Background
National Railway Equipment (NRE) contracted with rail carriers Evansville Western Railway (EVWR) and CSX Transportation to ship four rebuilt locomotives from Illinois to North Carolina for export. Jay Smith, NRE’s logistics manager with seventeen years of experience and hundreds of prior shipments with these carriers, placed the order using EVWR’s online system, designating the cargo with Standard Transportation Commodity (STC) Code 3741110. Both carriers maintained published price lists for this commodity code: EVWR’s Q 5012 limited liability to $25,000 per locomotive, while CSX’s Public Price List 6051 capped liability at $10,000 per locomotive. Smith had knowingly selected these lower-rate options because NRE carried its own insurance coverage.
While CSX transported the locomotives from Evansville to North Carolina, Hurricane Florence struck, causing a derailment that destroyed all four locomotives. NRE’s insurer, Certain Underwriters at Lloyd’s, paid the full invoice value minus deductible. Lloyd’s then sued the carriers as NRE’s subrogee under the Carmack Amendment to recover its payment, claiming the carriers were fully liable for the loss. The carriers responded that any liability was capped by the contractual limitations to which NRE had agreed.
The district court granted summary judgment to EVWR enforcing the $25,000 cap, but allowed the CSX claim to proceed to trial. A jury found for CSX and capped liability at $10,000. Lloyd’s moved for judgment as a matter of law on the CSX claim, which the court denied. Lloyd’s appealed both the summary judgment and the post-trial ruling.
The Court’s Holding
The Seventh Circuit affirmed both lower court decisions. The court held that under the Carmack Amendment, 49 U.S.C. § 11706, a carrier may enforce a limitation on liability when three conditions are met: (1) the carrier gives the shipper a reasonable opportunity to choose between different levels of liability coverage at different rates; (2) the shipper agrees to the chosen level; and (3) the carrier issues a bill of lading before moving the shipment. Here, both EVWR and CSX satisfied all three requirements.
The court found that Smith, despite his sophistication and long history with both carriers, undisputedly knew about their published price lists and could have selected higher liability coverage for higher rates. He affirmatively chose the lower-cost options with limited liability because NRE had its own insurance. The bills of lading contained the STC Code 3741110, and the court found this code—when combined with Smith’s knowledge, experience, course of dealing, and testimony about his intent—constituted an unambiguous manifestation of the parties’ agreement to the liability caps. The carriers’ course of dealing with Smith over seventeen years, during which he consistently selected lower rates, objectively evidenced that entering the STC Code signified selection of limited liability coverage.
The court distinguished this case from ABB Inc. v. CSX Transportation, 721 F.3d 135 (4th Cir. 2013), where the shipper was unaware of the carrier’s price list and had received no rate information. Unlike ABB, the Carmack Amendment does not require that a bill of lading expressly state the liability cap—it requires only a written agreement manifesting the shipper’s consent. The court found such agreement established here through the combination of the STC Code, Smith’s demonstrated knowledge, and the parties’ seventeen-year course of dealing.
Key Takeaways
- Carriers can enforce contractual liability limitations under the Carmack Amendment when shippers who are aware of rate options affirmatively select lower rates with capped liability coverage.
- A shipper’s course of dealing with a carrier over many years, combined with the shipper’s knowledge of published rates and selection of a specific commodity code, can establish an enforceable written agreement limiting liability even without explicit liability language in the bill of lading.
- Sophisticated shippers with experience cannot later claim ignorance about carrier rate structures and liability options they have repeatedly encountered in prior transactions.
- The Carmack Amendment requires a written agreement manifesting the shipper’s consent to liability limitations, but the bill of lading need not expressly state the cap if other evidence establishes the parties’ mutual intent.
Why It Matters
This decision provides important clarity for the transportation and logistics industry on when liability limitations in carrier contracts are enforceable under federal law. It establishes that carriers can depend on enforcement of contractual liability caps when dealing with experienced shippers who have knowingly and repeatedly selected lower rates. The ruling protects carriers from exposure to unlimited liability when shippers make informed business decisions—such as self-insuring through their own insurance policies—and choose lower-cost transportation accordingly.
The decision also sets a practical standard for evidence of shipper consent. While it rejects pure constructive notice (as in ABB), it permits carriers to rely on a combination of factors including published rate information, the shipper’s prior transactions, and contractual terms like commodity codes to establish binding agreements about liability limitations. For shippers and their insurers, the ruling underscores that they cannot strategically avoid negotiated rate limitations by later suing via subrogation, particularly when they had superior knowledge and chose lower rates for their own commercial reasons.