Prompt inspection matters
The need to clearly note, promptly inspect and notify a carrier of a damaged shipment were pointed up in a case involving damaged printing equipment delivered by air where a claim was found to be time barred. (American Home Assurance Co. v. Kuehne + Nagel. No. 06 Civ. 6389(DFE). SDNY. Sept. 29, 2009.)
Oc' Printing Systems sold a printer to Caterpillar. As contract carrier, Kuehne + Nagel agreed to deliver the cargo (contained in 12 cartons) from Munich, Germany to Caterpillar in Peoria, Ill.
K + N hired Polar Air Cargo Inc., which took it to Chicago's O'Hare Airport, and Alliance, Polar's ground-handling agent, brought it from the tarmac to Alliance's warehouse. K + N hired R&M Trucking to pick up the cargo from Alliance and deliver it to a K + N warehouse in Elk Grove, Ill.
The court said it appeared the cargo was damaged prior to its arrival in Elk Grove. The court had ruled previously that a K + N complaint against Alliance was time-barred and this made moot the need to resolve whether the damage occurred during the custody of Alliance or during the custody of R&M Trucking.
Caterpillar had North American Van Lines pick up the cargo in Elk Grove facility, and its driver made notations of damage to the boxes, though there was some dispute about what the notations said. The cartons were not opened and inspected, but taken to a NAVL facility in Naperville the same day where they were stored for 23 days before being taken to Caterpillar.
Article 31 of the Montreal Convention requires that, in the case of cargo damage, 'the person entitled to delivery must complain to the carrier (in writing) forthwith after the discovery of the damage, and, at the latest, within ' 14 days from the date of receipt.'
American Home Insurance, as the subrogated cargo underwriter for Oc', contended K + N had received a timely complaint in the form of the notations made by the NAVL driver.
K + N moved for dismissal and the plaintiff moved for summary judgment.
The court said the NAVL truck driver's notations about damage to the cartons did not constitute a complaint that the cargo was damaged.
'His notations made clear that he did not open the cartons and that he did not have knowledge of the condition of their contents. Moreover, he specifically wrote 'Subject to inspection at later date.' The judge also complained that he thought the notation 'MCU' (for 'mechanical condition unknown') looked to him like the word 'minor.' The opinion also noted damage to a box is not the same as inspecting its contents for damage.
Caterpillar received the cartons and their contents on Sept. 16, 2004. Within the next 14 days, either Caterpillar, Oc' or Oc's cargo underwriter was required to give the defendant a written complaint. All three failed to do so. All three of them had no justifiable reason to assume the truck driver's notations '(a) constituted a complaint that the cargo was damaged, or (b) constituted a written statement that Caterpillar or Oc' intended to hold K + N liable for damage to the contents of the cartons.'
The court said pursuant to Article 31 of the Montreal Convention, it granted the defendant's motion for dismissal and denied the plaintiff's cross-motion for summary judgment.
Who pays for investigation?
United Arab Shipping Co. engaged trucker Eagle Systems Inc. to transport cargo from Savannah to Birmingham, Ala. UASC provided both container and chassis. The truck overturned, causing a fatality and extensive damage to UASC's equipment and the cargo.
With respect to the incident, UASC and Eagle's rights and liabilities were governed by the Uniform Intermodal Interchange Agreement, which stated that Eagle would 'defend, hold harmless and fully indemnify United Arab ' against any and all claims, suits, loss, damage or liability, for bodily injury, death and/or property damage, including reasonable attorney fees and costs incurred in the defense against a claim or suit ''
As required by the UIIA, Eagle named UASC as an additional insured on its commercial auto insurance policy.
Based on the serious nature of the incident, UASC obtained legal counsel and quickly began its own investigation, incurring substantial attorney's fees and costs. It said it promptly tendered its indemnity and defense to Eagle, but the trucker failed to respond.
Eagle and its insurer, Carolina, denied receiving such a request, and alleged UASC incurred costs with the knowledge that they were actively investigating the incident and resolving potential claims. Ultimately, Eagle and Carolina resolved all claims stemming from the incident.
UASC filed suit seeking indemnity for the costs generated when it initiated its own investigation and asked for summary judgment. (United Arab Shipping Co. v. Eagle Systems and Carolina Casualty Insurance Co. S.D. Georgia. Savannah Division. No. CV-408-067. Sept. 23, 2009.)
The defendants countered the UIIA's indemnity provision is triggered by a refusal to pay or defend a claim, which did not occur in this case.
The court said under the agreement, Maryland state law governs the construction and interpretation of the UIIA. Relying on a number of Maryland court decisions, and its reading of the UIIA, the district court judge concluded the UIIA provisions established Eagle was required to indemnify UASC against losses that occurred while it was hauling the equipment and that Eagle was obligated to either pay or defend against any claim for damages.
The court cited a decision (NYK Line v. P.B. Indus. Inc., 2004 WL 1629613 S.D.Ind. April 20, 2004), which concluded a motor carrier and its insurer were responsible for reasonable pre-notice expenses. That's because, presumably, these would be the same expenses they would have incurred had they assumed the defense earlier.
However, the court noted that if the motor carrier indicated 'it would be investigating and responding shortly or that it would accept the tender under a reservation,' then the motor carrier would be able to expect the equipment provider not to 'take immediate steps to investigate and prepare its defense.'
The court found this reasoning from NYK persuasive, but said there was a genuine issue of material fact here ' whether Eagle took control of the defense at such an early stage to make UASC's independent investigation unwarranted. UASC contends it immediately tendered its indemnity and defense to defendant Eagle. Defendants counter they never refused to indemnify the plaintiff and plaintiff began investigating the incident on the day it occurred. Since the court could not resolve this factual issue, it refused to grant summary judgment to either party.