MOTOR CARRIER LIABILITY & COVERAGE ISSUES

Prepared by: Kim A. Wigmore August 22, 2003

Introduction

This paper discusses some issues which can arise in the context of a contract for carriage over land by a motor carrier. The paper makes use of a hypothetical fact pattern involving the transport of two containers of goods across the Atlantic Ocean and through Canada and the United States. A copy of the fact pattern is appended. The paper discusses, in general, the liability of a motor carrier, the protections a carrier can make use of in a standard bill of lading, and the implications for coverage arising from the failure to issue a proper bill of lading.

Liability of a Common Carrier

Trucking companies that hold themselves out to the public as carriers of goods for hire are generally given the legal description of “common carrier”. This is in distinction to “private carriers” who may only carry freight selectively for certain companies.

At common law, the liability of a common carrier is onerous. A common carrier’s liability practically amounts to the liability of an insurer. If a common carrier picks up goods in an undamaged condition and delivers them in a damaged condition, the carrier will be liable for that damage notwithstanding that there may have been no negligence on its part. This onerous liability is subject to only a few defences at common law, which are acts of God or the Queen’s enemies, riots, strikes, defects or inherent vice in the goods or acts of default of the shipper or owner (such as improper instructions respecting pick up or delivery or improper packing or securing on the shipper’s part).

In an attempt to encourage trade by easing the onerous liability of a common carrier, the provinces of Canada have enacted conditions of carriage, virtually uniform throughout all 10 provinces, which are meant to define the contract of carriage between a carrier and shipper or owner of goods. These “Uniform Conditions” are meant to be incorporated into the bill of lading, a document which identifies the parties and subject matter of the contract of carriage and evidences the terms of that contract.

The Uniform Conditions provide a number of protections to the carrier in the event of cargo damage. One of the most significant issues is a provision which allows the carrier to limit its liability to $2.00 per pound based on the weight of the cargo unless the shipper of the goods declares a different value (in which case the shipper will likely be charged a premium for the extra risk the carrier is assuming). Also in the Uniform Conditions are notice provisions which may have the effect of extinguishing a cargo owner’s claim if no notice is given during the notice period. There is also a provision to protect the carrier in the event that he is given cargo of extraordinary value and the extraordinary nature of the cargo is not disclosed or apparent on loading.

The Uniform Conditions in each province are in force by virtue of each province’s motor carrier legislation, and regulations under that legislation. The Federal Government of Canada has delegated to the provinces the right to regulate extra-provincial truck undertakings as if they were local undertakings pursuant to the Motor Vehicle Transport Act, S.C. 1987, c. 35. The result of the provincial regulation is that each province has its own motor carrier transport legislation which have subtle differences. The regulations in each province set out the Uniform Conditions, calling them by

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slightly different names in some cases. Appendix A to this paper sets out excerpts from the provincial legislation of Nova Scotia, Alberta and British Columbia.

The way in which the regulations make the Uniform Conditions part of the contract of carriage becomes significant as it varies from province to province. The regulations generally require that the Uniform Conditions be incorporated or contained in the bills of lading issued by carriers at the time of pick up. Many of the regulatory schemes of the provinces go further, stating that the Uniform Conditions are deemed to be part of every contract for carriage made in that province. The importance of this feature is discussed in the sections below.

Effect of Failing to Issue a Bill of Lading in Nova Scotia

In our fact pattern, the carrier, Roadrunner, arrives at the terminal in Halifax and loads one container of ski boots for delivery to Snowbird Enterprises in Boise, Idaho. The second container has gone astray at some point beforehand. The weight of the cargo is 30,000 pounds (25 crates x 1200 pounds/crate). The carrier loads the cargo and does not issue a bill of lading to the shipper. (The shipper in this case is the terminal warehouse which is acting as agent for the cargo owner in Boise). An accident in the U.S. while the transport is underway destroys the cargo.

