American National Fire Insurance v. Yellow Freight Systems, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-1639 and 02-1741
AMERICAN NATIONAL FIRE INSURANCE
COMPANY, as subrogee of TABACALERA
CONTRERAS CIGAR COMPANY,
Plaintiff-Appellee/
Cross-Appellant,
v.
YELLOW FREIGHT SYSTEMS,
INCORPORATED,
Defendant-Appellant/
Cross-Appellee.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3622—Samuel P. King, Judge.
____________
ARGUED OCTOBER 16, 2002—DECIDED APRIL 10, 2003
____________
Before COFFEY, RIPPLE and WILLIAMS, Circuit Judges.
RIPPLE, Circuit Judge. American National Insurance Com-
pany (“National Insurance”), as subrogee of Tabacalera
Contreras Cigar Company (“Tabacalera”), brought this
action under the Carmack Amendment, 49 U.S.C. § 14706,
seeking damages from Yellow Freight Systems, Inc. (“Yel-
low Freight”). It alleged that a shipment of cigars entrusted
2 Nos. 02-1639 and 02-1741
to Yellow Freight was damaged in transit. After a bench
trial, the district court awarded damages including freight,
taxes, fees, insurance and prejudgment interest to National
Insurance. Yellow Freight now appeals the district court’s
rulings that National Insurance made out a prima facie case
under the Carmack Amendment, 49 U.S.C. § 14706, that
none of the excepted causes under the Carmack Amend-
ment were proven by Yellow Freight, and that the dam-
aged cartons were part of the shipment at issue in the case.
Yellow Freight also appeals the district court’s award of
freight, taxes and insurance. National Insurance cross-
appeals the district court’s determinations that the date
of subrogation rather than the date of delivery of the dam-
aged goods is the date of accrual for prejudgment interest
and that prejudgment interest would be simple rather
than compound. For the reasons stated in the following
opinion, we affirm in part and reverse and remand in
part the judgment of the district court.
I
BACKGROUND
Tabacalera imports cigars from the Dominican Republic.
In April 1998, it imported a shipment of 200,000 cigars
contained in 118 cardboard boxes from the Dominican
Republic to Dee’s Cold Storage in Oconomowoc, Wisconsin.
Yellow Freight picked up the shipment in Miami and took
it to Wisconsin. When Yellow Freight’s driver picked up
the shipment in Miami, he noted that some of the card-
board box tops were “set down” or “crunch[ed],” but he
did not consider the cartons sufficiently damaged to in-
dicate that any of the cigars were damaged. Trial Tr. at 306,
297. He saw no indication that any of the cartons were wet.
He signed a clean bill of lading and loaded the shipment
on his truck.
Nos. 02-1639 and 02-1741 3
When the shipment was delivered to Tabacalera at Dee’s
Cold Storage, the top and bottom boxes in the shipment
were wet, and many were crushed. Yellow Freight, when
informed of the damage, sent an adjuster to investigate
and inspect; National Insurance also sent an adjuster. Both
adjusters found extensive damage. The report by National
Insurance’s adjuster inventories the type and lengths of
cigars damaged, and also lists cigars of several lengths.
In contrast, the original packing list for the 118 carton
shipment lists cigars of only two different lengths.
After a bench trial, the district court determined that
National Insurance had made out a prima facie case un-
der the Carmack Amendment, which allows a shipper to
recover from a carrier for actual loss caused by the carrier.
The court further concluded Yellow Freight had failed
to rebut the prima facie case because it had not estab-
lished any of the excepted causes that relieve the carrier
of liability under the Carmack Amendment. See Missouri
Pac. R.R. Co. v. Elmore & Stahl, 377 U.S. 134, 137 (1964)
(explaining that the Carmack Amendment has the effect
of “codif[ying] the common-law rule that a carrier . . . is
liable for damage to goods transported by it unless it can
show that the damage was caused by (a) the act of God;
(b) the public enemy; (c) the act of the shipper himself;
(d) public authority; (e) or the inherent vice or nature of
the goods” (internal quotation marks and citations omit-
ted)); see also Allied Tube & Conduit Corp. v. S. Pac. Transp.
Co., 211 F.3d 367, 369 n.2 (7th Cir. 2000). The district court
held that National Insurance was entitled to the value of
all of the damaged cartons, despite the inconsistency be-
4 Nos. 02-1639 and 02-1741
1
tween the shipping list and adjuster’s reports. The court
also awarded National Insurance damages for freight,
taxes, fees and insurance on the entire shipment. With
respect to prejudgment interest, the district court orig-
inally awarded National Insurance compound interest from
the date Tabacalera received the damaged shipment, but,
upon motion by Yellow Freight, the court modified the
judgment, awarding simple, rather than compound, pre-
judgment interest from the date of subrogation, the date
National Insurance paid Tabacalera for its loss.
II
DISCUSSION
A. The District Court’s Findings
Yellow Freight contends that several of the district
court’s determinations cannot stand. Specifically, it chal-
lenges the court’s determinations (1) that the cigars were
delivered to Yellow Freight in good condition; (2) that
the prima facie case was not rebutted; and (3) that the
damaged cartons were part of the shipment of 118 cartons.
Two basic principles must guide our review of these sub-
missions. First, in reviewing a bench trial, the district
court’s findings of fact “shall not be set aside unless clearly
erroneous.” Fed. R. Civ. P. 52(a). “[R]eview under the clear-
ly erroneous standard is significantly deferential, requiring
a definite and firm conviction that a mistake has been
committed.” Concrete Pipe & Prods. of California, Inc. v.
