Cna Ins. Co. v. Hyundai Merch. Marine Co.

Decision Date08 May 2014
Docket Number12–6201.,Nos. 12–6118,s. 12–6118
Citation747 F.3d 339
PartiesCNA INSURANCE COMPANY, a/s/o Corning, Inc., Plaintiff–Appellee/Cross–Appellant, v. HYUNDAI MERCHANT MARINE CO., LTD.; Norfolk Southern Railway Company; Burlington Northern Santa Fe Railway Company, Defendants–Appellants/Cross–Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED:Paul D. Keenan, Keenan Cohen & Howard P.C., Jenkintown, Pennsylvania, for Appellants/Cross–Appellees. Edward C. Radzik, Marshall Dennehey Warner Coleman & Goggin, New York, NY, for Appellee/Cross–Appellant. ON BRIEF:Paul D. Keenan, Keenan Cohen & Howard P.C., Jenkintown, Pennsylvania, for Appellants/Cross–Appellees. Edward C. Radzik, Marshall Dennehey Warner Coleman & Goggin, New York, NY, Henry S. Alford, Rebecca Grady Jennings, Middleton Reutlinger, Louisville, KY, for Appellee/Cross–Appellant.

Before: BATCHELDER, Chief Judge; COOK and O'MALLEY, Circuit Judges. *

BATCHELDER, C.J., delivered the opinion of the court in which COOK, J., concurred, and O'MALLEY, J., concurred in part. O'MALLEY, J. (pp. 376–78), delivered a separate opinion dissenting from section III.B of the majority's opinion.

OPINION

ALICE M. BATCHELDER, Chief Judge.

At its core, this appears to be a simple case: Corning hired Hyundai to transport cargo overseas, Hyundai's subcontractors accidentally destroyed the cargo during transit, and nobody wants to pay for it. After some significant legal decisions and a jury trial, the district court found Hyundai and the subcontractors liable to CNA for the loss, though it refused CNA's request for prejudgment interest. Both sides appeal and, as one might expect, this is not nearly as simple as it would seem. Based on the reasoning that follows, we AFFIRM in part, REVERSE in part, and REMAND for reconsideration consistent with this opinion.

I.

The Corning facility in Harrodsburg, Kentucky, makes 4–foot by 4–foot sheets of very thin fusion-drawn flat-glass for use in LCD flat-screen televisions and computer monitors.1 Corning packs these sheets into custom-made wooden crates, each holding approximately 500 sheets. These crates are sized so that exactly 12 (three across and four deep) fit into a standard 20–foot steel intermodal shipping container leaving only negligible space (less than four inches). This is called “cubing out” the shipping container and eliminates the need for additional packing or securing.

Corning ships its glass, in these containers, to Corning Display Technologies in Tainan, Taiwan (an entirely separate company), which buys all the glass that Corning can produce and also buys more from other vendors. Consequently, Corning ships as many containers per day as it can fill, usually several, and has been doing so for years. Despite the expected fragility of such thin glass and the high volume of shipments, Corning has had virtually no problems with shipping by rail and the damage rate has been extremely low (estimated at one or two sheets for every few crates).

As of 2006, Corning and Hyundai Merchant Marine had for several years been parties to a Service Contract in which Corning agreed to ship and Hyundai agreed to carry Corning's cargo from certain locations in the United States to certain locations in Asia: specifically, as relevant here, from Harrodsburg to Tainan for the shipment of the aforementioned glass (and the return shipment of the empty crates).2 Corning dealt exclusively with Hyundai as the sole carrier for a through shipment; Corning had no role in selecting or contracting with any other carriers in the chain; and Corning made a single payment to only Hyundai. The Service Contract contained other pertinent provisions:

4.A. [Hyundai] shall be deemed an independent contractor with respect to [Corning] and nothing herein contained shall be construed to be inconsistent with that relationship or status....”

9.A. “Indemnification—[Hyundai] shall indemnify and hold [Corning] harmless from any and all liability, expense (including reasonable attorney's fees), cause of action, suit, claim or judgment ...”

13.A “Choice of Law—This Agreement shall be, insofar as relevant, governed by the terms of the Shipping Act of 1984, and otherwise by the laws of the State of New York and of the United States of America.”

15.C. Incorporates Hyundai's Regular Form Bill of Lading provisions, unless they conflict, in which case the terms of the Service Contract control. (The only relevant conflict here is that this Service Contract expressly deems Hyundai as Corning's independent contractor, whereas the Hyundai Regular Form Bill of Lading attempts to deem Hyundai as Corning's agent).