Snowbird advances a claim for $500,000.00 as a result of the destroyed cargo. Snowbird argues that they are entitled to recover $500,000.00, as the arrived sound market value of the ski boots in Boise was $500,000.00. Roadrunner has cargo liability insurance of $250,000.00. A clear coverage problem exists. It is in the interest of both Roadrunner and its insurer to consider whether Roadrunner is entitled to limit its liability.

The point of origin of the shipment is Halifax, Nova Scotia. Global Logistic’s head office for Canada is located in Toronto, and it is the Toronto head office that contracted directly with the carrier at the carrier’s Nova Scotia office. On these facts, there is a reasonable argument that the law of Nova Scotia would apply to the contract of carriage.1 Generally, the proper law of the contract of carriage will be the law which has the closest connection to the contract itself. In order to determine the proper law a court will look at such factors as the place of contracting, the place of performance, the place of residence of the parties to the contract, and the nature and subject matter of the contract itself. In motor carrier cases a court is also influenced by the jurisdiction where the carriage commenced, and the jurisdiction where the bill of lading was issued.

Contracts of motor carriage in Nova Scotia are regulated by the Nova Scotia Motor Vehicle Act, R.S.N.S. 1989, c. 293. The “Uniform Conditions of Carriage” are found in the Regulations to the Motor Vehicle Act entitled “Carriage of Freight by Vehicle Regulations”, N.S. Reg. 24/95. That Regulation provides at Section 7 that:

Except as otherwise provided by or under these regulations, the following clauses are prescribed as uniform conditions of carriage of freight by a motor carrier and are deemed to be part of every contract for the carriage of freight by a motor carrier and shall be contained or incorporated by reference in every bill of lading relating to the carriage of freight by a motor carrier

The Nova Scotia Regulation also provides that at the time a motor carrier accepts freight for transport, it must issue a bill of lading that complies with the Regulations: s. 8. The bill of lading is

1 Determining the proper law of the contract is slightly more complex than this but for the purposes of this

discussion, it is assumed Nova Scotia law will apply.

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to be signed by the shipper of the freight “as an acceptance of all the terms and conditions” in the bill of lading: s. 9(2). Among other things, the bill of lading is required under the Regulation to show the name of the carrier and consignor, particulars of the goods comprising the shipment, a space where a shipper may declare a value for the shipment, a statement to indicate that the Uniform Conditions apply, a statement to indicate any limitation of the motor carrier’s liability, and a verbatim statement of the notice requirements in the Uniform Conditions: s. 9(8).

The deeming language in s. 7 of the Regulation is significant. Similar language is contained in the motor carrier regulatory schemes in 7 out of the 10 provinces. What the language leaves open for argument is despite a carrier’s failure to issue a bill of lading at the time of shipment that complies with the Regulations, the Uniform Conditions form part of the contract of carriage as a matter of law and the carrier may rely on the protections contained therein. Case law from other provinces which use this deeming language supports that proposition.2

The result of all of this for our fact pattern is that a Court applying Nova Scotia law may find that the liability of the carrier for the destruction of the second container of ski boots is limited to $60,000, that is $2.00 per pound at 30,000 pounds.

Importance of the Law of the Contract

The way in which the Uniform Conditions are incorporated into contracts of carriage in the different provinces is not completely uniform. It is important to ascertain what law will govern the contract at the outset of the cargo claim. As noted above, 7 out of 10 of the provinces deem their Uniform Conditions to apply to contracts of carriage made in those provinces as a matter of law. The provinces that do not have this language are British Columbia, Saskatchewan, and Prince Edward Island. These jurisdictions require that the bill of lading is issued in compliance with the Regulations and that the Uniform Conditions are contained or incorporated into the bill of lading in order for them to form part of the contract of carriage.

