Ship Managers and COGSA

Are ship managers, charged with providing a Master, officers and crew, and performing various other ship-management tasks for the shipping vessel, a “carrier” under the Carriage of Goods by Sea Act (COGSA)? That was the question before 6th Circuit, and in an opinion written by Sandra Day O'Conner, the court concluded that such managers are not carriers under COGSA and therefore COGSA's one-year statute of limitations does not bar the underlying suit.

The case, Fortis Corporate Ins., SA v. Viken Ship Management AS, has its origins in a shipment of steel coils from Szczecin, Poland to Toledo, Ohio. The coils were damaged in shipment by exposure to seawater. Fortis Corporate Insurance insured a cargo of 176 steel coils belonging to Metallia LLC. The coils were carried from Szczecin, Poland to Toledo, Ohio aboard the M/V Inviken, a 17,313 gross ton bulk carrier. During the journey, seawater entered the cargo hold containing the steel coils and caused significant rust damage to 99 of them. Fortis, as underwriter, paid Metallia $375,000 for the damage to the steel coils. Fortis then brought a lawsuit as Metallia's subrogee, alleging negligence and breach of bailment against the Inviken's owner, Viken Lakers, along with the ship's manager, Viken Ship Management.

Viken Lakers and VSM moved for summary judgment on the basis that the suit was filed beyond the one-year statute of limitations provided for under COGSA. The district court agreed with Viken Lakers that it was a “carrier” and that the suit against it was barred by the one-year statute of limitations. However it concluded that because VSM was not an owner or charterer party to the contract of carriage it was not a COGSA carrier and therefore could not invoke the one-year statute of limitations.

In affirming the District Court's decision the Circuit Court rejected VSM's argument that the district court took an unduly formalistic approach to interpreting COGSA's provisions when it determined that VSM did not qualify as a carrier because it was not an owner or charterer party to the contract of carriage. Citing Robert C. Herd & Co. v. Krawill Mach. Corp., 359 U.S. 297, (1959), court pointed out that the Supreme Court had unanimously rejected a similar argument. In Herd the Supreme Court concluded that COGSA's plain terms applied only to carriers, and not their agents.

VSM complained that, unless it was covered as a COGSA carrier, it would be subjected to all of the liabilities of a carrier with none of the protections. The court also rejected this argument. The court went on to explain that VSM is subjected to neither the liabilities nor the protections of a COGSA carrier. For instance, COGSA utilizes a complicated burden-shifting mechanism that effectively leaves carriers liable for any damage to cargo unless they meet the affirmative burden of proving that they exercised due diligence to prevent the damage.

Finally the court explained that shipping parties are free to extend COGSA's coverage by adding provisions to bills of lading extending the COGSA regime to any and all agents or independent contractors who participate in the shipment of goods under a particular contract. The failure to include one of these 'Himalaya clauses' in their agreement is telling that the parties did not want to extend the terms of COGSA to VSM.