Several weeks ago a thread was started by forum member Mike Newman concerning his frustration over FedEx's refusal to pay anything more than $500 to satisfy his claim for a plasma monitor that was damaged during shipment. As a matter of common sense, it didn't seem fair that FedEx could limit its liability to a paltry $500 on a plasma monitor whose declared value was $5,500 and for which a concomitant shipping premium was paid. Many of you chimed in with similar tales of outrage over the paucity of remedies available to shippers when a carrier damages their delicate AV goods during shipment. I offered to look into the matter for Mike, but cautioned there was a strong possibility that the Airline Deregulation Act would preempt any state law claims and most likely leave the shipper without a remedy beyond the contractual limit specified in FedEx's contract (i.e., the Airbill and the Service Guide).
For those of you with neither the time nor patience to read through the following detailed explanation, here is the short answer: The ADA does indeed apply, and in virtually all cases, preempts state law claims against an interstate carrier. What this leaves a shipper with is a contract claim which is only viable if the carrier breaches one of its own contract provisions. In the absence of such a breach, the shipper is locked into the contractual limits of liability specified in the Airbill and in the Service Guide. For us HT nuts, that means that currently, FedEx's liability is limited to the lesser of your actual damages or $100, unless you declare a higher value, pay an additional charge, and document your actual loss in a timely manner. However, even if your item has a declared value in excess of $100, the highest declared value allowed for FedEx is $50,000 unless your package contains items of "extraordinary value," in which case the highest declared value allowed is $500. Not surprisingly, virtually everything a forum member would ship (i.e., projectors, monitors, audio equipment, etc.) falls within the definition of items of "extraordinary value." Thus, the moral of the story is if you're going to ship via FedEx, and want to be insured for the full value of your item, you must procure insurance above and beyond $500 from a third-party insurer. Also, if you do elect to ship via FedEx an item of "extraordinary value" with a declared value in excess of $500, any increased premium you pay might as well be considered a tip.
Now here is the long version. The Airline Deregulation Act ("ADA"), 49 U.S.C. § 1305, prohibits states from enacting or enforcing any law relating to the rates, routes, or services of any air carrier authorized by the FAA. The U.S. Supreme Court in American Airlines v Wolens, 513 U.S. 219, 115 S.Ct. 817, 826, 130 L.Ed.2d 715 (1995), held that the ADA does not preempt "routine contract claims" against air carriers because of a savings clause made part of the 1958 Federal Aviation Act ("FAA"), 49 U.S.C. App § 1301 et seq. This "savings clause" states that the FAA does not in any way "abridge or alter" existing common law or statutory remedies, but merely adds to them those remedies it makes available. 49 U.S.C. § 40120(c). This clause has been construed to save any federal common law remedies which existed prior to deregulation. Thus, where a claim is for lost or damaged shipments, federal law will control.
That brings us to FedEx's contract language purporting to limit its liability. Under federal common law, carriers may limit their liability to the value of the shipment if (1) the shipper has reasonable notice of the rate structure and (2) is given the option to pay a higher price for greater protection. The federal common law requirement that the carrier give the shipper an option of greater protection in order to limit its liability validly is called the "Released Value Doctrine." Basically, this means that in exchange for a lower shipping rate, the shipper is deemed to have released the carrier from liability beyond a stated amount. However, the shipper is bound by this agreement only if he has reasonable notice of the rate structure and is given a fair opportunity to pay a higher rate in order to obtain greater protection. For our purposes, not much discussion is required concerning the shipper's reasonable notice of the rate structure. FedEx prints its liability limitation information on the back of its Airbills and also on its Service Guide. Under such circumstances, the courts have held that limited liability provisions are prima facie valid if the face of the contract recites the liability limitation and the "means to avoid it." The burden then shifts to the shipper to prove that it did not have a "fair opportunity" to purchase greater liability coverage.
That brings us to the second prong of the test. Courts have found the "fair opportunity" requirement satisfied where the carrier offers the shipper a choice of paying a higher rate for greater protection. Virtually every court that has considered this issue has held that by offering the shipper the opportunity to increase the amount of its coverage to $500 (from the ordinary $100 limit) with the payment of a higher shipping premium, the carrier satisfies this test. Now, the question most likely on all of your minds at this point is: "How can the FedEx rate structure be one that gives the shipper a fair opportunity to pay a higher rate in order to obtain greater protection when the most protection a shipper will ever get is $500 irrespective of the declared value of the shipped item?" Indeed, this is especially true when the $500 limit applies only to goods of "extraordinary value" such as plasma monitors, projectors, etc., which are by definition worth significantly more than that limit. Well, the courts have uniformly held that the option of increasing your coverage from $100 to $500 is sufficient to satisfy the "fair opportunity" test. Also, they seem to agree that the obligation to provide a bona fide alternative that gives greater protection than the lower liability limit does not bar a company from capping the highest valuation for which it would accept liability. FedEx clearly limits its liability both on the back of the Airbill and in its Service Guide when it states that ". . . the highest declared value allowed is $50,000 unless your package contains items of ‘extraordinary value,' in which case the highest declared value allowed is $500." It should also be noted that the Service Guide also states that exposure to losses in excess of the declared value are either assumed by the shipper or transferred to an insurance carrier by the shipper through the purchase of an insurance policy. The Service Guide also expressly states that FedEx does not provide insurance coverage, and that if the shipper desires such coverage, he or she should contact his own third-party insurance agent.
So that's quite literally, the long and the short of it. Govern yourself accordingly.