Is Limitation of Liability Available to the Carrier

A carrier’s right to limit liability is often determined by whether a bill of lading has been properly issued. The answer to whether a bill of lading has been properly issued will vary from one part of the country to another. That is because motor carrier shipments originate from all areas of the country and the origin of the shipment is often different than the place where the claim is brought. Moving away from our fact pattern, it is useful to look at the requirements for issuing a bill of lading in different jurisdictions.

British Columbia

In British Columbia the Uniform Conditions are not deemed to apply as a matter of law. The British Columbia Motor Vehicle Act Regulations (B.C. Reg. 26/58) set out the requirements for issuance of a bill of lading at s. 37.39. The requirements are many but it is suggested that at a minimum the bill of lading must contain the Uniform Conditions or a notation to the effect that they are incorporated by reference into the contract. The bill of lading should contain the notice provisions in the Uniform Conditions on its face. The Regulations also call for a statement in conspicuous form that the carrier

2 Hoskin v. West (1988), 55 D.L.R. (4th) 666 (Alta C.A.), B & David Industrial Machinery Inc. v. Torfreight,

[1996] O.J. No. 3747 (G.D.)

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intends to limit its liability (if such is the case) and that the bill of lading have a space where the shipper can declare a value for the shipment.

The crucial requirement for the Uniform Conditions to apply in British Columbia is that the bill of lading containing or incorporating them must be signed by the shipper of the goods at the time the goods are loaded. A bill of lading that complies with the Regulations in every other respect may not import the Uniform Conditions into the contract if this requirement is not met.

The recent British Columbia case Shooters Production Services Inc. v. Arnold Bros. Transport Ltd. [2003] B.C.S.C. No. 92 is an illustration. The carrier damaged a mobile broadcast trailer while hauling it from Ontario to Vancouver. The parties agreed that British Columbia law applied to the contract of carriage. The carrier prepared a bill of lading which complied in all respects with the Motor Vehicle Act Regulations but which was not presented to the shipper at the time of shipment. Rather, it was given to the consignee or recipient of the trailer for signature at the completion of the transportation. The British Columbia Supreme Court found that nothing in the bill of lading, including the Uniform Conditions, formed part of the contract of carriage. The rationale was that the terms in the bill of lading could not have been agreed on by the parties if the shipper of the goods had never seen them or had an opportunity to see them. A similar situation, where a bill of lading was in existence but was found not to have been sent to the shipper was recently decided in the same way, in the same month, by the British Columbia Court of Appeal in Payne Machine Tooling v. CanAm West Carriers Inc., [2003] B.C.J. No. 138.

Alberta

In Alberta the Uniform Conditions are deemed to apply as a matter of law. The Alberta Traffic Safety Act Regulations (AR 313/2002) set out the requirements for issuance of a bill of lading. It is significant to note that the requirements do not contain a direction requiring a carrier to issue the bill of lading, but instead require that a bill of lading be prepared by either the shipper or the carrier. Section 3(2) specifies the information and terms that are required to be in the bill of lading. Section 5(1) sets out that “every agreement for the transportation of goods to which section 3 applies is deemed to include those terms and conditions contained in conditions of carriage set out in the Schedule 3”. Schedule 3 sets out the Uniform Conditions.

The leading Alberta case is Hoskin v. West (1988), 55 D.L.R. (4th) 666 (Alta. C.A.). The carrier damaged a printing press while it was being loaded onto its truck. This damage occurred before the bill of lading was signed. The Court of Appeal ruled that the carrier would be entitled to limitation of liability whether or not a bill of lading was completed and signed by both the consignor and the carrier. The court found that the failure to comply with the requirements set out in Section 3 of the Regulations may compromise a breach of the Regulation, “but that does not alter or detract from the limitation on liability imposed on the agreement to transport by the statutory deeming provisions”.

