Vision Air Flight Service Inc (the appellant) purchased two airport refuelling trucks from a Kansas supplier. In October 1995, Madrigal-Wan Hai Lines Corp (Madrigal) issued a bill of lading to cover the shipment of the trucks. The bill of lading included a clause purporting to limit Madrigal's liability to USD 500 per package pursuant to the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA), and advising the appellant that it could opt for higher carrier liability by paying an increased freight charge. The appellant declined to do so, instead insuring the trucks with an independent insurance company.

The trucks were carried on Madrigal's vessel, the MV National Pride, and were discharged at Manila, the Philippines, on 17 October 1995. The trucks were damaged during discharge. The appellant sued Madrigal. Madrigal filed a motion for partial summary judgment to limit its liability to USD 500 per truck according to the bill of lading and COGSA. The District Court for the Northern District of California granted Madrigal's motion and issued an order granting partial summary judgment, limiting Madrigal's liability to USD 1,000.

The appellant contended that the District Court's grant of partial summary judgment was erroneous on two grounds. First, the appellant argued that the limitation of liability provision in the bill of lading was invalid because it failed to give adequate notice that liability was limited under COGSA. Second, the appellant maintained that Madrigal's manner of discharging the trucks constituted an unreasonable deviation, rendering COGSA's liability limitation inapplicable.

Held: Appeal partially dismissed, case remanded.

COGSA regulates the terms of international ocean carriage covered by bills of lading. Section 1304(5) of COGSA limits a carrier's liability for loss and damage to goods shipped. However, a carrier may limit its liability under COGSA only if the shipper is given a fair opportunity to opt for a higher liability by paying a correspondingly greater charge: Nemeth v General Steamship Corp Ltd 694 F 2d 609, 611 (9th Cir 1982). The carrier has the initial burden of producing prima facie evidence showing that it provides notice to the shipper that it can pay a higher rate and opt for higher liability: Royal Insurance Co v Sea-Land Service Inc 50 F 3d 723, 726 (9th Cir 1995). A carrier can satisfy this initial burden by legibly reciting the terms of §1304(5) of COGSA or language to the same effect in the bill of lading. The burden then shifts to the shipper to prove that it was denied such an opportunity.

In this case, because the bill of lading explicitly limits Madrigal's liability and invites the appellant to opt for higher liability, it provides the notice that COGSA requires. Thus, Madrigal has made its prima facie showing, and the burden shifts to the appellant to prove that it was denied such an opportunity. Having been notified in the bill of lading that it might opt for higher liability, the appellant declined to declare ad valorem value and pay additional freight. Instead, it chose to insure the cargo with an independent insurance carrier. This decision in and of itself demonstrates that the appellant knew that the carrier's liability was limited by COGSA and made a conscious decision not to opt out of the liability limitation.

The appellant further argued that the bill of lading improperly attempted to limit liability to USD 500 for the shipment of both trucks by defining the two trucks as one 'container'. Because COGSA only permits a limitation of USD 500 per customary freight unit and each truck is a customary freight unit, the bill of lading was rendered void by § 3(8) as an attempt to reduce liability below the floor set by COGSA. The gist of the appellant's argument is that any language in the bill of lading that purports to reduce liability below the floor set by COGSA voids the entire limitation of liability clause, regardless of notice, and renders COGSA inapplicable. This is not the law. If a limitation of liability provision in a bill of lading merely misdefines a 'package' or 'customary freight unit' under COGSA, that does not void the limitation of liability provision altogether and render COGSA inapplicable. Rather, COGSA's limitation of USD 500 per 'package' or 'customary freight unit' simply applies to each package or customary freight unit, properly defined: see All Pacific Trading Inc v M/V Hanjin Yosu 7 F 3d 1427, 1433 (9th Cir 1993). Therefore, the District Court did not err in holding that the bill of lading properly invoked COGSA's liability limitation.

The appellant further argues that even if the limitation of liability provision in the bill of lading is valid under COGSA, it is rendered void under the doctrine of unreasonable deviation, because the damage to the trucks was intentionally caused. Although the evidence might be sufficient to demonstrate that damage was likely, or even substantially certain to occur, it provides no basis to conclude that the stevedores had any belief that such was the case. It does not support a finding of intent with respect to the first truck, because it would not allow a rational trier of fact to draw an inference as to the stevedores' state of mind. The same, however, cannot be said with respect to the second truck. The severe damage to the first truck that resulted from offloading was visible upon removal of the cable strapping as the truck sat on the pier. Nevertheless, the stevedores proceeded to offload the second truck in precisely the same manner as the first. Because the uncontroverted evidence suggests that the stevedores were aware of the damage their chosen method of offloading inflicted on the first truck, a rational trier of fact might very well conclude that they knew that the second truck would suffer the same fate with substantial certainty.

COGSA imposes upon carriers certain affirmative duties designed to ensure the safe transport of cargo, the breach of which results in liability for loss or damage to cargo. Following the enactment of COGSA, there were some questions as to whether the language of § 1304(5), which limits liability to USD 500 'in any event', did away with the doctrine of deviation. The commonly accepted conclusion is that the doctrine of deviation survives the enactment of COGSA, and renders void its USD 500 per package liability limitation when the carrier commits an unreasonable deviation. Nevertheless, courts and commentators agree that the doctrine should be sharply limited, and have displayed a certain hostility towards the expansion of the deviation doctrine, especially in the context of quasi-deviation.

The fact that COGSA allocates liability for many of the risks associated with the shipment of goods by sea does not mean that it operates to allocate every conceivable risk of misconduct. As the misconduct in question becomes more culpable, it becomes more likely that such misconduct might never have been contemplated or anticipated by COGSA. Certain egregious misconduct may be so unreasonable and may fall so far outside the parties' reasonable expectations that it is simply not contemplated.

The intentional destruction of cargo is not a risk that any shipper bargains to undertake, or should expect to bear. The essence of the contract of carriage is that the carrier will transport the shipper's goods from one place to another. Yet this contract is rendered pointless by the carrier's intentional destruction of the goods en route. It is hard to conceive of a more fundamental breach going more to the essence of the contract, or one which more thoroughly frustrates the essential expectations of the parties. Having breached the contract of carriage so fundamentally, the carrier cannot be allowed to invoke the liability limitation which it incorporates.

Thus, the Court concludes that a carrier's intentional destruction of the very goods it contracts to transport constitutes an unreasonable deviation which renders the COGSA's limitation of liability provision inapplicable. The District Court's grant of partial summary judgment as to the first truck is affirmed, but the grant of partial summary judgment as to the second truck is vacated. This action is hereby remanded for further proceedings consistent with this opinion.