In December 1989 LA Water Treatment Corp (LA Water) delivered machinery and equipment to Waterman Steamship Corp (Waterman) for carriage from Louisiana, USA, to Alexandria, Egypt. LA Water insured the goods with Travelers Indemnity Co (Travelers). Waterman's stevedore loaded the cargo onto lighter-aboard-ship (LASH) barges. The LASH barges were loaded onto the Sam Houston. The cargo was carried under bills of lading and consisted of a total of 286 packages. LASH Barge No WA10449 (carrying 77 of the packages) sank in the inner harbour of Alexandria. All 77 packages were lost or damaged.

Travelers sued Waterman for damages and LA Water in a separate lawsuit. Waterman asserted that its liability was limited to USD 500 per package or per customary freight unit. On 28 January 1992, the District Court entered final judgment against Waterman for USD 38,500, concluding that the relevant bills of lading were subject to the USD 500 package limitation in the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA).

Travelers appealed.

Held: The appeal is dismissed. The decision of the District Court is affirmed.

COGSA regulates the liability of international carriers for loss or damage to cargo. Section 4(5) of COGSA provides that a carrier is liable for USD 500 per package or customary freight unit. The shipper may increase the carrier's liability by declaring on the bill of lading the nature and value of the goods shipped and paying a higher freight rate. A carrier may take advantage of COGSA's USD 500 per package or customary freight unit limitation on liability only if the shipper is given a fair opportunity to opt for a higher liability by paying a correspondingly greater charge (see Mori Seiki USA Inc v MV Alligator Triumph 990 F 2d 444 (9th Cir 1993) (CMI1502)).

This fair opportunity requirement is meant to give the shipper notice of the legal consequences of failing to opt for a higher carrier liability. Thus, the carrier must produce prima facie evidence which demonstrates that it provided notice of a choice of liabilities and rates to the shipper. Normally this burden is met by showing that the language of COGSA s 4(5) is contained in the bill of lading in a clear, legible manner.

Here, Waterman's bills of lading incorporate by reference all provisions of COGSA in a clause paramount. They also give notice of both the USD 500 per package or per customary freight unit limitation on liability and the option to opt out by declaring a higher value and paying a higher freight rate (liability of the carrier clause). Because Waterman met its burden the burden shifted to Travelers to disprove that LA Water was given a fair opportunity to opt out of COGSA's liability limitation.

Travelers offered two pieces of evidence:

First, the export declaration LA Water submitted to Waterman prior to shipment reported the value of the total cargo as USD 6,000,000.

Second, the bills of lading did not contain a designated space in which to declare a higher value.

This evidence does not raise a genuine issue of material fact as to whether LA Water was denied a fair opportunity to opt out of the COGSA liability limitation. First, LA Water's export declaration does not, in fact, constitute evidence that LA Water would have opted for a higher liability if had been given a fair opportunity to do so (Nemeth v General Steamship Corp Ltd 694 F 2d 609 (9th Cir 1982) (CMI1787)). Rather, if LA Water wanted a higher carrier liability, it would have contracted for it. LA Water is a sophisticated shipper of goods. It had shipped its goods with Waterman on several previous occasions. LA Water was familiar with Waterman's shipping procedures and its bill of lading. If LA Water had actually attempted to opt out of COGSA's limitation on liability, it would have succeeded. Second, a designated place for an excess value declaration is not mandatory. In Mori Seiki, this Court specifically rejected a shipper's argument that the absence of a designated space to insert a higher value for the shipment is always evidence that the shipper was denied a fair opportunity to opt out of COGSA's liability limitation.

Furthermore, a shipper who chooses to insure its cargo through an independent insurance company has made a conscious decision not to opt out of COGSA’s liability limitation. In Carman Tool & Abrasives Inc v Evergreen Lines 871 F 2d 897 (9th Cir 1989) (CMI1625), the Court explained that the shipper 'made a knowing and deliberate choice in foregoing the additional cost that would have been incurred in raising the liability limit: it insured the shipment'. Here, LA Water chose to insure its cargo through Travelers. There is every reason to believe that LA Water made a deliberate choice to forego the additional cost that would have been incurred in raising Waterman's liability limit. Otherwise, LA Water would have increased its costs by insuring the same shipment twice.

LA Water has not produced sufficient evidence to overcome Waterman's motions for partial summary judgment.

The second question to consider is the District Court's definition of 'package'. Travelers claims that the lost or damaged cargo was not packaged. Waterman maintains that it was. The definition of 'package' under s 4(5) of COGSA is a question of statutory construction. The term 'package' is to be given its plain, ordinary meaning, but this definition can be problematic. Cargo that is fully boxed or crated is a 'package', particularly where the mode of packaging conceals the identity of the goods being shipped. Freestanding cargo not enclosed in a box or crate is not goods shipped in a package. However, the answer is not always obvious where some preparation for transportation has been made but the mode of packaging does not completely conceal or enclose the goods. The District Court noted that a COGSA 'package' includes

those pieces of cargo ... which were ... given some degree of packaging or other preparation for transportation designed to facilitate handling. Even if such packaging or preparation did not conceal or completely enclose the cargo, such pieces will be found to be packages if the facts establish some degree of packaging or other preparation for transportation to facilitate handling.

Travelers argues that the District Court did not apply the 'plain ordinary meaning' definition, but applied a definition which is used by the Second Circuit but rejected by the Ninth Circuit. In Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 152 (2d Cir 1968), the Second Circuit held that cargo is packaged where 'some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods'.

The District Court’s language does track the language used in Aluminios. However, the Ninth Circuit never rejected such language. Rather, the Ninth Circuit has rejected only that part of Aluminios that examined the subjective purpose of the packaging. Travelers is correct that the District Court erred by including subjective purpose language ('to facilitate handling'). But this error is harmless. The District Court's use of superfluous language does not constitute a reversible error.

In addition, Waterman provided an explanation of why the District Court was correct in finding the cargo constituted packages. First, the cargo fits the plain, ordinary definition of 'package'. The cargo could not be carried freely or dumped in a hold and carried without some sort of packaging. The stevedore's description of the packaging surrounding some of the packaging surrounding some of the cargo provides strong evidence that the cargo was shipped in packages.

The bills of lading designated the cargo as packages. The parties filled in the numbers 18, 103 and 165 under the column titled 'No of Pkgs' on bills of lading 1, 4 and 5 respectively. Furthermore, it was LA Water - not Waterman - that provided the information which appears on the bills of lading. This means that before the barge sank, LA Water believed the cargo was packaged, and knew that Waterman's liability would be assessed on a USD 500 per package basis. It was LA Water - not Waterman - who attached to the bills of lading riders that catalogued the cargo and specified the numbers of packages involved. This is further evidence that LA Water believed that the cargo was packaged.

Although the cargo was not fully crated or boxed, it was not freestanding and the bills of lading designated the cargo as packages. LA Water should not now be allowed to argue that the cargo was not packaged.