Nova Scotia

In Nova Scotia the Uniform Conditions are deemed to apply as a matter of law, the details of which have already been set out herein. An interesting difference between the law of Nova Scotia and the law of Alberta is that the Nova Scotia Regulation sets out specifically in Section 8 that a motor carrier must issue the bill of lading. This difference in the legislation may allow the Hoskin v. West decision to be distinguished when applying Nova Scotia law. With that said, the importance attached to the deeming nature of the Alberta legislation by the Court of Appeal in Hoskin v. West suggests that they would have reached the same conclusion they did regardless of who was required to issue the bill of lading.

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The Nova Scotia legislation has not been specifically tested in the courts. The case of McKinnon v. Acadian Lines Ltd. (1977), 24 N.S.R. (2d) 20 is an example of the Nova Scotia courts bending over backwards to disallow limitation of liability to a carrier. The carrier lost McKinnon’s trunk upon arrival in Halifax, but prior to the time of pick up. The carrier had held the goods for two to three weeks, and the court concluded that the statutory conditions did not apply to allow limitation on those facts. The court found that once the trunk was placed in storage by the carrier at its depot the legal relationship became a matter of bailor and bailee, and not that as prescribed in the motor carrier legislation.

Due to the court’s inherent reluctance to give effect to exculpatory clauses a court may apply the Nova Scotia Regulation more akin to the British Columbia Regulation.

Summary

Because of the small but critical difference in the regulatory regimes of some provinces in Canada, the importance of determining which province’s law applies to the contract of carriage should not be forgotten in the early stages of adjusting a cargo claim.

Quantification of the Claim

Quantification of the claim amount should also be considered by the adjuster at an early stage. The actual quantum of the claim will often determine whether the adjuster wants to pursue a limitation of liability defence.

In this case, the damaged ski boots had an FOB Hamburg value of $300,000.00. Snowbird has advanced its claim for $500,000.00 arguing that such figure represents its actual loss.

At common law the measure of loss of cargo damage in transit is the market value of the cargo at the place of delivery. The Uniform Conditions set out that “the amount of any loss or damage for which the carrier is liable… shall be computed as the value of the goods at the place and time of shipment including the freight and other charges if paid…”. The difference between the common law and the Uniform Conditions is that at common law the valuation is the place of delivery and pursuant to the Uniform Conditions the valuation is the place of shipment.

If the Uniform Conditions apply to this transport, quantification for the claim should be $300,000.00 plus freight and other charges paid.

Coverage: Effect of Failure to Issue a Bill of Lading Under Some Policies

When the container was picked up in Halifax, Roadrunner did not issue a bill of lading. Depending on the wording of the covering clause in Roadrunner’s cargo liability policy, that mistake could lead to a coverage issue. Below are two types of covering clauses, both of which are common in the industry. The first one (type 1) is as follows:

This policy covers the liability of the insured as a motor carrier against all risks of direct physical loss or damage from any external cause, except as hereinafter excluded, with respect to all kinds of lawful goods and merchandise in the care, custody and control of the insured.

A second type of covering clause often seen (type 2) is worded somewhat differently:

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This policy covers the liability of the insured as a motor carrier under filed tariff, bill of lading or shipping receipt issued by the insured, for direct physical loss or damage from any external cause, except as hereinafter excluded, with respect to all kinds of lawful goods and merchandise in the care, custody and control of the insured.

It should be noted that the type 1 covering clause covers the motor carrier’s liability in general for damage to cargo while the type 2 clause purports to restrict coverage to liability for damage to cargo that was shipped under one of the listed shipping documents: filed tariff, bill of lading or shipping receipt. The argument is that if one of these documents is not in existence, the cargo policy may not respond.

