Indemnity Insurance Company of North America v. Expeditors International of…

Background

Indemnity Insurance Company of North America sued Expeditors International of Washington, Inc. in an admiralty action over damage to oilfield equipment shipped between Brazil and the United Arab Emirates. Indemnity, the shipment’s insurer, sued on behalf of the consignee, Baker Hughes Co., and sought $604,713 in damages. Expeditors carried the shipment aboard a vessel owned by third-party defendant CMA CGM, S.A.

The bill of lading incorporated terms and conditions limiting Expeditors’ liability to $500 per shipping unit. The terms allowed the shipper to declare the cargo’s value and pay higher freight charges to avoid that limit, but Baker Hughes left the value field blank. A separate master service contract also limited Expeditors’ liability to $500 per package or customary shipping unit.

Expeditors moved for partial summary judgment under Rule 56, asking the court to enforce the contractual liability limits, find that no more than three packages were damaged, and cap its potential liability at $1,500. Indemnity did not dispute the number of damaged packages. Instead, it argued that United Arab Emirates law, which allegedly required a higher limit, applied.

Choice of Law

The court applied federal maritime choice-of-law rules because the case involved admiralty jurisdiction. It explained that maritime choice-of-law provisions are generally enforced in international transactions unless the chosen jurisdiction lacks a substantial relationship to the parties or transaction, or the chosen law conflicts with fundamental purposes of maritime law.

The court did not decide which contract was the sole governing contract. It found that both the bill of lading and the master service contract selected United States law, with the bill of lading also selecting Washington law and the master service contract also selecting New York law. Both contracts contained a $500-per-package liability limit.

The court rejected Indemnity’s argument that United Arab Emirates law was compulsorily applicable. It noted that Indemnity offered no reasoning or legal authority explaining why that law applied. The court therefore applied the law selected in the contracts.

Enforceability of the Liability Limits

The court held that the liability-limiting provisions in both contracts were enforceable under federal, New York, and Washington law. Those laws generally enforce contractual limits on remedies unless the provisions are unconscionable, meaning so unfair or unreasonable that they cannot be enforced.

The court found no evidence of unconscionability. It noted that Baker Hughes and Expeditors were sophisticated businesses engaged in international commerce, that Indemnity did not claim unequal bargaining power, and that Expeditors offered an opportunity to avoid the limit by declaring the cargo’s value. Baker Hughes left that option blank.

Because both contracts limited liability to $500 per package and Indemnity conceded that no more than three packages were damaged, the court ruled that Expeditors’ potential liability was capped at $1,500 as a matter of law.

Ruling

Judge Alvin K. Hellerstein granted Expeditors’ motion for partial summary judgment to limit liability to $500 per package for three allegedly damaged packages, or $1,500. The clerk was directed to terminate the motion, the scheduled oral argument was canceled, and the court stated that a status conference would be scheduled to determine further proceedings.