Warehouse Claims & Other Legal Issues

John F. Horvath, Horvath & Weaver, P.C.

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Claims and Other Legal Issues

• Claims July 1, 2010 through June 30, 2011

• Storage rack inspection

• Customer requests and the Standard of Care

• STB demurrage/detention update

• Questions (any time)– Except Tarnowski

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Claims: July 1, 2010 – June 30, 2011

Temperature Abuse 6

Ammonia Leak 2

Rack Collapse 1

Roof Collapse 1

Theft 1

Handling Damage 1

Inventory Shortage 1

Contamination 1

TOTAL 14

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Temperature Abuse Claim #1

• Bakery products

– $37,000 claim

• Received warm

• No notice to customer

• Put into freezer

• Carrier paid

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Temperature Abuse Claim #2

• Frozen Bacon

– $30,000 claim

• Overseas shipment

• Transported to warehouse

• NO refrigeration (24+ hours)

• Real facts

• No liability

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Temperature Abuse Claim #3

• Seafood

– $90,000 claim

• 18,000 pounds

• During storage

• No follow-up

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Temperature Abuse Claim #4

• Container of Ham Products

– $150,000 claim

• Driver signed bill of lading

• Initialed 0° Fahrenheit

• Denied claim

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Temperature Abuse Claim #5

• 6,960 pounds of Shrimp

– Claim amount unknown

• Room temperature – hand written

• As high as +23° Fahrenheit

• Consistently above +14° Fahrenheit

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Temperature Abuse Claim #6

• 6,237 cases of dried Persimmons

– $100,000 claim

• Hand written temperatures

• Maximum +5° Fahrenheit

• Not properly dried

• Deemed liability

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Ammonia Leak Claim #1

• Frozen Poultry Products

– $300,000 claim

• Liquid slug

• Boiler machinery coverage

• Preserve limitation provision

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Ammonia Leak Claim #2

• Frozen Poultry Products

– $400,000 potential claim

• Leak in NH3 feeder line

• Empty room

• C02

• No product damage

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Theft Claim

• Frozen Crab

– $400,000 claim

• Customer retained carrier

• Carrier subcontracted load

• Warehouse released load to subcontractor

• Subcontractor was fraud

• Denied claim

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Shortage/Damage

• Frozen Pork Products

– $350,000 claim

• Sudden surge inbounds/outbounds

• No request to customer

• Settled

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Contamination

• Frozen Seafood

– $500,000 claim

• Forklift hydraulic fluid

• Detailed inspections

• No claim

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Roof Collapse

• Frozen Products

– $2.5 million potential claim

• Roof damage 2 years earlier

• Heavy rains 2 days prior

• Corner of building

• Temporary repairs

• Bad roof design

• No claims

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Rack Collapse

• Frozen Products

– $50,000 claim

• Independent contractor negligent

• No insurance

• Paid claim

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Rack Inspection

• Canadian Standards Association

• FEMA

• Material Handling Industry of America

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Rack Inspection

• Qualified employees/third parties

• Periodic, at least annually

• Written inspection plan

• Documented inspections

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Rack InspectionThe inspector should inspect the entire storage rack system for the following structural deficiencies:

• Missing, loose or damaged anchor bolts;• Missing or damaged connection locking devices;• Missing or damaged rack guards;• Missing or damaged rack accessories;• Damaged, dented buckled, or bent rack framing members;• Weld fractures that are detectable by visual inspection;• Corrosion and other deterioration that may adversely affect structural

capacity;• Rack frame misalignment;• Rack beam spreading or excessive deflection;• Improper beam installation; and • Floor damage that may adversely affect the support or anchorage of

the storage rack system.

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Rack InspectionThe inspector should examine the entire storage rack system for the following operational deficiencies to the extent that they are observable at the time of inspection:

• Storage rack system overloading and other improper material storage;

• Use of pallets that are inappropriate for the storage rack system;• Damaged pallets;• Rack contents that are improperly or inadequately restrained;• Missing or inadequate storage rack system plaques; and• Obstructed aisles, inadequate lighting, or poor housekeeping.

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Customer Requests and the Standard of Care

• Product is very temperature sensitive and trailer must be pre-cooled to -18° Fahrenheit before loading

• Impact on reasonable care standard

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STB Demurrage/Detention Update

• Advance Notice of Proposed Rulemaking– Purpose: “... To explore whether [the STB] should

explore whether [it] should look to new ways of determining the liability of warehousemen for demurrage.”

• Liability on receiver of rail cars

• Will likely apply to detention, too

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Why Need for Rule?

• Conflicting Federal Court decisions– 7th Circuit Court of Appeals (2003)

• Covering IL, IN and WI

– 3rd Circuit Court of Appeals (2007)• Covering DE, NJ and PA

– 11th Circuit Court of Appeals (2009)• Covering AL, FL and GA

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7th Circuit Case

Illinois Central Railroad Company

vs.

South Tec Development

“ ... Being listed by third parties as a consignee on some bills of lading is not alone enough to make South Tec a legal consignee liable for demurrage charges, although it, coupled with other factors, might be enough to render South Tec a consignee.”

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3rd Circuit Case

CSX Transportation Company

vs.

Novolog Bucks County

“We hold that the recipients of freight who are named as consignees on bills of lading are subject to liability for demurrage charges arising after they accept delivery unless they act as agents of another and comply with the notification procedures established in ICCTA’s consignee-agent liability provision, 49 U.S.C. 10743(a)(1).”

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11th Circuit Case

Norfolk Southern Railway

vs.

Groves

“Savannah cannot be made a consignee by the unilateral action of a third party, particularly where Savannah Re-load was not given notice the unilateral designation in the bills of lading.”

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STB’s Statement on the ANPR

“One possible rule would place liability for demurrage on the receiver of the rail cars regardless of the designations in the bill of lading.”

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Statement by STB on the ANPR

“... Should 10743 be read as applicable to demurrage charges at all?”

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IARW• Objected to “Recipient Liability Rule”

• Matter of Contract

• Party responsible for demurrage should pay

• Better reasoned case law

• 49 U.S.C. 10743(b) applies to demurrage

• Actual placement

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Rail Carriers’ Responses• American ASSN of Railroads

• BNSF

• Canadian Pacific

• Indiana Harbor Belt

• Norfolk Southern

• Union Pacific