Federal courts recently issued decisions both limiting and expanding potential liability for transportation of cargo under the Montreal Convention. The U.S. District Court for the Southern District of New York denied recovery for inspection costs absent actual damage to the cargo that was attributable to the transportation, and both the U.S. District Courts for the Southern District of New York and the Eastern District of Illinois followed Ninth Circuit precedent, holding that the two-year limitation period under Article 35 of the Montreal Convention does not bar claims against third parties for contribution or indemnification.
Denial of Recovery for Inspection Costs Absent Actual Cargo Damage
The Southern District of New York recently examined whether inspection costs are a cognizable harm under Article 18 of the Montreal Convention. In Indemnity Insurance Company of North America v. Agility Logistics Corporation,1 the air waybill for a jet engine transported from Florida to Germany required that all ground transportation be done on vehicles with air-ride suspension. After the engine arrived at Frankfurt Airport, the engine was loaded onto a tractor-trailer for transportation to its final destination in Alzey, Germany. Upon arrival, the consignee discovered that the trailer had air-ride suspension, but the tractor did not. When the consignee inspected the jet engine, it found several defects but they were unrelated to the transportation. The subrogee filed an action to recover the inspection costs under the Montreal Convention.
Article 18 of the Convention allows recovery “for damage sustained in the event of the destruction or loss of, or damage to, cargo.” The court held the plain text of Article 18 barred recovery since the jet engine was not destroyed, lost or damaged. More specifically, the court held that where cargo is not destroyed, lost or damaged, Article 18 does not impose liability on carriers for inspection costs when the cargo did not incur physical damage attributable to the transportation.
Montreal Convention’s Two-Year Limitations Period Does Not Apply to Third-Party Claims for Contribution or Indemnification
Courts in New York and Illinois generally have dismissed claims for contribution and indemnification filed after the two-year time bar imposed by the Warsaw Convention.2 However, two recent decisions from the Southern District of New York and the Northern District of Illinois analyzed this issue under the Montreal Convention and reached the opposite conclusion. Both courts held that claims against third parties for contribution and indemnification in cargo cases do not fall within the scope of the two-year limitations period of the Montreal Convention and thus are permitted.
In AGCS Marine Insurance Co. v. Geodis Calberson Hungaria Logisztikai KFT,3 plaintiff sued the contracting air carrier for damage sustained to a cargo shipment. The contracting carrier, in turn, filed third-party claims against the actual air carrier, ground handler, and trucking company for negligence, contribution and indemnification. However, the third-party claims were filed after the two-year time bar imposed by Article 35 of the Montreal Convention and third-party defendants moved for summary judgment. The Southern District of New York held that while defendant’s direct claims of negligence against third-party defendants were time-barred pursuant to Article 35, its claims for contribution and indemnification were not.
In Tokio Marine & Nichido Fire Insurance Co., Ltd. v. Danzas Corporation,4 the shipper contracted with defendant to transport cargo from the United States to Japan. The cargo arrived damaged and unusable. Plaintiff filed an action against defendant to recover the value of the damaged cargo and defendant then filed third-party claims for contribution and indemnification against the ground handler. The third-party defendant/ground handler moved to dismiss on the basis that the contribution and indemnity claims were time barred under the Montreal Convention. However, the court denied the ground handler’s motion, allowing the claims to proceed.
In making their determinations, both courts referred to a 2011 decision from the Court of Appeals for the Ninth Circuit for guidance. In Chubb Ins. Co. of Europe S.A. v. Menlo Worldwide Forwarding, Inc.,5 the Ninth Circuit distinguished between claims seeking direct compensation for damage and claims seeking contribution and indemnification for compensation already paid. Departing from earlier precedent on this issue, the Ninth Circuit held that the time bar in Article 35 applied only to the right to direct damages and not to the claims for contribution and indemnification.
The Ninth Circuit also noted that other articles in the Convention supported the need for this distinction. Specifically, the court recognized that imposing the two-year time bar of Article 35 on claims for contribution and indemnification would conflict with Article 37, which specifically allows a carrier to pursue other rights of recourse (such as claims for contribution and indemnification), and Article 45, which allows carriers not previously joined in an action to be joined under the laws of the local court’s jurisdiction, which seemingly would include the local court’s time limitation for claims relating to contribution and indemnification.
Both the Southern District of New York and the Northern District of Illinois applied the Ninth Circuit’s reasoning, holding that the Montreal Convention does not require a party to bring claims for contribution and indemnification within the two-year limitations period. These decisions spread the precedent established by the Ninth Circuit in Chubb and allow parties to pursue recourse for contribution after the Montreal Convention’s two-year limitations period has passed. This means that carriers (and other parties) could still be subject to suits for contribution and indemnification a number of years after the two-year time bar has expired for the underlying claim.
1 No. 16-CV-09731 (JPO), 2018 WL 3084060 (S.D.N.Y. June 21, 2018).
2 See Royal Ins. Co. v. Emery Air Freight Corp., 834 F. Supp. 633 (S.D.N.Y. 1993); Data Gen. Corp. v. Air Exp. Int’l Co., 676 F. Supp. 538 (S.D.N.Y. 1988); Split End Ltd. v. Dimerco Express (Phils) Inc., No. 85 CIV. 1506 (RLC), 1986 WL 2199 (S.D.N.Y. 1986); Magnus Elecs., Inc. v. Royal Bank of Canada, 611 F. Supp. 436 (N.D. Ill. 1985).
3 No. 16-CV-9710 (JMF), 2017 WL 5891818 (S.D.N.Y. Nov. 28, 2017).
4 No. 17 C 7228, 2018 WL 2214093 (N.D. Ill. May 15, 2018).
5 634 F.3d 1023 (9th Cir. 2011).