Constr. Laborers Pension Trust for S. California, 508 U.S. 602,
1
Yellow Freight argued that the inconsistency indicated that
most of the damaged cartons were not on the 118 carton ship-
ment at issue in the case.
Nos. 02-1639 and 02-1741 5
623 (1993) (internal quotation marks omitted). Second, we
review legal conclusions de novo. Cerros v. Steel Techs., Inc.,
288 F.3d 1040, 1044 (7th Cir. 2002). With these principles
in mind, we turn to each of the determinations challenged
by Yellow Freight.
1. The Condition of the Cigars Upon Delivery
This lawsuit arises under the Carmack Amendment, 49
U.S.C. § 14706, which “provides shippers with the statutory
right to recover for actual losses to their property caused
by carriers.” Allied Tube & Conduit Corp. v. S. Pac. Transp.
Co., 211 F.3d 367, 369 (7th Cir. 2000). In Allied Tube, we
noted that:
Pursuant to this statute . . . the shipper establishes
a prima facie case when it shows (1) delivery in good
condition; (2) arrival in damaged condition; and (3)
the amount of damages. Upon such a showing, the
burden shifts to the carrier to show both that it was
free from negligence and that the damage to the car-
go was due to one of the excepted causes relieving
the carrier of liability.
Id.Yellow Freight submits that the district court’s finding
of “delivery in good condition” should be set aside because
the court impermissibly relied on the failure of Yellow
Freight’s driver to note any exceptions to the bill of lading.
Yellow Freight further contends that the bill of lading
cannot establish the “good condition” of the cigars be-
cause the bill of lading stated that Yellow Freight had
received “the property described above in apparent good
order, except as noted (contents and condition of contents
of packages unknown).” Plaintiff’s Ex.3.
6 Nos. 02-1639 and 02-1741
Although “a bill of lading, on its own, may not necessarily
establish a prima facie case that an entire shipment was
received in good order,” Allied Tube, 211 F.3d at 371, a bill
of lading is certainly some evidence of that condition. See
id. Indeed, in its conclusions of law, the district court
specifically stated that: “A carrier’s bill of lading noting
no exceptions (i.e., no indication of damage) regarding
the condition of the shipment constitutes some evidence
that the shipment was received in good condition.” R.35
at 21.
Moreover, a “statement in the bill of lading as to ‘apparent
good order’ [is] prima facie evidence . . . that, as to parts
which were open to inspection and visible, the goods were
in good order at the point of origin.” Hoover Motor Express
Co. v. United States, 262 F.2d 832, 834 (6th Cir. 1959). In
conformity with this principle, the district court found that
the cartons (not the cigars themselves) were open to inspec-
tion and thus the bill of lading was prima facie evidence
that the cartons themselves (but not the contents) were in
apparent good order.
In two cases where a bill of lading stated that the ship-
ment was received in “apparent good order, but that the
contents and condition” of the cargo itself was unknown,
Faribault Woolen Mill Co. v. Chicago, Rock Island & Pacific
Railroad Co., 289 N.W.2d 126, 129 (Minn. 1980), and Reider
v. Thompson, 197 F.2d 158 (5th Cir. 1952), the courts found
that
[w]hen packages are received by the carrier in acknowl-
edged good external condition but are delivered by
the carrier in a damaged or stained condition which
could reasonably and logically be found to indicate
that the discovered damage or deterioration of the con-
tents resulted from the cause indicated by the condi-
tion of the external package, theretofore received in
good condition, the trier of facts may infer from these
Nos. 02-1639 and 02-1741 7
circumstances that damage to the contents was occa-
sioned by the negligence of the carrier in the respect
indicated by the changed external condition of the
package.
Reider, 197 F.2d at 161; see also Faribault, 289 N.W.2d at 129
(same). In Faribault, the court quoted the Reider district
court’s statement on remand that
“[w]hen a consignment is received by a common car-
rier in external good order and condition and delivered
by it in damaged condition, with the external covering
of the goods so damaged as to account for the damage
to the contents, the consignee need not prove the
internal good order of the goods at the time of receipt
by the carrier, and the presumptive liability of the
carrier is established.”
Faribault, 289 N.W.2d at 129 (quoting Reider v. Thompson,
116 F. Supp. 297, 280 (E.D. La. 1953)).
Here, there was testimony by the Yellow Freight driver
that some of the tops were “set down,” but that the con-
tainers were dry, that the use of used cardboard boxes is
not unusual, and that he did not consider the cartons to
be damaged to an extent that would indicate that any of
the freight was damaged. See Trial Tr. at 306, 294-97. The
driver signed a clean bill of lading without noting any
problems to the containers.
On the other hand, there was multiple testimony that,
when the cartons were delivered to Dee’s Cold Storage
for Tabacalera, water came out of the trailer, the top and
bottom cartons were wet, some of the cartons on the bot-
tom had disintegrated, and many boxes were crushed. See
id. at 37-8, 193-98, 271.
Given this evidence, and in light of the case law, the
district court certainly was entitled to find that the cargo,
8 Nos. 02-1639 and 02-1741
damaged upon arrival at its destination, previously had
been delivered to Yellow Freight in good condition. Na-
tional Insurance thus established a prima facie case un-
der the Carmack Amendment.
