Shippers Held Strictly Liable Under COGSA for Damage From Inherently Dangerous Goods Not Known to Be So
September, 2002
by Kimbley A. Kearney and
Facts
In Senator Linie GMBH & Co. KG v. Sunway Line, Inc., 2002 AMC 1217, 291 F.3d 145 (2d Cir. 2002), a carrier sued shippers under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C.App. § 1304(6), for damages caused by spontaneous combustion of chemical cargo aboard its vessel. The vessel was carrying 300 drums of thiourea dioxide (TDO) from Korea to the United States. TDO is a white odorless powder used as a reducing agent in the bleaching of protein fibers such as paper and textiles. A fire broke out in the vessel’s hold, causing damage to the vessel and other cargo.
The trial court determined that none of the evidence presented was sufficient to have put any of the parties on notice of the inherently dangerous nature of the chemical. At the time of shipment, TDO was not named as a hazardous cargo in the International Maritime Dangerous Goods Code or in the Department of Transportation Hazardous Materials Table. In fact, the vast majority of literature then available did not describe spontaneous combustion as a possible risk of TDO. Thus, the trial court granted the shippers’ motion for summary judgment, holding that § 1304(6) of COGSA does not impose liability on a shipper of inherently dangerous goods unless it can be shown that the shipper actually or constructively knew of the dangerous nature of the cargo prior to shipment and failed to disclose that nature to the carrier. The trial court reasoned that the general maritime law, as reflected in The Wm. J. Quillan, 180 F. 681 (2d Cir. 1910), does not impose on the shipper an absolute warranty that its cargo is not hazardous.
Analysis
The Second Circuit Court of Appeals vacated and remanded. Although the appellate court agreed that none of the parties could have known of the risks posed by TDO, the court disagreed that a shipper’s liability under § 1304(6) of COGSA requires actual or constructive knowledge of the inherent danger of the goods. Rather, the court held that as a matter of first impression, COGSA establishes a rule of strict liability for a shipper of inherently dangerous goods in the “rare” situation where neither the shipper nor the carrier had actual or constructive knowledge of the danger before the time of shipment.
The court first considered the plain language of the statute. Section 1304(6) states that shippers of dangerous goods “shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment.” The court interpreted this language as setting forth a risk-allocating rule that renders a shipper strictly liable where neither it nor the carrier has preshipment knowledge of the danger.
The court rejected the shippers’ argument that COGSA, which is a codification of the United States’ obligations under the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (the “Hague Rules”), incorporated the shipper liability rule set forth in Quillan. Although the history of the Act and the Hague Rules is mostly silent as to the kind of liability the drafters intended when they adopted § 1304(6), that history is not inconsistent with a rule of strict liability.
Further, even if the Legislature had set out to codify general maritime law, they would have found no firmly established rule of shipper liability in the dangerous goods context. Before enactment of COGSA, the law was unsettled as to the nature and extent of such liability. In light of this disagreement and because § 1304(6) speaks directly to the issue of shipper knowledge and liability, the court concluded that COGSA establishes a rule of strict liability for shippers where none of the parties has preshipment notice of the danger. This construction furthers COGSA’s goals of fostering international uniformity in sea-carriage rules and allocating risk between shippers and carriers in a manner that is consistent and reliable.
Learning Point:
Under the Second Circuit’s newly announced rule, shippers of unforeseeably dangerous goods are now subject to an additional source of liability. The court’s holding is a bright line test: the shipper bears the risk of goods that turn out to be hazardous. As can be seen from the case, it does not matter that it is impossible for the shipper to discover the danger or that the available literature indicates that the goods are not hazardous. Accordingly, shippers and their insurers should figure this added liability into their overall cost of doing business.
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