In May of 2025, the United States District Court for the Southern District of New York issued a decision in Federal Insurance Co. v. MSC Mediterranean Shipping Co. S.A., that highlights the continuing significance of liability limitations in cargo cases and underscores why subrogation professionals must scrutinize every bill of lading.[1] Chatham Imports, Inc. purchased shipments of mezcal liquor to be carried from Mexico City to New York via Veracruz. MSC Mediterranean Shipping Company, a multimodal common carrier, was contracted to transport the cargo. When shortages and losses occurred, Chatham’s insurer, Federal Insurance Company, paid the claims and brought subrogation actions against MSC in three consolidated lawsuits.
MSC responded with a motion for partial summary judgment, arguing that its liability was capped at $500 per package under the Carriage of Goods by Sea Act.[2] The controversy centered on how to define the term “package” in this context: was each of the 2,016 individual cases of liquor a separate package, or was each pallet containing multiple cases the “package” for purposes of COGSA’s limitation? The judge granted MSC’s motion, holding that each pallet, not each individual case, was a package under COGSA. Although the bill of lading listed 2,016 cases, MSC’s terms and conditions—incorporated by reference in the contracts of carriage—defined “package” to include any “palletised and/or unitised assemblage of cartons,” regardless of whether the pallet was listed on the face of the document. Because Chatham had not declared the nature and value of the goods in the bills of lading, Federal, as subrogee, was bound by the $500-per-pallet limitation. MSC’s liability was therefore capped at $30,000 (60 pallets × $500). The court further emphasized that incorporated terms and conditions—whether found on the reverse side of a bill of lading or on a carrier’s website—are enforceable, even if not physically delivered to the shipper, provided the bill of lading expressly incorporates them. Federal itself had relied on a forum selection clause contained in those terms, undermining its argument that the conditions were not binding.
The decision is a reminder that in cargo litigation, documentation is everything. Bills of lading, waybills, and shipping instructions are not boilerplate paperwork; they are binding contracts that define liability and allocate risk. Courts will give effect to incorporated terms and agreed definitions, even when they drastically reduce recoverable damages. For insurers pursuing subrogation, a $500-per-package limitation can turn a six-figure claim into a recovery of only a few thousand dollars. The case also illustrates the challenges of marine cargo subrogation. While the Carmack Amendment, 49 U.S.C. § 14706, imposes strict “full actual loss” liability on inland carriers, ocean shipments are governed by COGSA, which codifies carriers’ ability to limit liability to $500 per package or per customary freight unit unless a higher value is declared. Shippers and insurers who fail to declare value or negotiate liability terms are left to absorb much of the loss through their own insurance.
The complexity of cargo claims cannot be overstated. Damages to and losses of cargo transported through interstate commerce constitute a large portion of insurance claims annually, and an even larger portion of subrogation dollars which are not realized or recovered. Carriers have developed a sophisticated body of law and practice to limit their liability, and cargo subrogation remains a fertile ground for defenses. A few key principles stand out. Bills of lading serve as receipts, evidence of title, and contracts of carriage, and courts will hold shippers and insurers to their terms. The Carmack Amendment governs interstate surface shipments and makes carriers “virtual insurers” liable for full actual loss, subject to limited defenses, while COGSA applies to ocean carriage and allows liability caps at $500 per package. Determining what constitutes a package under COGSA has been the subject of extensive litigation. In Mapfre Atlas Compania de Seguros S.A. v. M/V LOA, a container with 989 pieces of cargo was held to be a single package, limiting recovery to $500.[3] In Allied Int’l Am. Eagle Trading Corp. v. S.S. Yang Ming, pallets were treated as packages where the bill of lading described them that way.[4] Courts routinely enforce carrier terms incorporated by reference, even when the shipper never physically received them. To recover under COGSA, a claimant must show cargo was delivered in good condition and discharged in damaged condition, after which the burden shifts to the carrier to show due diligence or statutory defenses. If the carrier cannot apportion damages between covered and excepted causes, it is liable for the full loss.
The Federal Insurance case is instructive for insurers and subrogation counsel. Every bill of lading should be reviewed closely, including incorporated terms, website references, and back-page conditions. The applicable statute must be identified, since Carmack and COGSA impose very different liability standards. Shippers should be educated about declaring value or obtaining cargo insurance for high-value goods. While courts enforce clear limitations, carriers must still satisfy statutory prerequisites to limit liability, as illustrated by Hughes v. United Van Lines, Inc., where the 7th Circuit articulated a four-part test for limiting liability under Carmack.[5]
That court said that the four steps a carrier must take to limit its liability under the Carmack Amendment are:
(1) maintain a tariff within the prescribed guidelines of the Interstate Commerce Commission [ICC];
(2) obtain the shipper’s agreement as to a choice of liability;
(3) give the shipper a reasonable opportunity to choose between two or more levels of liability; and
(4) issue a receipt or bill of lading prior to moving the shipment.
Following the enactment of the Trucking Industry Regulatory Reform Act of 1994 and the ICC Termination Act of 1995, however, the first part of the Hughes test is no longer applicable. And because cargo claims are subject to strict time limits—often nine (9) months to file and two (2) years to sue—subrogation professionals must act quickly to preserve claims.
The lesson of Federal v. MSC is that recovery in cargo claims often turns not on the value of the goods but on the words of the bill of lading. For insurers and subrogation professionals, success depends on mastering the interplay of Carmack, COGSA, and contract terms, and on anticipating the defenses carriers will deploy. In cargo subrogation, pallets really can become packages, and a six-figure loss can shrink to $500 in the eyes of the court. The only antidote is vigilance: scrutinizing documents, educating insureds, and staying ahead in the complex world of cargo claims.
For more information on subrogating transportation and cargo losses anywhere in North America, contact Ashton Kirsch at akirsch@mwl-law.com.
[1] Federal Insurance Co. v. MSC Mediterranean Shipping, 784 F.Supp.3d 570 (S.D. New York).
[2] (COGSA), 46 U.S.C. § 30701.
[3] Mapfre Atlas Compania de Seguros S.A. v. M/V LOA, No. 15 Civ. 10106, 2017 WL 3332234 (S.D.N.Y. Aug. 3, 2017).
[4] Allied Int’l Am. Eagle Trading Corp. v. S.S. Yang Ming, 672 F.2d 1055 (2d Cir. 1982).
[5] Hughes v. United Van Lines, Inc., 829 F.2d 1407 (7th Cir. 1987).