2. Rebuttal Under the Carmack Amendment
Under the Carmack Amendment, after a shipper has
made out a prima facie case, “the burden shifts to the car-
rier to show both that it was free from negligence and
that the damage to the cargo was due to one of the ex-
cepted causes relieving the carrier of liability.” Allied, 211
F.3d at 369. The excepted causes are “acts of God, the
public enemy, the act of the shipper himself, public au-
thority, or the inherent vice or nature of the goods.” Id.at 369-70 n.2.
Yellow Freight submits that the evidence establishes
that the damage was caused by “the act of the shipper
himself,” specifically, by the shipper’s improper packag-
ing of the cigars in used cardboard boxes rather than in
crates. We believe, however, that the evidence entitled the
district court to conclude that an exception to liability on
this basis was not available to Yellow Freight. The rec-
ord shows that Tabacalera had received millions of cigars
packaged in the same manner that were undamaged. See
Trial Tr. at 171-72. Moreover, the damage found by the
district court was, to a large extent, water damage. Yet,
there was no evidence that the water damage had been
caused by packing the cigars in used cardboard boxes. See
R.35 at 10-11. Rather, the testimony indicated that the
water entered “through one of the seams on the left side”
of Yellow Freight’s truck. Id. at 11; Trial Tr. at 196-97.
Even if the used cardboard boxes contributed to the ex-
tent of the damage once the cartons were wet, Allied re-
Nos. 02-1639 and 02-1741 9
quires that, in order to rebut the prima facie case, Yellow
Freight also must show that it was not negligent. It can-
not make that showing. The water damage was attribut-
able entirely to Yellow Freight’s negligence. The district
court correctly determined that Yellow Freight had failed
to rebut National Insurance’s prima facie case.
3. Whether The Damaged Cigars Were Part of the
Shipment
Yellow Freight next submits that a comparison of the
packing list with the inventory compiled by National
Insurance’s adjuster demonstrates that the cigars in at
least 45 of the 59 cartons claimed to be damaged were not
part of the 118 carton shipment at issue. The original
packing list for the 118 cartons indicates that the cigars
packed are of two types with two lengths. The adjuster’s
recorded inventory of the damaged cigars shows multi-
ple lengths and types of cigars.
Despite this supposed discrepancy, we are not left with
a definite and firm conviction that a mistake was made.
Yellow Freight simply has not carried the burden of dem-
onstrating that the district court’s view of the evidence
has no basis in the record. As pointed out by National
Insurance, Yellow Freight solicited no evidence to show
that the measurements of National Insurance’s adjuster
were incorrect. Nor did it submit any evidence that the
measurements stated on the invoice were correct. Yellow
Freight offered no evidence of how the preparer of the
bill of lading in the Dominican Republic measured the
cigars or recorded the measurements. Indeed, the only tes-
timony concerning the identity of the cigars was from a
Mr. Flaxman, who helped with the damage assessment
of the cigars. He stated those charged with the task sepa-
10 Nos. 02-1639 and 02-1741
rated out the 118 boxes, checked the invoice numbers, and
“verified” that the boxes inspected “did, in fact come off
that trailer that had the 118 cartons.” Trial Tr. at 66.
In summation, the district court committed no error in
concluding that the cigars were delivered to Yellow
Freight in good condition, that the damage was not caused
by the packaging, and that the damaged cigars were part
of the 118 carton shipment at issue. Therefore, National
Insurance was entitled to recover under the Carmack
Amendment.
B. Award of Taxes, Fees, Freight and Insurance
Yellow Freight submits that the district court erred in
awarding National Insurance recovery for taxes, fees, freight
charges and insurance for the damaged shipment.
The Carmack Amendment, 49 U.S.C. § 14706, states that
it subjects a carrier to “liability . . . for the actual loss
or injury to the property.” Id.; see also Allied Tube, 211 F.3d
at 369 (Under the Carmack Amendment, shippers can
“recover for actual losses to their property caused by
carriers.”). As noted by the Fifth Circuit, “[d]espite the
apparent statutory limitation to recovery of damage
caused to the property itself transported,” the Supreme
Court “from its earliest interpretation has consistently
construed the Amendment” as imposing much more. Air
Prods. & Chems., Inc. v. Illinois Cent. Gulf R.R. Co., 721
F.2d 483, 485 (5th Cir. 1983). In the words of the Supreme
Court, the Carmack Amendment is “comprehensive enough
to embrace all damages resulting from any failure to
discharge a carrier’s duty with respect to any part of the
transportation to the agreed destination.” Southeastern
Express Co. v. Pastime Amusement Co., 299 U.S. 28, 29 (1936)
(internal quotation marks and citations omitted). Recover-
Nos. 02-1639 and 02-1741 11
able damages includes damages for delay, see id., lost prof-
its (unless they are speculative), see Camar Corp. v. Preston
Trucking Co., 221 F.3d 271, 277 (1st Cir. 2000), and all rea-
sonably foreseeable consequential damages, see Air Prods.,
721 F.2d at 485.
The Supreme Court’s “ordinary measure of damages” in
Carmack Amendment cases is meant to put the shipper
back in the position it would have been in had the car-
rier properly performed, including recovery for lost profits:
[T]he ordinary measure of damages in cases of this
sort is the difference between the market value of the
property in the condition in which it should have
arrived at the place of destination and its market value
in the condition in which, by reason of the fault of the
carrier, it did arrive.
