The challenge of declared value shipments in transportation industry

WHERE TO START WITH DECLARED VALUE SHIPMENTS IN THE TRANSPORTATION INDUSTRY

In the provincially regulated world of Motor Truck Cargo in Canada, in order for a carrier to limit its liability exposure, it is advisable to mention the limitation of carrier’s liability, conspicuously, on the face of the bill of lading (BOL), with a space to declare the value of the shipment. This also forms part of the relevant provincial regulations that clearly define the prescribed form of BOL.

Section 10 of the O. Reg. 643/05 – Carriage of Goods under Highway Traffic Act R.S.O. 1990, c. H.8 states:

If the consignor has declared a value of the goods on the face of the contract of carriage, the amount of any loss or damage for which the carrier is liable shall not exceed the declared value.

It is pertinent to note here that the value of goods must be declared on the face of the contract of carriage (more than a BOL).

THE INTENT BEHIND DECLARED VALUE SHIPMENTS

Just by declaring the value of a shipment on the face of Bill of Lading, why is it that the carrier is expected to become liable for that value? Why have the regulations prescribed this condition? What changes when you declare a value on a piece of paper? It is all about selection and decision-making opportunities given to each of the contracting party, namely the shipper and the carrier.

In A & A Trading Ltd. v. DIL’S Trucking Inc., 2015, Justice Thomas A. Bielby, writing for the Ontario Superior Court of Justice confirmed:

………the legislative intent behind the requirement of the shipper to declare the value of the consignment on the face of the contract of carriage is to provide notice to the carrier of the value of the risk and to provide the carrier with the opportunity to decide whether to assume the risk.

By the provision/option of declaring a value on the bill of lading, the shipper is given an opportunity to request that the carrier be liable for a greater amount, up to the declared value and not for a statutory amount based on the cargo’s weight. Also, the carrier has been given an opportunity to gauge the risk involved in transportation of this shipment and the carrier, depending upon its risk appetite, now has an opportunity to either reject or accept the declared value shipment. Not only that, the carrier may also insist on the limited value or may decide to accept the declared valuation and charge the shipper with additional freight charges to cover this increase in liability.

DECLARED VALUE IS NOT THE SHIPMENT VALUE

It is pertinent to note here that the declared value simply creates a threshold on the maximum liability of the carrier. The declared value itself cannot be relied upon as the actual value of the shipment. It is required to be proven based on usual shipping documentation, such as commercial invoices, purchase orders, etc. Thus, by declaring a lower value on the shipment, the shipper is bearing the risk of limiting the liability of the carrier to the declared value which will not hold the carrier liable, in case of a total loss, for the entire actual shipment value. Similarly, declaring a higher value does not mean the carrier will be bound to pay the declared value in case of a total loss, unless the declared value is proven to be the actual shipment value.

Another interesting situation may arise where multiple articles are involved in the shipment, each declared separately. Again, the total value declared for all the articles will become the declared value on the entire shipment and it cannot be argued by the carrier that since only a few articles got damaged, respective declared values will apply to determine the maximum liability.

WHAT A MOTOR TRUCK CARRIER SHOULD DO

It ‘s very crucial to let one’s insurance broker know at the time of getting an insurance quote whether the carrier is accepting declared value shipments, or not. Generally, while accepting such shipments, a trucker would charge additional freight to cover the costs of additional premium charged by the Insurers to endorse coverage for declared value shipments.  Further, if the carrier has any contracts where one may have accepted liability for full shipment value, it must be made sure that all such contracts are known to the insurance broker and are endorsed by the Insurers, and additional premium, as may be applicable, could be charged accordingly. Failure to do so and disclose such contracts or accept declared value shipments without informing the insurance broker/insurers may leave a carrier out of pocket for thousands of dollars.

DECLARED VALUE CASE STUDY

A carrier, hauling a shipment of empty polyester/nylon school bags, meets with an accident, damaging the entire shipment. Or for that matter, suppose the shipment gets stolen in transit and never gets recovered. The weight of the shipment was, say, 10,000 lbs only. The Bill of Lading had a declared value of the shipment at $50,000 CAD. The shipment originated in Ontario and was destined to Alberta. Likely, the legal liability of the motor truck carrier, pursuant to the provincial statutory regulations, in this case, will be limited to a valuation of $2/lbs, amounting to only $20,000 CAD. However, being a declared value shipment, the carrier will be held responsible up to the declared value of the shipment, which in this case is the invoice value.  Now, if the insurers were not made aware that declared value shipments are accepted by the carrier, the claim will be settled by the Insurers for only $20,000 CAD and the carrier will then be out of pocket for the difference of $30,000 CAD.

TAKEAWAY

In view of the foregoing, the biggest takeaway is that a carrier should never accept a declared value shipment, or for that matter sign any contracts accepting liability for the full shipment value, unless the insurance broker is aware of such practices and appropriate additional freight has been charged. It is imperative to have sufficient coverage in place from the insurers and adequate limits must be available in the motor truck cargo legal liability policy to cover the risk, especially for high value shipments.