In August 2000, the Pepsi Cola Company (Pepsi) shipped three 40 foot containers of phosphoric acid solution to Port Elizabeth, New Jersey. During the journey, one of the containers was flooded under 10 feet of ballast water, while the two other were partly submerged. On arrival, Pepsi accepted the two containers that had only been partially submerged but rejected the container that had been fully submerged.

As subrogee of Pepsi, Atlantic Mutual Insurance Co Inc (Atlantic) brought suit against CSX Lines LLC (CSX), the CSX Expedition, and Hyundai Mipo Dockyard Co Inc (the defendants), alleging, among others, negligence and breach of contract. The District Court granted summary judgment to the defendants on the ground that Atlantic failed to submit sufficient evidence to establish a prima facie case of liability under the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA).

Atlantic appealed.

Held: Appeal allowed. The District Court's grant of summary judgment is vacated and the case is remanded for further proceedings.

To recover against a carrier for damage to goods shipped under a bill of lading governed by COGSA, a plaintiff bears the initial burden of proving both delivery of goods to the carrier in good condition and that, upon delivery, the goods were damaged. A clean bill of lading creates a presumption of delivery in good condition by the plaintiff. Once the plaintiff establishes a prima facie case, the burden shifts to the defendant to prove that one of the statutory exceptions to liability applies.

The defendants agree that the plaintiff’s cargo was received in good condition. In order to establish damage upon delivery in a COGSA cause of action, the plaintiff must prove that the goods were damaged while in the carrier’s custody, and the damage occurred while the cargo was under the carrier’s control, and not because of any inherent vice of the cargo. Here, the second limb of the test (which focuses on when the cargo was damaged) is not in serious dispute. CSX initially asserted it had been diligent but nonetheless failed to detect the latent defect in the bilge system that ostensibly caused the flooding of hold no 7, but then filed a revised statement in which it acknowledged that 'due diligence was not exercised', thereby admitting fault and leaving open only the question of whether the cargo suffered damage as a result of its negligence.

The loss in market value of a plaintiff’s cargo is the presumptive measure of damages in a suit brought under COGSA. Since loss in market value is the ordinary yardstick of damages in a COGSA suit, evidence of a significantly discounted market value must also suffice to show damage to a plaintiff’s cargo for the purpose of establishing prima facie COGSA liability. Evidence of more than trivial loss in market value - as measured by the difference between: (a) the market value of the goods in question in the condition in which they should have arrived at their destination; and (b) the market value of the goods in the condition in which they actually arrived - is sufficient to prove that a plaintiff’s cargo was damaged upon delivery. And, in itself, such evidence meets the 'damages' requirement for a prima facie case of liability under COGSA.

Atlantic submitted evidence that the 720 pails of Pepsi Free concentrate shipped in the fully-submerged container retained no market value because the concentrate could not, as a practical matter, be sold. Because the defendants accepted responsibility for the circumstances that led to the pails being submerged in ballast water for a prolonged period of time, and because those conditions precipitated the loss of the concentrate's market value (and did so regardless of whether actual contamination occurred) Atlantic has adequately shown, for the purpose of establishing a prima facie case of liability under COGSA that the shipment was 'damaged upon delivery'.