Gulf, Colorado & Santa Fe Ry. Co. v. Texas Packing Co., 244
2
U.S. 31, 37 (1917). When this measure is employed, the
shipper is still obligated to pay freight to the carrier and
will not be allowed to recover freight in his damages. The
reasoning for this rule is straightforward: The price of the
freight, as well as all necessary costs to the shipper such
as insurance and taxes, will be figured into the market
rate at destination. By receiving the market rate of the
goods had they been undamaged less the market rate
received in their damaged condition, the shipper has
received exactly what he would have received had the
carrier performed non-negligently.
2
If the shipper had previously entered into a contract to sell
the goods, then the contract price rather than the market value
at the place of destination is used. See Gore Prods., Inc. v. Texas
& N. O. R. Co., 34 So. 2d 418, 421-22 (La. Ct. App. 1948).
12 Nos. 02-1639 and 02-1741
This basic rule of damages for cases involving the car-
riage of goods was explained by Judge Wallace of the
Second Circuit:
Presumably the cost of transportation to the place of
destination is an element of the market value of the
goods at that place; and when the shipper recovers
their market value, or upon the basis of their market
value at that place, he obtains full indemnity. As the
shipper thus gets the benefit of the transportation, the
carrier should not lose the freight.
The Oneida, 128 F. 687, 692 (2d Cir. 1904) (Wallace, J.,
concurring) (joining fully the court’s opinion, but writing
separately to explain the court’s rationale); see also The
M.S. Californian, 82 F.2d 283, 283 (2d Cir. 1936) (noting that
the “sale price”—the market value at destination—“in-
cluded cost, insurance, and freight”).
Although written before the passage of the Carmack
Amendment and in the context of admiralty law, Judge
Wallace’s explanation of why freight should be allowed
under some calculations of damages and not under others
is helpful. He explained why a shipper should not re-
cover freight when the measure of damages is the “gen-
eral rule” for cases of goods lost or damaged by the car-
rier. The Oneida, 128 F. at 692 (Wallace, J., concurring).
Judge Wallace’s “general rule” is the same as that ad-
opted by the Supreme Court for Carmack Amendment
cases, namely,
the carrier is liable to the shipper for [the] market
value [of the lost goods] at the point of destination, less
the amount of the freight charges due for their trans-
portation; and the same rule applies where the goods
are merely damaged, and are delivered in their dam-
aged condition, with the qualification that the value
Nos. 02-1639 and 02-1741 13
of the goods in their damaged condition is to be de-
ducted.
Id.; compare id., with Gulf, Colorado & Santa Fe Ry. Co., 244
U.S. at 37 (“[T]he ordinary measure of damages in cases
[under the Carmack Amendment] is the difference be-
tween the market value of the property in the condition
in which it should have arrived at the place of destina-
tion and its market value in the condition in which, by
reason of the fault of the carrier, it did arrive.”).
However, there are instances when freight may be
recovered. The typical case is when the entire shipment
3
is destroyed or useless, but also when the measure of
damages used is the shipper’s cost (as determined by his
cost, the invoice price, or market rate at shipment) less the
market rate as damaged. As explained in an annotation
on the subject, although freight charges would not be
4
recoverable under “the ordinary damage rule” discussed
above, an alternative approach requires another treatment
of freight charges:
3
See Marquette Cement Mfg. Co. v. Louisville & Nashville R.R.
Co., 406 F.2d 731, 731-32 (6th Cir. 1969); Contempo Metal Furni-
ture Co. of California v. E. Texas Motor Freight Lines, 661 F.2d
761, 764 (9th Cir. 1981).
4
The annotation explains that “the ordinary damage rule . . .
measures the recovery by the difference between the market
value for sound goods at destination on the date when the
goods should have arrived and the actual amount received on
sale of the damaged goods, no allowance is made whereby the
shipper can recover his freight expense.” Annotation, Validity
and Effect of Provision in Carrier’s Contract as to Time, Method, or
Place of Valuation of Property for Purposes of Determining Amount
of Damages, 83 L. Ed. 867, 879 (1939).
14 Nos. 02-1639 and 02-1741
[T]he rule apparently is that, under bills of lading
providing that loss or damage shall be computed at
the value or cost of the goods or property at the time
and place of shipment, the carrier is not entitled to
have the amount of the freight deducted from the
value as ascertained under the contract, or, in other
words, that the freight, if paid, should be added to
the value at the time and place of shipment.
Annotation, Validity and Effect of Provision in Carrier’s
Contract as to Time, Method, or Place of Valuation of Property
for Purposes of Determining Amount of Damages, 83 L. Ed. 867,
877 (1939).
The reason for including freight in the measure of dam-
ages when the shipper’s cost (or the market value at place
of shipment) is employed as the starting point is that
the Carmack Amendment allows recovery of lost profits
under the ordinary measure of damages. When the ship-
per’s costs are used, however, the profit is unknown.
We can assume, however, that the shipper at least would
have been able to recover in the market at destination
his freight, taxes, fees and insurance in addition to the
price he paid for the commodity. Thus these items can be
recovered (or added to the value) when the measure of
damages is the cost to the shipper less the value of the
damaged goods.