The case law considering the type 2 covering provisions is consistent with the proposition that the covering intent is for liability of the Insured as a motor carrier under one or another of the specified documents. In Fiske v. Hartford Insurance Co. of Canada, [1993] O.J. No. 3217 (G.D.), Aff’d [1995] O.J. No. 2153 (C.A.), an insurer denied coverage for a cargo claim brought against its insured. The Covering Clause of the policy covered the liability of the insured “under filed tariff and bill of lading or shipping receipt issued by the insured”. In the contract of carriage out of which the claim arose, a bill of lading was generated but it was not signed by the shipper or the carrier. The insurer took the position that lack of signatures invalidated the bill of lading so that the condition triggering coverage under the policy had not been met. The Trial Court noted that the regulations governing bills of lading at the time of the loss contained no statutory requirement that bills of lading be signed. The Court found that coverage had been triggered as all the policy called for was for the insured to issue a bill of lading.

In Big B Transport Inc. v. U.S. Insurance Group, [1989] 93 N.C. App. 233, an insured carrier subcontracted with another carrier (subcarrier) to haul a shipment. The insured did not issue a bill of lading but the subcarrier did. The cargo was damaged and the claim was paid by the subcarrier’s insurer which pursued the insured in a subrogated action. The insured’s insurer denied coverage. The insured’s cargo policy covered the legal liability of the insured as a carrier under bills of lading or shipping receipts issued by the insured. The defending insurer’s position was that its insured had not issued a bill of lading and, therefore, coverage was not triggered under its policy. The North Carolina Court of Appeals found that the covering provision was not ambiguous and that it clearly required a bill of lading or shipping receipt issued by the insured for coverage to be triggered.

The Fiske and Big B cases illustrate that “legal liability of the insured under a bill of lading issued by the insured” means at least that coverage will not be triggered unless the damage arises out of a contract of carriage in which the insured did issue a bill of lading. However, a word should be said about the other documents referred to in the type 2 covering clause: tariffs and shipping receipts.

Tariffs are documents which are filed with provincial transport authorities or trucking associations. They typically set out the maximum rates which a carrier can charge for particular types of cargo and usually contain the same liability limitation provisions that can be found in a bill of lading. Due to deregulation fewer jurisdictions require motor carriers to file tariffs. Tariffs are no longer required in British Columbia.

A shipping receipt is not a defined term in the area of motor carrier law. In the Fiske case, the Court considered the meaning of this term. The Court noted that the term was not defined in the case law or in legal dictionaries. There was no statutory or common law requirement with respect to the former content of such a document. The Court adopted a plain language (and very broad) meaning of the term shipping receipt as being a document acknowledging in writing that property is being transported. Under this definition, virtually any writing evidencing the transport could be classed as

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a shipping receipt. In fact in that case, the Court found that if it was wrong in finding that the defective bill of lading was sufficient to trigger coverage under the policy, coverage would nonetheless be triggered as the defective bill of lading could still be classified as a shipping receipt.

Roadrunner may not have coverage under its cargo liability policy if it did not make its practice to keep a tariff filed with any regulatory or self-governing body, and failed to issue a bill of lading, or any other document to evidence the transport. If the carrier’s cargo policy provides coverage similar to that in type 2, the claims person dealing with the matter should consider this coverage question. If, however, the carrier’s policy contains a covering clause more similar to type 1, whether or not a bill of lading or other document was issued should not affect the carrier’s coverage. The evidence will clearly show the loss occurred while the carrier was acting as carrier and while it had custody of the plaintiff’s cargo.

Conclusion

The liability of a motor carrier at common law is onerous. The provincial legislatures have all enacted Uniform Conditions designed to mitigate the effects which that potential liability could have on trade and commerce. Because the requirements a carrier must meet in order to benefit from these protections are different from province to province, a claims handler faced with a cargo claim must be sensitive to the issue of which law applies. Depending on the applicable law to the contract of carriage in our case, Roadrunner may be liable for only $60,000 or may be liable for the full value of the shipment at $300,000.

Depending on the type of coverage a carrier has obtained, the failure to issue a bill of lading may also have a detrimental effect on its coverage. Where the covering clause is one that insures only for cargo carried under specified shipping documents, the claims handler faced with the situation should take immediate steps to determine whether or not any of those documents have been created.

