Prolec GE International contracted with HLI Rail Rigging to transport electrical transformers from Apodaca, Mexico to Port Arthur, Texas.
HLI transported the transformers from the Prolec factory to Laredo, Texas, and then subcontracted the transport between Laredo and Port Arthur to the Kansas City Southern Railway (KCSR).
Two railcars, each carrying a transformer, derailed near Benavides, Texas, and the transformers were damaged.
The insurance company Chartis Seguros Mexico, as subrogee of Prolec, asserted claims in the U.S. District Court for the Southern District of New York (SDNY) under the Carmack Amendment against HLI and its corporate parent, Fresh Meadow Mechanical Corp., as well as KCSR. (Chartis Seguros Mexico v. HLI Rail & Rigging, et al.; HLI Rail & Rigging, LLC and Fresh Meadow Mechanical Corporation, v. Fireman’s Fund Insurance Company and City Underwriting Agency. S.D.N.Y. No. 11–3238. Feb. 9.)
KCSR said it had contractually limited its liability to $25,000 per railcar and asserted a cross-claim for indemnification against HLI, claiming HLI agreed to indemnify it against any claim in excess of the $25,000 per car.
The railroad contended the bills of lading issued to HLI included the terms it provided through both a price quote, as well as in KCSR’s “Rules Publication KCS 9012.” That publication contained the contractual indemnity provision and instructed shippers on how to opt out of limited liability coverage in favor of full-value liability under Carmack.
HLI asked SDNY for partial summary judgment on the railroad’s defense of limited liability and a cross-claim it filed against HLI that sought to limit its liability to $50,000.
In 2014, SDNY granted HLI’s motion in part and struck KCSR’s affirmative defense of limited liability.
It found, contrary to KCSR’s assertions, Carmack did govern the parties’ relations, and HLI’s limitation of liability was ineffective because it failed to provide HLI a “reasonable opportunity to choose between two or more levels of liability,” as Carmack requires.
The court rejected KCSR’s argument that the rules publication was incorporated by reference in the bill of lading and said the caution “price was subject to 9012” was vague with the rules and only available on KCSR’s website.
The court declined to address the indemnity cross-claim, stating it was not noticed in KCSR’s cross-motion and fully briefed.
Last August, HLI submitted a letter to the court on behalf of all parties except KCSR, saying they believed the district court had inadvertently failed to decide KCSR’s cross-claim for contractual indemnification. That presented an obstacle to a tentative settlement that would resolve all claims in this action, except those between KCSR and Chartis. KCSR responded by stating HLI had not adequately raised the issue in March 2014.
The court on its own decided to exercise its discretion and revise its March 2014 decision. It granted summary judgment to HLI on KCSR’s cross-claim for indemnity against HLI, because “no reasonable jury could find that the Rules Publication was incorporated into the BOLs.
“A bill of lading is generally held to incorporate the terms of an extrinsic document where there is a ‘specific reference’ to that document and ‘unmistakable language’ in the bill of lading that the terms in that document have been incorporated,” the court said. “In this case, KCSR has simply not pointed to any evidence that would allow a reasonable jury to conclude that either requirement was satisfied.”
Even assuming for argument’s sake that the phrase “Price is subject to 9012” was adequate notice, the court said “being on notice of a document is one thing and unmistakably agreeing to be bound to all of its terms is quite another.”
This column was published in the April 2015 issue of American Shipper.