A rule allowing freight to be recovered when the value
is determined by the shipper’s cost (or the value at the
place of shipment) but not allowing freight to be recov-
ered when value is determined by the market rate if undam-
aged at destination comports with the Carmack Amend-
ment decisions. For example, in Pennsylvania Railroad Co.
v. Olivit Brothers, 243 U.S. 574 (1917), the Supreme Court
stated:
Nos. 02-1639 and 02-1741 15
[I]t was agreed at the trial that the proper measure
of damages was to be computed upon the basis of the
value of the property at the place and time of shipment
and that such measure should be read into all of the
bills of lading. As plaintiff further says, to recover the
damages sustained by it based upon this value, plain-
tiff must receive from defendant the difference be-
tween this value and the proceeds of the sale, and the
freight paid. In this we concur, and therefore there
was no error in including in the recovery such freight.
Id. at 586 (emphasis added); Allied Tube, 211 F.3d at 369 n.1
(noting that the damages were “the cost of the shipment . . .
plus Allied’s shipping costs . . . minus the shipment’s
salvage value”); see also Albion Elevator Co. v. Chicago & N.
W. Transp. Co., 254 N.W.2d 6, 18 (Iowa 1977) (“[W]here
a shipper, as here, receives only the point of shipment
value of the lost commodity rather than its destination
value, a measure of damages which permits him to re-
cover freight charges paid on the lost portion of the ship-
5
ment as compensation for his ‘full actual loss’ is proper.”)
5
The case relied on by Yellow Freight for the proposition
that the shipper cannot recover freight is not to the contrary. In
W. A. Stackpole Motor Transportation, Inc. v. Malden Spinning &
Dyeing Co., 263 F.2d 47 (1st Cir. 1958), after espousing the rule
that the “ordinary” measure for recovery is the market value of
the property undamaged at destination less the market value
as damaged, the First Circuit stated that
[n]o clear, fully reasoned authority has been cited to us, nor
have we found any, to support the general proposition
that the lawful holder of a bill of lading is entitled to pre-
paid freight in addition to his ordinary damages as mea-
sured above. Indeed, to allow recovery of prepaid costs of
cartage in addition to damages measured by the ‘ordinary’
(continued...)
16 Nos. 02-1639 and 02-1741
In this case, the district court did not use the regular
measure, which in and of itself is not problematic. See
5
(...continued)
yardstick as stated above would more likely than not . . . give
the shipper more than recovery for his full actual loss,
damage or injury at the expense of the carrier.
Id. at 51 (emphasis added and citations omitted). Thus, the
case stands merely for the proposition that when damages
are measured by the ordinary rule, then recovery of freight
should not be allowed. As previously discussed above, this is
so because the shipper already received compensation for his
freight paid by receiving the market value at destination.
In W. A. Stackpole, the First Circuit explained that it was
borrowing its rule of no recovery of freight from maritime
law, and while it was “not aware of any cases applying this rule
of maritime law in cases involving the carriage of goods on
land . . . we see no reason why that rule should not apply on land
as well as at sea.” Id. (citing to Judge Learned Hand’s state-
ment of the rule in admiralty in Alcoa Steamship Co. v. United
States, 175 F.2d 661, 663 (2d Cir. 1949)). However, the rule
that when damages are computed by the “loss at the value or
cost of the property at the place of shipment” then, conse-
quently, “the shipper should not lose the amount paid for
freight” has been called “a rule which has long been estab-
lished in the admiralty courts.” The Oneida, 128 F. at 691-92; see
also The Asuarca, 13 F.2d 222, 223 (S.D.N.Y. 1924) (“In conse-
quence of what seems to have long been the law of this cir-
cuit, I hold that libelant’s damages should be the invoice value
of the damaged goods plus the freight paid thereon”); Anchor
Line v. Jackson, 9 F.2d 543, 545 (2d Cir. 1925) (Judge Learned
Hand noting that normally when invoice price is the mea-
sure, prepaid freight “becomes part of the value” recoverable;
but not allowing recovery of freight because of a contractual
provision disallowing recovery in the bill of lading).
Nos. 02-1639 and 02-1741 17
6
Illinois Cent. Ry. Co. v. Crail, 281 U.S. 57, 64 (1930). Had the
regular measure been used, National Insurance would
have paid freight but would have received the market
value of the entire shipment of cigars undamaged in Wis-
consin less the market value of the cigars that were salvage-
able in Wisconsin. National Insurance would thus have
recovered the freight, taxes, insurance and fees for the
cigars that were destroyed, but would have still paid
freight, etc., for those cigars that were salvageable.
If National Insurance had received the market value of
the entire shipment at the place of shipment plus the en-
tire freight paid less the market value of the salvageable
cigars in Wisconsin, then National Insurance would have
recovered its freight on the cigars that were not salvage-
able, but would have paid for the freight of the cigars that
were salvageable because the freight and other charges
would have been figured into the market value of the
7
cigars as damaged in Wisconsin.
6
The Supreme Court stated:
There is no greater inconvenience in the application of the
one standard of value than the other and we perceive no
advantage to be gained from an adherence to a rigid unifor-
mity, which would justify sacrificing the reason of the rule,
to its letter. The test of market value is at best but a conve-
nient means of getting at the loss suffered. It may be dis-
carded and other more accurate means resorted to if, for
special reasons, it is not exact or otherwise not applicable.
Illinois Cent. R.R. Co. v. Crail, 281 U.S. 57, 64-65 (1930).
