Josh Kirsch recently prevailed on a summary judgment motion in federal court on behalf of subrogated underwriters in an international air cargo matter

The insured, an exporter of fresh produce, shipped cargo from California to the Middle East, hiring British Airways (BA) as the air carrier. Due to overbooking by BA, the cargo missed its connecting flight and the cargo arrived three days late, in a spoiled condition. The exporter had the risk of loss during transit and the consignee did not provide notice of damage to BA, notifying the exporter instead. Rather, within 14 days of the cargo’s arrival, the exporter’s agent gave written notice of damage to BA. It is unknown what measures BA took to protect the cargo from deterioration during the delay. Underwriters indemnified the exporter for the loss and retained GRL to file suit against BA after BA declined to pay the claim pre-suit. GRL filed suit against BA in the name of both underwriters and their insured as plaintiffs.

Damage to cargo shipped internationally is governed by the Montreal Convention in most instances, and that Convention applied to this case. BA defended on various grounds, alleging the following: (1) Subrogated insurers do not have standing to sue under the Convention; (2) 14-day notice of damage, a prerequisite to recovery under the Conventional, is valid only if given by the consignee; (3) BA’s terms and conditions exclude liability for damage to perishable items caused by delay; and (4) underwriters could not establish that the cargo was in good order and condition when shipped because the harvest date was unknown. The parties, after an unsuccessful motion to dismiss filed by BA, filed cross-motions for summary judgment. The court denied BA’s motion, and granted cargo interests’ motion, awarding 100% of the claimed damages, plus costs and interest.

Significantly, the court accepted GRL’s reading of Montreal Convention Article 31. Some cases had held that Article 31 requires that notice of damage can only be given by the consignee. Other cases had held that notice by the shipper or other interested parties was sufficient. However, no case had previously decided this issue based on a close reading of Article 31’s specific language – this opinion now provides that analysis. The court agreed with GRL that failure of the consignee to provide notice of damage creates only a prima facie (rebuttable) presumption of clean delivery. However, written notice within 14 days by other parties, such as the shipper/consignor or its agents, preserves the right to file suit. Lack of written notice issued by the consignee does not bar the action.

Of equal significance was the court’s holding that subrogated underwriters indeed do have standing to sue under the Montreal Convention. Another recent federal district court case from California had held, to the contrary, that subrogated underwriters did not have standing to sue under the Convention. The court accepted GRL’s argument that that previous case was poorly reasoned and not persuasive authority; and that the right of subrogation is well-established in the law, with nothing in the Convention suggesting that it was intended to preclude subrogation claims.

As to BA’s defenses based on its terms and conditions, the court agreed with plaintiffs that the Convention expressly allows for damage claims and delay claims, and that, if the plaintiff establishes its prima facie case, the only valid defenses are those enumerated in the Convention (inherent vice, defective packaging, act of war, act of public authority). Other defenses set forth in terms and conditions or other contractual materials are null and void, such as the attempted disclaimer for damage to perishable items caused by delay. As to the allegation that plaintiffs did not establish their prima facie case because the harvest date (age of the produce) was not known, the court held that such was essentially an inherent vice defense argument, but because the plaintiffs presented evidence that the cargo was in good order and condition based on thorough visible inspection, plaintiffs established their prima facie case and the burden of proving inherent vice was on BA, which it failed to carry because BA failed to demonstrate that the age of the produce, rather than the delay, caused the loss.

The opinion is 35 pages long and provides an excellent roadmap of the elements of a prima facie case under the Montreal Convention, as well as the burdens of proof the Convention places on an air carrier to avoid liability.