TRANSPORTATION CONTRACTS

LITIGATION AVOIDANCE AND THE RESOLUTION OF FREIGHT LOSS AND DAMAGE CLAIMS--A CASENOTE

Reproduced with the Permission of Miles L. Kavaller

A freight loss and damage case I recently litigated and tried served as a poignant reminder not only of the importance of contracting but also of the opportunity to address issues of specific concern for the shipper. The litigation would not have been necessary and I would not have suffered the only loss in my 25 years of practice had the subject matter been fully covered in the transportation agreement. But, we learn from our losses, not from our victories.

The shipper is a major fast food restaurant chain. It had a transportation agreement with a large refrigerated motor common carrier, one of many carriers it used to distribute its frozen and chilled products. The transportation agreement was supplemented with the shipper's guidelines for transportation and was drafted by competent house counsel. These guidelines as well as the bill of lading specified that the temperature was to be maintained at zero degrees F during transit. The shipper placed a thermometer and recording device inside the trailer in order to monitor the temperature.

Food science played a significant role in this case and was the subject of hotly contested expert testimony. The reason for maintaining the temperature at zero degrees is to prevent micro-biological deterioration of the frozen food products. Elevation in temperature above ten degrees leads to discoloration and alteration of the foods texture and taste after cooking which results from the formation of ice crystals. The temperature need not exceed freezing for this process to occur since microbiological activity and ice crystal formation occur at temperatures below freezing. This process is retarded as the temperature decreases and is virtually halted at zero degrees.

When the shipment arrived at the destination warehouse the receiving personnel examined the temperature recorder and observed that the temperature had exceeded zero degrees on several occasions during transit. The inside trailer temperature in fact had risen to 24 degrees on two or more times during the 57 hour transit time. After notification, the shipper's quality assurance manager advised the carrier that the load was rejected, even though the shipment had been unloaded and placed into the destination warehouse. A written claim was filed seeking payment for the entire shipment valued at about $45,000. Neither the shipper or the carrier conducted a visual inspection of the shipment until almost six months later at which time, due to space limitations, the shipment had been transferred to a different cold storage facility.

The shipper's inspection of a sample of the almost two thousand box shipment revealed the expected deterioration in the products color, taste, and texture, including the formation of ice crystals on some of the frozen food product. The carrier's inspection, however, disclosed little, if any, ice crystal formation on the frozen food products. At the arbitration hearing to which the parties had stipulated before a retired Superior Court judge, the defense expert, a Ph.d and Food Science college professor testified that the temperature elevation demonstrated by the temperature recorder was not high enough or of a sufficient duration to cause ice crystal formation on the cargo which was frozen solid at the time of loading.

The shipper's expert, its vice president of quality assurance and also a Ph.d, testified that the company could not warrant the safety and quality of the cargo to its franchisees where the temperature had exceeded zero degrees and especially where it had gone above ten degrees. The evidence also established that because of the carriers delay in conducting an inspection, the salvageable items could not be sold because their remaining shelf-life was too limited. According to the shipper the load was a total and unsalvageable loss.

The arbitrator awarded judgment to the carrier finding insufficient evidence of damage to the shipment while in its possession. The absence of evidence bearing on the conditions surrounding the transfer of the cargo from the destination warehouse to the off-site cold storage facility also undermined the shippers case.

The transportation agreement did not address any of the issues involved in the claim. It covered many areas including the carriers freight rates. In the wake of the undercharge crisis, this was prudent and a precaution many shippers have taken to avoid exposure to suits for tariff charges. However, a contractual term stating that damage is presumed to occur where the temperature inside the trailer is not maintained at zero degrees F or as otherwise specified would have avoided the litigation. A shipper with economic leverage is in position to obtain such consideration and should do so particularly where it can foresee costly litigation and difficulties in proving scientific issues.

Shippers and carriers have good reason to enter into transportation agreements. A contract that addresses the shippers unique requirements, particularly in the loss and damage context, can eliminate the uncertainty and expense of the litigation process for both parties. Under 49 U.S.C. #14101(b) they can waive the provisions of the Interstate Commerce Commission Termination Act. Carmack loss and damage claims (see 49 U.S.C. #14706) as well as other matters will be subject to the terms of the agreement and not case law.