7
The other measure commonly used is the replacement cost
of the damaged goods to the shipper—particularly when the
shipper has not lost a sale, but was able to timely purchase
replacements. See Oak Hall Cap & Gown Co. v. Old Dominion
(continued...)
18 Nos. 02-1639 and 02-1741
The district court followed neither of these well-trodden
paths. Rather, it awarded National Insurance the cost to
the shipper of the cigars destroyed or damaged. Of the
original shipment of 200,000 cigars, for which the ship-
per paid two dollars per cigar, or $400,000, the district
court found that 110,206.5 cigars were damaged or de-
stroyed. It thus awarded damages for the cost to the ship-
per of the damaged cigars of $220,413. Additionally, it
awarded taxes, broker’s fees, freight and insurance paid
for the entire 200,000 cigar shipment for a total of $8,841.
Under this award, National Insurance recovers the freight
and charges for the near 90,000 cigars that were not dam-
8
aged. Although the shipper can recover “all damages
resulting from” the carrier’s negligence, Pastime Amusement,
299 U.S. at 29, the shipper cannot recover more than “the
injury suffered.” Crail, 281 U.S. at 63.
We believe that existing precedent on the measure
of damages requires that National Insurance be allowed
7
(...continued)
Freight Line, Inc., 899 F.2d 291, 296 (4th Cir. 1990); American Tele.
& Tele., Inc. v. Con-Way S. Express, Inc., No. C-95-1472 BZ, 1996
WL 24763, at *2 (N.D. Cal. Jan. 17, 1996); see also Project Hope
v. M/V IBN SINA, 250 F.3d 67, 77 (2d Cir. 2001) (admiralty
case). This measure is appropriate because the freight and
charges for the replacement are included in the price of the
replacement and thus in the damages. Thus the shipper is put
back in the position he would have been in had the carrier
been non-negligent. Additionally, he pays for the freight and
other charges for the portion of the original shipment that
is not damaged.
8
When these cigars are eventually sold, the shipper will recov-
er for a second time the cost of the freight and charges for
the 90,000 good cigars because that will be calculated into the
price.
Nos. 02-1639 and 02-1741 19
to recover the freight, taxes, fees and insurance only for
the portion (55.1%) of the shipment of cigars that was
damaged. See Albion Elevator, 254 N.W.2d at 18 (finding
that permitting shipper “to recover freight charges paid
on the lost portion of the shipment” was necessary to com-
pensate him for the “full actual loss” where he received
“only the point of shipment value of the lost commodity”
(emphasis added)).
C. Date from which Prejudgment Interest Accrues
The district court awarded prejudgment interest to
National Insurance, accruing from the date that National
Insurance paid Tabacalera. National Insurance cross-ap-
peals and submits that, as the subrogee, it is entitled to pre-
judgment interest from the date of the injury to Tabacalera.
The basic purpose of prejudgment interest is to put a par-
ty in the position it would have been in had it been paid
immediately. It is designed to ensure that a party is fully
compensated for its loss. See City of Milwaukee v. Cement
Div. Nat’l Gypsum Co., 515 U.S. 189, 195 (1995); Reyes-Mata
v. IBP, Inc., 299 F.3d 504, 508 (5th Cir. 2002). Consequently,
prejudgment interest typically accrues from the date of
the loss or from the date on which the claim accrued.
See West Virginia v. United States, 479 U.S. 305, 311 n.2
(1987); Guides Ltd. v. Yarmouth Group Prop. Mgmt., 295 F.3d
1065 (10th Cir. 2002). If Tabacalera, the insured, had been
litigating this claim, it would have received prejudg-
ment interest from the date that its injury occurred, the
date that it received the damaged cigars. See, e.g., Searle
Chems. Inc. v. Earl C. Smith, Inc., No. 81 C 6789, 1985 WL
2268, at *1 (N.D. Ill. Aug. 7, 1985) (awarding prejudg-
ment interest in case arising under Carmack Amendment
from “the date of the loss”). National Insurance submits
20 Nos. 02-1639 and 02-1741
that it also is entitled to prejudgment interest from the date
of the delivery of the cigar shipment because Tabacalera
suffered injury on that date and, as the insurer, National
Insurance has the same rights as Tabacalera.
It is settled that, as a general rule, an insurer steps into
the shoes of the insured and “acquires no greater or lesser
rights than those of the insured.” Westchester Fire Ins. Co.
v. Gen. Star Indem. Co., 183 F.3d 578, 583 (7th Cir. 1999);
Am. Nat’l Bank & Trust Co. of Chi. v. Weyerhaeuser Co., 692
F.2d 455, 461 (7th Cir. 1982). However, there is a limita-
tion on the rights of a subrogee that must be taken into
account: The right of subrogation is generally one of
indemnification; consequently, a subrogee “is entitled to
indemnity to the extent only of the money actually paid
by him to discharge the obligation . . . or the value of
the property applied for that purpose.” Maryland Cas. Co. v.
Brown, 321 F. Supp. 309, 312 (N.D. Ga. 1971); see Milan v.
Kausch, 194 F.2d 263, 265 (6th Cir. 1952) (“It is the general
rule in subrogation that the subrogee is to be reimbursed
only to the extent of the amounts paid in discharge of the
obligation assumed by the subrogee.”); Lexington Ins. Co.
v. Baltimore Gas & Elec. Co., 979 F. Supp. 360, 362 (D. Md.
