Maritime Litigation Roundup – February 2022

The Maritime Litigation Roundup is published by Seward & Kissel LLP and covers decisions of interest in judicial, administrative or arbitral bodies as well as notable regulatory or other newsworthy developments in the space. For any suggestions on future coverage or should you like more information about the matters addressed, please contact Brian P. Maloney at maloney@sewkis.com. Special thanks to Cody Hubbs for his contributions to this month’s roundup.

This month’s roundup focuses on the importance of understanding the potentially broad scope of indemnification liability conferred by a carrier’s bill of lading, as demonstrated by a January 13, 2022 opinion from the United States District Court for the Southern District of New York in MSC Mediterranean Shipping Co. S.A. v. Airlift Marine Servs. Pvt. Ltd. in which MSC Mediterranean Shipping Company S.A. (“MSC”) was awarded more than $900,000 in total in an action for indemnification from Airlift (U.S.A.) Inc. (“Airlift”), the non-vessel operating common carrier (“NVOCC”) that arranged for the carriage of goods.

MSC Mediterranean Shipping Co S.A. v. Airlift Marine Servs. Pvt. Ltd.: Finding NVOCC Liability in Indemnification under its Carrier’s Bill of Lading

• The importance of a carrier’s bill of lading terms was brought into sharp relief in MSC Mediterranean Shipping Co. S.A. v. Airlift Marine Servs. Pvt. Ltd. In the opinion, MSC recovered some $888,000 in damages from Airlift (including attorneys’ fees and disbursements), together with prejudgment interest of some $44,000 measured at the prime rate (3.25% per annum), on the basis of the terms of its service contract and bill of lading.
• In the underlying lawsuit that led to this indemnity action, a worker engaged in unpacking a container of large granite slabs filed suit after suffering serious injuries to his face, right arm and other parts of his body when one of the bundles crushed him as he unloaded a shipping container. Among the entities sued were MSC, the ocean common carrier that transported the cargo, and Airlift, the NVOCC that arranged for the slabs to be carried by MSC.
• The worker had contended that his injuries were caused either by (1) poor packing of the granite slabs, or (2) a defect in the floor of the shipping container, or (3) an unstable chassis supporting the shipping container.
• Notably, Airlift was involved in discovery in the underlying matter, MSC had commenced its indemnity action against Airlift at this time, and MSC had “tendered the defense” of the underlying claim or requested that Airlift approve the settlement.
• Where litigation falls within the scope of an indemnity provision and the indemnitor does not defend the indemnitee or approve of the indemnitee’s settlement despite having a meaningful opportunity to do so, the indemnitee may recover so long as the indemnitee was only “potentially liable” in the case.
• Here, by giving Airlift (the indemnitor) an opportunity to approve of the proposed settlement or a meaningful opportunity to assume the defense, MSC (the indemnitee) lowered the standard of proof required to obtain indemnification from actual liability to potential liability.
• After settlement, MSC sought indemnification from Airlift for recovery of the amount paid ($755,000) in settlement, and Airlift was found liable to fully indemnify MSC under MSC’s bill of lading, which was incorporated by reference into Airlift’s service contract with MSC.
• There were two key terms from MSC’s bill of lading at issue in the case:
• Clause 11.2 provides in relevant part that if a container has not been packed by or on behalf of MSC, then MSC will not be liable for “loss of or damage to the Goods caused by: (a) the manner in which the goods have been packed, stowed, stuffed or secured in the Container. . .”
• Clause 11.4 provides in relevant part that “The Merchant [which included the Airlift entity listed as Consignee] shall indemnify the Carrier [MSC] against any loss, damage, liability or expense whatsoever and howsoever arising caused by one or more of the matters referred to in clause 11.2, including but not limited to damage to Container, other cargo and the Vessel.”
• In its opinion, the Court rejected each of Airlift’s arguments seeking to avoid liability under these clauses – which provided MSC with broad indemnification for damages suffered in connection with the carriage of goods under the circumstances of this case.
• First, Airlift argued that the bill of lading was no longer applicable, because the injury occurred after the container had left the port of New York City. In the underlying case, the injury occurred during unloading of the slabs at the importer’s facility in Tinton Falls, New Jersey.
• The Court found that the terms and conditions in the bill of lading, including the indemnity provision, continued to apply such that Airlift had an indemnity obligation even though the Goods had already left the port of discharge.
• Second, the Court rejected a narrow reading of the contractual indemnity provided under the bill of lading, finding that an express contractual indemnity may be interpreted using “usual rules of contract interpretation” and that public policy arguments or other principles of the common law of indemnity were inapplicable to the interpretation of the bill of lading’s terms.
• As such, the Court found that “any loss, damage, liability or expense” included personal injury claims from poorly packed containers. Reading clauses 11.2 and 11.4 together, the Court found that to be within the scope of an indemnification obligation against “any . . .liability. . .whatsoever or howsoever arising caused by” “the manner in which the Goods have been packed, stowed, stuffed, or secured in the Container.”
• The Court also found that the underlying testimony established that poor packing was a major cause of the accident, meaning that the indemnification clause applied; and that MSC had nonetheless established potential liability in light of the conflicting testimony about the condition of the container floor and whether that defect played a role in causing the worker’s injuries.
• Finally, Airlift also argued that insofar as MSC’s liability stemmed from its own negligence, it was outside the scope of the indemnity agreement.
• The Court rejected this because it stated that MSC had settled the matter at least in part due to the poor packing of the slabs, which the Court found had caused the worker’s injuries.
• Perhaps more notably, the Court also found that the terms of MSC’s bill of lading did indemnify MSC for damages resulting from its own negligence for the matters covered, due to the breadth of the language of clause 11.4, covering “any loss, damage, liability or expense whatsoever and howsoever arising.”