While a 45-foot yacht was being unloaded from the cargo ship which had carried it as a deck load from Taiwan to the port of Tacoma, the yacht slipped from its slings and fell into the water. The cargo interests filed an action against the carrier and the stevedores. The case, brought by the Institute of London Underwriters (the appellant) and Ferguson & Co, was tried by the Court on documents and an agreed statement of facts. The issues were whether and to what extent the liabilities of Sea-Land Services Inc (the respondent) and Container Stevedoring Co Inc (the stevedores) were limited under 46 USC ss 1300 ff (COGSA) and the bill of lading. The District Court for the Western District of Washington held that COGSA did not apply to the shipment, because s 1301(c) of COGSA defines goods as wares, merchandise, and articles of every kind, except 'live animals and cargo which by contract of carriage is stated as being carried on deck and is so carried'. In this case, the cradle containing the yacht was stowed on deck. Therefore, the US 500 package limitation of COGSA did not apply since items carried on the ship's deck are specifically excluded from COGSA's package limitation. Instead, the District Court held that the liability of the respondent and the stevedores was limited to USD 500 per customary freight unit (CFU), and that the yacht comprised 45 CFUs. The appellant appealed two aspects of this ruling: first, the finding that the incorporation of COGSA into the bill of lading served to limit liability for damage to the yacht; and second, the finding that the stevedores, in addition to the respondent, benefited from COGSA’s limitation. The respondent and the stevedores cross-appealed the District Court's holding that the yacht comprised 45 CFUs.

The key issue in the resulting litigation was whether the respondent and the stevedore were liable to the shipper for the actual damage to the yacht (as stipulated) or for the USD 500 per 'package' limitation provided for the cargo of undeclared value in the bill of lading.

Held: The appeal is dismissed. The cross-appeal is successful. Judgment to be entered in the amount of USD 500, representing the limitation of liability on a single COGSA package.

The Court held that COGSA, although not mandatorily applicable, was contractually incorporated into the bill of lading covering the shipment. In this circuit, a carrier can limit its liability for cargo damage to USD 500 per package or customary freight unit pursuant to the bill of lading and s 1304(5) of COGSA if the shipper is given a fair opportunity to opt out of that limitation by declaring a higher value, but does not do so. Moreover, if the bill of lading contains an express recitation of the USD 500 limitation (rather than a mere incorporation of COGSA without more), and of the opportunity to avoid that limitation by declaring a higher value and paying additional freight, the bill of lading will constitute prima facie evidence that the shipper was given the requisite fair opportunity. Because the bill of lading constitutes prima facie evidence of the opportunity to avoid the limitation by declaring a higher value, the burden shifts to the cargo interests to prove that the shipper was denied such an opportunity. The burden was not fulfilled in this case.

The determination of whether COGSA’s limitation of liability extends to the stevedores turns on an examination of the Himalaya clause, para 2 of the bill of lading. The Court held that the Himalaya clause is unambiguous, and affirmed the District Court’s holding that the limitation of liability under COGSA extends to the stevedore.

The District Court erred in ruling that the bill of lading's incorporation of COGSA precluded consideration of whether the yacht was a 'package' for limitation purposes, but that COGSA's CFU limitation applied nonetheless. This conclusion overlooked the clause paramount of the bill of lading, which stated that 'defences and limitations of [COGSA] shall apply to goods whether carried on or under deck'. It also overlooked para 17 of the bill of lading, which provided:

In the event of ... damage ... to ... goods exceeding in actual value the equivalent of $500 ... per package, ... the value of the goods shall be deemed to be $500 per package ... . The word 'package' shall include ... cargo shipped on a ... cradle ... .

Plainly, the bill of lading set forth an extended definition of 'package' that included the yacht, which was shipped in an on-deck cradle. The parties have defined what 'package' means in the bill of lading. There is no reason why this specific definition should not prevail over the general term 'package' contained in COGSA. The yacht thus constituted a single package.