Does a Shipper Have Duty to Obtain Sufficient Insurance for Goods?

In a dispute over artwork lost in transit, a New York federal judge has ruled that FedEx Ground was liable to the artist for the lost works but that federal law caps its damages at the value placed on the artwork by the gallery that shipped the paintings, which was $1,000.

In the same ruling, the judge faced the question of whether the party that arranged for the shipping, in this case Art Village Gallery, had a duty to obtain adequate insurance on the artist’s works when it arranged to ship them to him.

U.S. District Judge Jesse Furman noted that some court opinions in New York indicate there is a duty on a shipper to obtain adequate insurance while others indicate there is no such duty. However, the judge refrained from passing judgment on that insurance question in this case. Instead, he recommended that the artist and art gallery settle the matter without tackling that question because the costs of litigation over it would likely exceed the $12,000 value of the artwork that was lost.

Artist Nonye Ikegwuoha consigned several of his works of art to Art Village Gallery for sale. When some of the artwork did not sell, Ikegwuoha asked Art Village and its owner to return the artwork to an address in New York using “any of the courier services.” The gallery used FedEx Ground for the shipping, but an office manager at the New York address refused delivery. The artwork has not resurfaced.

In his action, Ikegwuoha sought damages from FedEx and the art gallery for the loss of his art. Ikegwuoha originally filed in state court but FedEx had the case removed to federal court on the grounds the negligence claims against it were preempted by the Carmack Amendment to the Interstate Commerce Act of 1887. Both parties sought summary judgment.

On the FedEx forms, the art gallery owner declared a value of $1,000 for the artwork and later testified that “the gallery normally does not procure insurance when shipping” but, in this case, “asked for the maximum amount of insurance . . . out of an abundance of caution.”

Independent contractors acting as agents of FedEx attempted to deliver the artwork to the address that Ikegwuoha had provided, but a manager rejected the delivery because it was “too large.” The artwork has since disappeared. Ikegwuoha testified that the gallery owner “wasn’t responding for about a month” and that FedEx “repeatedly informed” him that Art Village was the shipper and needed to act. The gallery owner testified that FedEx had informed her that it was going to return the artwork to Art Village but never did so. FedEx testified that it could not locate the package.

The judge found that FedEx Ground is “plainly correct” that Ikegwuoha’s claims against it are subject to the Carmack Amendment. FedEx Ground is a well-known motor carrier and courts have held that it qualifies for coverage under the Carmack Amendment for conduct like that alleged in this case involving the interstate transportation of goods. That is true even though FedEx Ground enlisted “third parties” to conduct the actual delivery because the “third parties” were independent contractors acting as its agents.

At the same time, the judge found that Ikegwuoha was entitled to summary judgment on his claims against FedEx. Indeed, FedEx did not and could not dispute that Ikegwuoha has established a prima facie case of liability by demonstrating that the artwork was delivered to FedEx in “good condition” and that it was then lost. Also, FedEx proffered no defense to liability under the Carmack Amendment, except to argue its damages should be capped at $1,000 because that was the declared value of the shipment.

Accordingly, the court granted summary judgment to Ikegwuoha on his claims against FedEx, but held that he was entitled to only $1,000.

The court then turned to the claims against the art gallery operators that primarily concerned whether they exercised reasonable care in their handling of Ikegwuoha’s artwork and whether they had a duty to insure it.

The judge explained that given the resolution of the claims between Fed Ex and Ikegwuoha that fell under his court’s original jurisdiction, there was a question whether the court could or should exercise jurisdiction over Ikegwuoha’s claims against the art gallery since the parties had not cited any basis for original jurisdiction over those claims.

The judge noted that the balance of factors in this case weighed against exercising supplemental jurisdiction even though the court certainly has discretion to exercise supplemental jurisdiction over the claims, as they are “so related” to the claims against FedEx over which the court had federal question jurisdiction that they form part of the same case or controversy.

Judge Furman decided he would not exercise “supplemental jurisdiction” without briefing on the issue. At the same time, he said he is “mindful that the costs of litigating these issues — not to mention trying the case in the event that the court were to conclude that there were triable issues of fact — are likely to exceed any conceivable recovery by Ikegwuoha.”

For that reason, the judge wrote that the court was “firmly of the view” that Ikegwuoha and the defendants ought to settle their claims rather than litigate them to final judgment — “or, at a minimum, should exhaust all reasonable efforts to do so before incurring greater litigation expenses, let alone going to trial.”

The judge scheduled a telephone conference call for today to discuss the issues with Ikegwuoha and the gallery owner.