The Hyundai Regular Form Bill of Lading 3 contains certain pertinent provisions as well:

2(B). Clause Paramount—extending COGSA 4 to cover all times “when the goods are in the custody of [Hyundai].”

4. Subcontracting—

(B) [Hyundai] shall be entitled to subcontract on any terms the whole or any part of the handling, storage[,] or carriage of the Goods and any duties undertaken by [Hyundai] in relation to the Goods.”

(C) [Corning] warrants that no claim shall be made against any of [Hyundai]' s Subcontractors or any Subcontractor's Subcontractor, except Carriers where otherwise appropriate, ... If any such claims should nevertheless be made, [Corning] shall indemnify [Hyundai]....”

(D) Himalaya Clause—“Without prejudice to the foregoing, in regard [to a claim] against a Subcontractor regarding handling, storage[,] or carriage of the Goods, every such Subcontractor shall have the benefit of all provisions in this Bill of Lading as if such provisions were expressly for the Subcontractor's benefit.”

5. Responsibility for Loss or Damage—

(B)(2) “If [Corning] establishes that [Hyundai] is liable for the ... damage to ... the Goods, and subject to the provisions of this Bill of Lading, including Article 21; ... [then] with respect to ... damage caused during the handling, storage, or carriage of the Goods by [Hyundai]'s Subcontractor, such liability shall be to the extent to which such Subcontractor would have been liable to [Corning] if it had made a direct and separate contract with [Corning] in respect of such handling, storage, or carriage.”

21. Limitation of Liability for Loss or Damage—

(A) “Subject to subpart (B) below, for the purpose of determining the extent of [Hyundai]'s liability for ... damage to the Goods, [Corning] agrees that the sound value of the Goods is [Corning]'s net invoice cost, plus freight and insurance premium, if paid. [Hyundai] shall not be liable for any loss of profit or any consequential loss.”

(B) “Insofar as ... damage to ... the Goods was caused during the part of the custody or carriage to which the applicable version of the Hague Rules applies:

(1) “Neither [Hyundai] nor the Vessel shall be liable for ... damage in an amount exceeding the minimum allowable limit per package ..., which [under] COGSA ... is U.S. $500 per package, ... unless the value (and nature) of the Goods higher than this amount has been declared in writing by [Corning] before receipt of the Goods by [Hyundai] and inserted on the face of this Bill of Lading, and extra freight has been paid as required....”

(2) “Where the Goods have been packaged into a container ... by or on behalf of [Corning], it is expressly agreed that the number of such containers ... shall be considered to be the number of packages ... for the ... application of th[is] limitation of liability....”

It is undisputed that this Service Contract governs the claims in this case.

Based on this Service Contract—which anticipated the shipment of multiple 20–foot–standard shipping containers, every weekday, from the Corning facility in Harrodsburg, Kentucky, to Corning Display Technologies in Tainan, Taiwan—Hyundai coordinated or performed each of the six (6) legs of this journey, as an intermodal shipment via a single through bill of lading.

Hyundai subcontracted with a motor carrier (DHL) to pick up the containers at Corning's facility in Harrodsburg and drive them to the railhead in Louisville. A single truck would carry a single container, and Corning would provide the driver with a “straight” bill of lading for the journey to Louisville, as verification that the cargo in the sealed container departed in good condition. The truck driver did not issue a bill of lading to Corning, in its own right or on behalf of Hyundai.

Hyundai subcontracted with a rail carrier (Norfolk Southern Railway Co., pursuant to an “Intermodal Transportation Agreement,” which incorporates Norfolk Southern's Rules, including an option to select Carmack-based liability 5 at a higher price, which Hyundai did not select 6) to unload the containers from the truck at the Louisville railhead, load them onto a flatcar, and carry the containers by train to Chicago. It is noteworthy that standard flatcar loading for such containers provides for three (3) containers per flatcar: two (2) 20–foot containers placed on the flatcar with their “noses” (closed ends) touching in the middle so that their doors are exposed at either end, and a 40–foot container placed on top of the two 20–foot containers. All containers remain sealed. Norfolk Southern did not issue any bill of lading, either in its own right or on behalf of Hyundai.

Hyundai subcontracted with another rail carrier (Burlington Northern Santa Fe Railway Co., “BNSF,” pursuant to an “International Transportation Agreement,” which incorporates BNSF's Rules and also offers the option to select Carmack liability at a higher price, which Hyundai did not select) to take possession of the flatcar in Chicago and carry the containers by train to the railhead in Tacoma, Washington. The containers were not removed from the flatcar; the entire flatcar was transferred into BNSF's custody (a “steel wheel” interchange). It is noteworthy that both Norfolk Southern and BNSF maintain detailed records, via computer, of...

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