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One if by land, . . . ZERO if by sea? (Apologies to Paul Revere) The Trapdoor of COGSA

Posted on: November 18th, 2019

By: Jon Tisdale

Lawyers who represent businesses who ship goods around the world need to protect their clients (and themselves) from the congressionally-mandated trapdoor of the Carriage of Goods By Sea Act (COGSA).  We now live in a world where brick-and-mortar stores are increasingly a thing of the past and the majority of goods sold are purchased online.  And then they have to be delivered.  Until someone invents the Transporter from Star Trek to “beam” products across the globe, our businesses and lives would grind to a screeching halt without the ability to ship products and goods.

So critical is the shipping industry to our economy, the United States Congress has acted to protect the integrity of this industry.  The legislative history tells us that congress reasoned (probably correctly) that if every time a shipper of goods was held responsible when a third party acted negligently and damaged the goods the shipper was entrusted to transport, negligence actions and damage awards would cause the cost of shipping anything to skyrocket and completely paralyze the shipping industry.  Congress reasoned further that the sophisticated players engaged in international shipping should be free to negotiate their own terms and conditions for indemnification, rather than be at the mercy of 50 different tort law systems nationwide.  Hence, the Carriage of Goods by Sea Act was born.

COGSA establishes an indemnity protocol governing reimbursement for the damage or destruction of goods that are shipped by sea.  Importantly, it does not matter whether the damage is occasioned by an intervening negligent third party or the shipping company’s own employee, agent or subcontractor.  If a ship filled with Bentleys and Rolexes is (a) hijacked by terrorists or (b) sunk by a negligent sea captain, the COGSA-mandated damages for the loss or destruction of whatever is shipped is limited to actual market value of the goods up to a maximum of $500 per item shipped.  This is fine if you are shipping inexpensive items; not so fine if you are shipping cars, heavy equipment or more expensive products or goods.

Under COGSA, the person or entity that contracts with the shipper has the option of (a) accepting the risk of the $500 COGSA limitation of indemnity, or (b) declaring the true value of the item being shipped and paying a non-trivial fee to increase the coverage.

The takeaway:  If your clients are shipping expensive products across country by truck, they are protected by state law systems of subrogation recovery.  But if your clients ship by sea, be sure they are cognizant of COGSA limitations and negotiate around them.

If you have any questions or would like more information, please contact Jon Tisdale at [email protected].

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