U.S. - Bill of Lading Unclear - Other Shipping Documents Considered

February 2002

Carrier indemnification is not limited to damages paid to third parties; where the bill of lading is unclear, a court may look to other shipping documents to determine the intent of the parties.

In Yang Ming Marine Transport Corp. v. Okamoto Freighters Ltd.*, the Ninth Circuit held that a carrier may recover not just for damages it paid to third parties, but for any damages that would "compensate" the carrier for its loss. The Ninth Circuit then held that courts may look to other shipping documents if a bill of lading is ambiguous, ultimately finding that the title "shipper" on a shipping report indicated the intent that "shipper" was interchangeable with the title "exporter" on the bill of lading.

Yang Ming involved a containerized shipment of Philip Morris cigarettes from Long Beach, California, to Tokyo, Japan. G.E. International, the agent for Philip Morris, Inc., hired NVOCC Oceanbridge Shipping International, Inc., who hired American International Cargo ("American"), who hired Laufer Freight Systems, Inc. ("Laufer"). Laufer contracted with Yang Ming for transportation of the containers. Laufer provided American with a booking report naming American as the shipper/supplier, and issued a bill of lading to American, designating American as the exporter and describing the cargo as cigars and cigarettes. The American bill of lading had an indemnity clause requiring the "shipper" to warrant that the goods were properly described. Yang Ming issued a bill of lading to Laufer evidencing the contract of carriage and describing the goods as cigars and cigarettes. Yang Ming’s bill of lading labeled Laufer as the shipper, and contained a clause providing that the "shipper" had to indemnify the carrier against all loss and liability resulting from a misdescription of the cargo. Upon arrival in Tokyo, it was discovered that the containers contained old tires instead of cigarettes. Laufer notified Yang Ming that it was abandoning the containers. Unable to find a buyer in Japan for the abandoned tires, Yang Ming was forced to transport the tires to a buyer in Hong Kong.

Yang Ming sued Laufer in District Court, seeking indemnification under Yang Ming’s bill of lading. Laufer sued American, seeking indemnity under the American bill of lading. The District Court concluded that Yang Ming was entitled to summary judgment on its indemnity claim against Laufer as a result of Laufer’s misdescription of the cargo. The District Court also awarded summary judgment to American on Laufer’s claim.

The Ninth Circuit affirmed the District Court’s ruling that Laufer breached the indemnity clause of the Yang Ming bill of lading because the evidence clearly showed that the containers were filled with old tires rather than cigarettes.

The Ninth Circuit rejected Laufer’s argument on appeal that Laufer only had to indemnify Yang Ming for payments Yang Ming made to third parties. The Ninth Circuit stated that the plain meaning of "indemnify" is not to compensate for losses caused by third parties; it merely means "to compensate". Therefore, Yang Ming could recover for all loss and liability it incurred as a result of Laufer’s misdescription, regardless of whether such damages represented payments Yang Ming made to third parties. Yang Ming could also recover for its storage of the containers in its yard after Laufer abandoned them.

A court interpreting a bill of lading must examine the intentions and understandings of the parties. If the bill of lading does not show the parties’ clear intent, the court may look at collateral evidence of their intentions, including other shipping documents. The court could not conclusively discern from this bill of lading whether American, described on the bill as an exporter, was intended by the parties to qualify as a shipper. The booking report given to American by Laufer prior to Laufer’s issuance of the bill expressly referenced American as the shipper/supplier. American’s failure to challenge this label was indicative of the parties’ understanding that American was a shipper in relation to Laufer, and therefore came within the indemnity clause of its own bill of lading. The Ninth Circuit reversed the District Court’s holding that the bill of lading did not require American to indemnify Laufer for damages resulting from American’s misdescription of the cargo.

With thanks to Mitchell S. Griffin and Lynn L. Krieger of Cox, Wootton, Griffin, Hansen & Poulos, LLP, San Francisco, for supplying this article.

* 259 F.3d 1086, 01 C.D.O.S. 6774 (9th Cir. 2001)