Kim A. Wigmore is a partner with Whitelaw Twining 2400 – 200 Granville Street

Vancouver, British Columbia V6C 1S4 (604) 682-5466

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FACT SCENARIO THESE BOOTS AREN’T MADE FOR WALKING

Snowbird Enterprises, based in Boise Idaho, purchased $600,000 worth of ski boots from a German manufacturer based in Hamburg. The terms are FOB truck at the supplier’s warehouse, Hamburg. Accordingly, Snowbird must arrange for the shipping, including the containers and trucks for loading in Hamburg. They contact their local freight forwarder Global Logistics, which, acting as Snowbird’s agent throughout, arranges for the carriage of the goods from Hamburg to Boise. Global books the ocean carriage from Hamburg to Halifax, with a container liner service. The goods are contained in 50 crates, with each crate weighing 1200 pounds. These are packed by the supplier at its Hamburg plant into two containers, which are dropped at the ocean carrier’s German terminal. A marine bill of lading then issues for both containers, the terms of which will be addressed elsewhere. The ocean carriage is uneventful, and the ocean carrier delivers the goods to the terminal at which it normally calls in Halifax, and takes back a clean dock receipt. Snowbird has previously shipped goods by truck, with Roadrunner the usual provider of trucking services. Global on behalf of Snowbird arranges for Roadrunner to take the boots from Halifax to Boise. An original marine bill of lading is sent to Roadrunner, whose driver attends at the terminal to pick up the two containers. However, only one container can be found, containing $300,000 worth of ski boots in 25 crates. That container is loaded on board the truck, for delivery in Idaho. Roadrunner advises Global and Snowbird that they only received one container, for which it then issues an incomplete bill of lading/waybill for the motor carrier leg. The truck proceeds through Nova Scotia, New Brunswick, Quebec and northern Ontario. After a full day on the road, during which time the driver makes no entries into his log, he takes the truck into Michigan at Sault Ste. Marie. While crossing the border and on a couple of occasions thereafter, the driver notes a slight load shift when making ninety degree turns. In the course of proceeding through the Northern Peninsula in Michigan, a rainstorm springs up. The driver is confronted by a Michigan motorcyclist who turns abruptly into his path, requiring the operator to take evasive action to avoid striking him. Unfortunately, the load severely shifts, causing the trailer to tip and slide into an oncoming Volkswagen passenger car. Investigations, and particularly the tractor’s ECM, show that, in spite of the squall, the truck was travelling 5 miles per hour over the speed limit prior to the first application of the brakes immediately before the accident. In the Volkswagen are James, its driver and owner, and his passenger Dorothy. Dorothy works with a service consultant in Michigan where she lives with her

formally married husband. However, she also would consult with clients late into the night in Sault Ste. Marie, Ontario, where she maintains an apartment. James is a resident of that apartment, being estranged from his wife and daughter, who have taken up residence in New York State. Indeed, he and Dorothy regarded themselves as common law spouses. Dorothy is being driven by James back to her Michigan household and, not surprising in the circumstances, has had a fair bit to drink. James is killed, and Dorothy seriously injured. The ski boots are strewn over the road, and are soaked by the rain, resulting in a total loss. The motorcyclist is slowly recovering from a coma, broken pelvis and legs.

Roadrunner’s insurance company has issued general liability coverage for Cdn. $1 000,000.00 and cargo liability coverage for Cdn. $ 250,000.00 only. A claim is made by Snowbird for its cargo. Dorothy has retained an attorney in Michigan who has issued a demand letter to the motorcyclist, Roadrunner, and Roadrunner’s Insurer. She also has claimed accident benefits under James’ Ontario motor vehicle insurance policy, and her Ontario counsel is considering claiming in Ontario against all possible defendants. James’ family is now without his support, and has consulted a New York attorney with respect to their options. The motorcyclist wants whatever benefits he can get.