Federal Insurance Co (the plaintiff) sued for damage to property destroyed during the inland leg of international multimodal carriage. The plaintiff was the subrogee of the shipper, Text International Pte Ltd (Text International), which contracted with an ocean carrier, APL Co Pte Ltd (APL), to ship goods from Singapore to Alabama. APL subcontracted with Union Pacific Railroad Co (the defendant) for rail carriage inland from San Pedro, California. The defendant’s train derailed, destroying Text International's goods. The plaintiff sued the defendant. The District Court ruled that a covenant not to sue in the through bill of lading required the plaintiff to sue the carrier, APL, rather than the defendant, a subcontractor. On appeal, the plaintiff argued that the covenant not to sue was unenforceable.

Held: Appeal dismissed.

The through bill of lading contains a paramount clause specifying the applicable legal regime. The paramount clause makes 46 USC ss 1300 ff (COGSA) applicable '[f]rom loading of the Goods onto the Vessel until discharge of the Goods from the Vessel', and the Hague Rules applicable '[p]rior to loading onto the Vessel and after discharge from the Vessel'. Because the damage here occurred after discharge from the vessel, the Hague Rules are plainly applicable. The Hague Rules are 'virtually identical' to COGSA for the purposes of this case, so the Court applies precedents interpreting COGSA to the paramount clause's reference to the Hague Rules. The paramount clause here validly extends the Hague Rules to displace the Harter Act. The paramount clause is enforceable.

The through bill of lading's covenant not to sue is also enforceable, because the plaintiff can still seek full recovery from the carrier, APL. The covenant not to sue forces the merchant - here, Text International - to bring all suits against the carrier - here, APL - even for damage caused by a subcontractor like the defendant. This arrangement is lawful under the Hague Rules, which are again 'functionally identical' to COGSA. COGSA prohibits contracts that lessen or relieve the carrier of liability 'arising from negligence, fault, or failure in the duties and obligations provided in this section': s 3(8). The Supreme Court has distinguished between impermissible contracts that reduce the carrier’s obligations and enforceable contracts that affect only the 'mechanisms' of enforcing a shipper’s rights: see Vimar Seguros y Reaseguros SA v M/V Sky Reefer 515 US 528, 535 (1995) (CMI1456). The requirement that all suits be brought against APL is an enforcement mechanism, rather than a reduction of the carrier's obligations to the cargo owner below what COGSA guarantees.

It makes no difference that the covenant not to sue might make it more difficult as a practical matter for the plaintiff to recover damages. The plaintiff may have some unarticulated, practical preference for suing the defendant rather than APL, but it disavowed that preference when it agreed to the covenant not to sue.

The Hague Rules and COGSA permit a carrier to accept exclusive liability for the negligence of its subcontractors: compare Norfolk Southern Railway Co v Kirby 543 US 14, 35 (2004) (CMI1454).