1997); Utica Mut. Ins. Co. v. Denwat Corp., 778 F. Supp. 592,
594 (D. Conn. 1991) (noting that under “traditional princi-
ples” subrogee action “is truly one of indemnification”); see
also 16 Couch on Insurance 3d § 223:85 (2000); 83 C.J.S.
Subrogation § 66, at 613 (2000) (stating that “subrogation
is limited to indemnification or reimbursement”); 46A
C.J.S. Insurance § 1500 (1993); 73 Am. Jur. 2d Subrogation
§ 67, at 599 (2001).
For example, in applying this rule, several courts have
disallowed payment of punitive damages to the subrogee
insurance companies, even though the subrogor could
have received such damages. See Utica Mut. Ins. Co., 778
Nos. 02-1639 and 02-1741 21
F. Supp. at 594; Colo. Farm Bureau Mut. Ins. Co. v. CAT Cont’l,
649 F. Supp. 49, 52 (D. Colo. 1986); Maryland Cas. Co., 321
9
F. Supp. at 312. In a similar vein, but often without ex-
plaining their rationale, several state courts have allowed
prejudgment interest from the date of payment by the
insurance company, rather than from the date of the in-
sured’s injury. See Traveler’s Indem. Co. v. Ingebretsen, 38 Cal.
9
Applying Mississippi law, a federal district court has ruled
that, under the rule that subrogation is limited to indemnity, a
subrogee was entitled to recover neither punitive damages
nor any prejudgment interest. See Employers Ins. of Wausau v.
Dunaway, 626 F. Supp. 1144, 1146 (S.D. Miss. 1986). Similarly,
without comment, the Supreme Court of Colorado reversed
an award of prejudgment interest to a subrogee. See Otis Eleva-
tor Co. v. Maryland Cas. Co., 33 P.2d 974, 978 (Colo. 1934); see
also 46A C.J.S. Insurance § 1500, at 409 (1993) (“The right of
the insurance company to recover interest on the amounts to
which it is entitled has been recognized, and also denied.”).
We cannot accept the view of these courts that a subrogee
cannot receive any prejudgment interest at all. The purpose of
prejudgment interest is to compensate the injured party; and
prejudgment interest is to accrue from the time of the injury. The
insurance company has been deprived of the use of its money
from the time that it paid the insured; it has suffered an injury
because of the wrongdoing of a third party. A district court
does not abuse its discretion by awarding prejudgment interest
to a subrogee on an award against a third party beginning
from the time of the insurance company’s payment to the
insured. Several courts have made such awards. See Traveler’s
Indem. Co. v. Ingebretsen, 38 Cal. App. 3d 858, 862-63 & n.4, 870
(Cal. Ct. App. 1974); Neitlich v. Amica Mut. Ins. Co., 389 N.E.2d
1017, 1019 (Mass. App. Ct. 1979); Texarkana & Ft. S. Ry. Co. v.
Hartford Ins. Co., 44 S.W. 533, 533-35 (Tex. Civ. App. 1897); see also
John Alan Appleman & Jean Appleman, Insurance Law &
Practice § 4103, at 389 (1972).
22 Nos. 02-1639 and 02-1741
App. 3d 858, 862-63 & n.4, 870 (Cal. Ct. App. 1974); Neitlich
v. Amica Mut. Ins. Co., 389 N.E.2d 1017, 1019 (Mass. App.
Ct. 1979); Texarkana & Ft. S. Ry. Co. v. Hartford Ins. Co., 44
S.W. 533, 533-35 (Tex. Civ. App. 1897); see also John
Alan Appleman & Jean Appleman, Insurance Law &
Practice § 4103, at 389 (1972) (“An insurer recovering from
a third party wrongdoer has been held to be entitled to
interest upon the amount of the loss paid from the time of
payment.” (emphasis added)).
National Insurance paid for the property damage to the
cigars caused by Yellow Freight. It does not appear that it
paid for Tabacalera’s loss of its use of money from the
time of the damaged shipment until the time of the insur-
ance payment. Because National Insurance, as subrogee,
is only entitled to indemnity for its payment to Tabacalera,
we believe that the district court did not err in comput-
ing prejudgment interest from the date that National
10
Insurance paid Tabacalera’s claim.
10
In Herbert Rosenthal Jewelry Corp. v. St. Paul Fire & Marine
Ins. Co., 21 A.D.2d 160 (N.Y. App. Div. 1964), the trial court
awarded prejudgment interest to the insurer on the value of
the property for which the insurer had paid, accruing from the
date of the burglary (November 21, 1956) rather than from
the date that the insurance company made its payment (Jan-
uary 3, 1957). See id. at 168-69 (McNally, J., dissenting). The
majority explicitly stated that the insurer had paid the insured
“shortly after the loss occurred.” Id. at 162. The majority ex-
plained that it was allowing the insurer to keep the prejudg-
ment interest (rather than giving it to the insured, who was
party to the action) because (1) the insurer had been deprived
of the money after paying it to the insured and (2) the insured
“has had its money all this time,” id. at 166, that is, the “insured
has had the principal sum all these years, and the interest
(continued...)
Nos. 02-1639 and 02-1741 23
D. Simple Prejudgment Interest
On cross-appeal, National Insurance also submits that
the district court erred in awarding simple rather than
compound prejudgment interest.
