Indemnity Insurance Company of North America v. Hanjin Shipping Company
348 F.3d 628 (7th Cir. 2003)
Lowe's bought some power tools from Black & Decker. It contracted with Hanjin for the transportation of the power tools from China to its warehouse in North Vernon, Indiana.
Hanjin issued an intermodal waybill that covered all legs of the transportation. The waybill specified Fritz Companies as the notify party and provided that delivery would be made to the Consignee [Lowe's] upon proof of identity at the place of delivery. It also provided that if delivery is required at a place other than the place of delivery specified on the waybill, written instructions had to be given to Hanjin.
The shipment (in a container) arrived at Long Beach, CA after an ocean voyage from China. It was then taken by rail to Chicago, from where it was scheduled to be transported by truck to North Vernon, Indiana.
Before the shipment arrived in Chicago, the U.S. Customs Service advised Fritz that the container had been selected for an intensive customs examination. Fritz, which had a power of attorney from Lowe's, notified Hanjin in writing that the shipment was to be released to Land Container, who was going to take it to a Centralized Examination Station operated by O'Hare Services. O'Hare sub-contracted with Channel for the inspection and storage of the shipment after the inspection.
Land received the container and delivered it to the Centralized Examination Station. After the shipment passed the inspection, Channel moved it (in a container) to the open yard. More than one week later, the container with the shipment inside was stolen. The empty container was found a few days later.
Lowe's received payment for the stolen merchandise from its insurer, Indemnity, who brought a subrogation action against Hanjin, O'Hare, Channel and Fritz. Fritz was dismissed as a defendant before trial.
The District Court found that the waybill required Hanjin to deliver the shipment to Lowe's in Indiana and that it did not do so. It also found that nothing in COGSA, which governed the entire move under the Clause Paramount, excused Hanjin's failure to deliver the shipment. Thus the District Court held Hanjin liable. The District Court also dismissed the claims against O'Hare and Channel. Hanjin and Indemnity both appealed.
Hanjin argued that the District Court erred in holding it liable for the theft of the shipment. First, it argued that it did not receive any additional written instructions from Fritz or Lowe's after the shipment was inspected by U.S. Customs and thus it could not complete delivery of the shipment. Second, it argued that the diversion of the shipment was an act of the shipper within the meaning of COGSA, excusing it from liability.
The Seventh Circuit held that Hanjin's duty under the waybill was either to deliver the container to Lowe's North Vernon warehouse, or to deliver the container per superceding written instructions. In this case, Hanjin received written instructions from Lowe's' agent, Fritz, and was required to follow them and deliver the container to Land. The Seventh Circuit then considered whether Hanjin's failure to pick up the container from Channel's yard was a breach of the contract of carriage. It held that Hanjin was not at fault in failing to pick up the container because Fritz did not provide the required written instructions to Channel to release the container. Consequently the Seventh Circuit reversed the District Court's judgment against Hanjin.
The Seventh Circuit also reversed the District Court's judgment in favor of O'Hare and Channel. It found that there was a bailment of the shipment and that the District Court erred in finding that neither was negligent. The Seventh Circuit also noted that Channel had not used all of the security measures available to it and that questions remained as to whether the failure to use those measures was excusable. Further, the Court found that issues remained as to whether O'Hare was the principal bailee or whether Channel was a primary co-equal bailee or sub-bailee. The matter was remanded to the District Court for further proceedings between Indemnity and O'Hare/Channel.