Understanding the Carriage of Goods by Sea Act

1 Understanding the Carriageof Goods by Sea Act46 1300 et W. White, Hayden LLP45 Broadway Suite 1500 New York, NY 10006 Edward , &Radzik, LLP88 Pine StreetNew York, NY 100051 Purpose To familiarize underwriters with theprovisions of the Carriage of Goodsby Sea Act and its effect on contractsof Carriage as well as an insured sduties under the policy of Historical Perspective Sky Reefer/Forum Selection Clauses Kirby Decision US Supreme Court Other Statutory schemes Harter Act, HagueVisby and Hamburg RulesCOGSA s overarching purpose is toallocate risk of loss and create predictableliability rules on which not only carriersbut others can Perspective Legislative Intent of COGSA isexpressed in 1303(8).

2 The carrier is prohibited fromcontracting away its own negligence orlimiting its liability to a level lower thanwhat is prescribed by the Reefer/Forum Selection Clauses In the Sky Reefer decision the Court upheld a Japanesearbitration clause in a bill of ladingfor a shipment of cargo fromMorocco to Boston. Since Sky Reefer, the district andappellate courts have consistentlyenforced forum selection Decision US Supreme Court InNorfolk Southern Railway Co. v. James N. Kirby, (2004) a rail carrier limited its liability based ona Himalaya clause, even though no privity of contractexisted between the cargo interest (Kirby) and the railcarrier. InSompo Insurance Co. of America v. Union PacificRailroad Co.

3 ,456 54 (2d Cir. 2006) the SecondCircuit held that the Carmack Amendment applied byforce of law to the rail movement and took precedenceover the contractual extension of COGSA provision inthe ocean carrier s bill of Decision US Supreme Court InAltadis USA Inc. v. Sea Star Line, 1288 (11thCir., August 7, 2006) theCourt of Appeals held:..The Carmack Amendment does not applyto a shipment from a foreign country to theUnited States (including an ocean leg andover-land leg in the United States) unless thedomestic over-land leg is covered by aseparate bill of to Underwriters Duties of the assured under the policy AIMU Clause 11: Duty of Assured requires assured totake measuresas may be reasonablefor the purpose ofaverting or minimizing a Under the law, there is an obligation for the consigneeto take delivery of the cargo unless such damagerenders the propertypractically Valueless what are the costs and expensesfor acceptance and use?

4 Consequences of anUnwarranted Abandonment freight, cleaning expenses, costsof to Underwriters(cont d.)Subrogation potential: What is needed? A subrogationreceiptassigning the rights of theassured to the insurance company; A surveyreportdescribing the nature and extent ofdamage; Anadjustmentby the underwriter quantifying the of CoverageWhat is the Scope of the Statute? 1312 Scope of Chapter; United States foreign trade Scope 46 USC 1312. Requirements: Bill of lading or other documentof title. A Charter Party is not subject to COGSA unless a Clause Paramount is included in thecontract of of Coverage(cont d.) Scope(cont d.) What is a Clause Paramount and what effect does it have? This Bill of Lading, so far as it relates to the Carriage ofgoods by water, shall have effect, subject to the provisionsof the Carriage of Goods by Sea Act of the United States,approved April 16, 1936, which shall be deemed to beincorporated herein, and nothing herein contained shall bedeemed a surrender by the carrier of any of its rights orimmunities or an increase of any of its responsibilities orliabilities under said Act.

5 If any term of this Bill of Ladingbe repugnant to said Act to any extent, such terms shall bevoid to that extent, but no further. Types of Voyages Foreign v. Domestic Ex proprio vigore Common v. Private Carriage Ex contractu11 Scope of Coverage(cont d.) of the Voyage Tackle to tackle Coastwise option Difference between Harter Act and COGSA Duration in Time for Filing Suit(1 Yr from Delivery) 1303(6)Notice of loss or damage; limitation of actions Extensions of the time for suit may be grantedby consent of the parties Delivery may occur prior to the actual receipt of the cargoby the consignee12 Scope of Coverage(cont d.) Deck Cargo and Deviation COGSA is interpreted to require under deckstowage absent an agreement or establishedcustom implying consent for on deck Yachts, bagged cargo Did shipper assent to on deck stowage?

