is an insurance company that provided insurance coverage to Knobelsdorff.”
The bill of landing lacked any language expressing a waiver of federal jurisdiction, and the court said the Arbitration Forums arbitrator lacked authority to bind Con-way to the proceedings. The arbitration award was vacated.
Federated filed a complaint in the same federal court asserting Con-way was liable under Carmack for the same events giving rise to this case. The court directed them to schedule a hearing on how to proceed.
This column was published in the August 2015 issue of American Shipper.