6 What was reasonable expectation or practice withthese parties on this type of vessel?13 Scope of Coverage(cont d.) When Filing SuitWhere and how does a cargo interest asserta claim under the contract of carriageand what is the contract of Carriage thatthe Goods were carried under?Venue/Forum Selection ClauseRisk of versus of Coverage(cont d.) may prompt legal action assist anunderwriter? : An investigation into what happened mayassist with both the preservation and collection ofevidence. What evidence should be collected or requested? Federal Rules of Civil Procedure provide forexpedited skilled with evaluating the condition of avessel, the cause of a structural or machinery failure,may serve as the underwriter s eyes and ears.

7 15 Scope of Coverage(cont d.) may prompt legal action assist anunderwriter?(cont d.) may be obtained by way of a Letterof Undertaking. What if the vessel is lost or does not trade in thejurisdiction? Rule B(1) Attachments and Rule C realistic reserve may be set based on theearly evaluation of the claim and the carrier santicipated ResponsibilityCarrier s Responsibility 1303 Seaworthiness The carrier shall be bound, before and atthe beginning of the voyage, to exercisedue diligence to a)Make the ship seaworthy;b)Properly man, equip, and supply the ship;c)Make the holds, refrigerating and coolingchambers, and all other parts of the ship inwhich Goods are carried, fit and safe for theirreception, Carriage and Responsibility(cont d.

8 Carrier s Responsibility 1303(cont d.) Cargo The carrier shall properly and carefully load,handle, stow, carry, keep care for anddischarge the Goods Responsibility(cont d.)The primary defensesthat an ocean carriermay assert underCOGSA are set forthin this section andthey include thefollowing categories:(1)Unseaworthiness(2)Uncontro llable causes of loss-Shipboard errors-Natural forces-Human forces-Shipper s faults(3)Freedom from Negligence(4)Deviation(5)Amount of Liability;valuation of cargo(6)Inflammable, explosive ordangerous cargo 1304 Rights and Immunities of Carrier and Responsibility(cont d.) carrier or vessel is responsible for loss ordamage arising or resulting fromunseaworthiness, which was caused by thefailure to exercise due diligenceto make theship burden of proving the exerciseof due diligence is on the Responsibility(cont d.)

9 WHEN IS A SHIP UNSEAWORTHY? Examples: A fault in the vessel s design or construction or equipment aboard An improperly trained Master or crew Failure to comply with regulations such as Coast GuardRegulations, Classification Society Rules, International SafetyManagement Code ( ISM ) or other international conventionsmay result in statutory fault under the Pennsylvania Rule Concurrent causes and the Vallescura RuleTest: Due diligence requires the exerciseof care by a reasonably prudent vessel the vessel reasonably fit for the cargowhich it undertook to carry?21 Allocates Responsibility(cont d.) Causes of Loss Shipboard Errors Error in navigation or management Fire w/o fault or privity of the carrier Natural Forces Perils, dangers and accidents of the sea Act of God Human Forces Act of war Act of public enemies Arrest or restraint of princes, rulers or people, or seizure under legal process Quarantine restrictions Strikes or lockouts Riots and civil commotions Shipper s faults Act of omission of the shipper Inherent defect, quality or vice Insufficiency of packing Insufficiency or inadequacy of marks Latent defects not discoverable by due diligence22 Allocates Responsibility(cont d.)

10 Casualties where vessel s seaworthiness and uncontrollable causes of loss are at collapse on modern container failure aboard a container aboard a container vessel or an oil tanker23 Allocates Responsibility(cont d.) collapse on modern container ship24 Allocates Responsibility(cont d.) collapse on modern container ship(cont d.)25 Allocates Responsibility(cont d.)Container Collapse Issues Was the weather experienced by the vessel a perilof the sea? What is a peril of the sea? What is an act of God? Was there a fault in the vessel s design (hull form)or lashing system aboard which caused the loss? Was there shipper s fault in the stowage of cargoinside the containers? What actions should be taken by underwriters todocument the loss?