As a general rule, the decision whether to award com-
pound or simple prejudgment interest is left to the discre-
tion of the trial court. See Gorenstein Enters., Inc. v. Quality
Care-USA, Inc., 874 F.2d 431, 437 (7th Cir. 1989); EEOC
v. Kentucky State Police Dep’t, 80 F.3d 1086, 1098 (6th
Cir. 1996) (holding in ADEA action that district court did
not abuse its discretion by awarding compound rather
than simple prejudgment interest); Rite-Hite Corp. v. Kelley
Co., 56 F.3d 1538, 1555 (Fed. Cir. 1995) (holding in pa-
tent litigation that district court did not abuse its discre-
tion by awarding simple rather than compound prejudg-
ment interest). Nevertheless, noting that “ ‘[p]rejudgment
interest is an element of complete compensation,’ ” we have
stated that “compound prejudgment interest is the norm
in federal litigation.” In re Oil Spill by the Amoco Cadiz Off
10
(...continued)
would compensate it for nothing it has lost,” id. at 162. The
majority found that the insurer was entitled to the entire pre-
judgment interest amount; and that the insured was entitled to
none. See id. at 161-62, 168. The dissent argued that the insurer
should be entitled to no prejudgment interest under the terms
of the subrogation agreement and that the insured should re-
ceive it all. See id. at 219-20 (McNally, J., dissenting). To the ex-
tent that the result in this case is inconsistent with the course
we follow today, we believe that the approach followed in
Traveler’s Indemnity Co. v. Ingebretsen, 38 Cal. App. 3d 858, 862-
63 & n.4, 870 (Cal. Ct. App. 1974), is more consistent with the
weight of authority and more compatible with the purposes
of prejudgment interest.
24 Nos. 02-1639 and 02-1741
the Coast of France on March 16, 1978, 954 F.2d 1279, 1331 &
1332 (7th Cir. 1992) (quoting West Virginia v. United States,
479 U.S. 305, 310 (1987)).
The district court originally awarded National Insurance
compound prejudgment interest. See R.35 at 28. Yellow
Freight then moved for a modification of the judgment.
See R.43. Without explanation, the district court “[i]n an
exercise of its discretion” modified its award, “award[ing]
simple interest (not compound interest).” R.49 at 2.
We believe that, absent special circumstances, compound,
not simple, interest ought to be awarded in Carmack
Amendment cases. As we stated in Amoco Cadiz, compound
interest ought to be the norm in federal matters, and we see
no reason why this approach ought not govern in Carmack
Amendment cases. Indeed, because “the purpose of the
Carmack Amendment is to compensate shippers whose
goods are damaged while in the possession of a carrier,”
Oscar Mayer Foods Corp. v. Pruitt, 867 F. Supp. 322, 328
(D. Md. 1994), compound interest seems particularly ap-
propriate. Compound interest generally more fully compen-
sates a plaintiff and so comports with the purpose of the
Carmack Amendment.
Under these circumstances, we cannot allow the award of
simple interest to stand without an explanation from the
district court. Because the district court did not explain
its reasoning for changing the award to simple interest,
we do not know why it believed that simple interest is
appropriate here. Our unease is particularly great because
the only reason given by Yellow Freight during its argu-
ment to the district court was that it should be required
to pay only simple prejudgment interest because “the
traditional, common-law rule is that prejudgment interest
is not compounded.” R.43 at 2 (citing the Restatement
(Second) of Contracts § 354 cmt. a (1981)). If the district
Nos. 02-1639 and 02-1741 25
court sub silentio based its decision on this argument, it
committed legal error. We do not think that our decision
in Amoco Cadiz can be read as permitting such a rationale
to govern in a case based on a federal cause of action. Cf.
Bio-Rad Lab, Inc. v. Nicolet Inst. Corp., 807 F.2d 964, 969 (Fed.
Cir. 1986) (reversing and remanding where district court
relied on inadequate and erroneous reasons for uncom-
pounded low-rate award of interest); Dynamics Corp. of
America v. United States, 766 F.2d 518, 520 (Fed. Cir. 1985)
(reversing and remanding award of simple interest where
rationale was that simple interest was “traditional” even
though there was no clear precedent that delay damages
could not include compound interest). Accordingly, the
district court must revisit this issue and either award
compound interest or explain why a deviation from the
11
norm is appropriate.
11
In so holding, we explicitly decline National Insurance’s
invitation to adopt a general rule that “district courts should
compound prejudgment interest.” Brief of National Insurance
at 41 (citing American Tele. & Tele. Co. v. Intrend Ropes & Twine,
No. 93-2266, 1996 U.S. Dist. LEXIS 16991, at *1 (C.D. Ill. March
20, 1996)). In Intrend Ropes, the district court stated that “the
Seventh Circuit has further instructed that district courts
should compound the interest.” 1996 U.S. Dist. LEXIS 16991, at
*48. The statement in Intrend Ropes is inaccurate in that it is
too broad. Our statement in In re Oil Spill by the Amoco Cadiz
Off the Coast of France on March 16, 1978, 954 F.2d 1279, 1332
(7th Cir. 1992), is limited in that it only discusses awards aris-
ing under federal law and it is a statement of the “norm,” not
of the rule. Agreeing with the Federal Circuit in Rite-Hite Corp.
v. Kelley Co., 56 F.3d 1538, 1555 (Fed. Cir. 1995), we refuse to
adopt a rule that “prejudgment interest must be compounded
as a matter of law.” 56 F.3d at 1555. The Federal Circuit ex-
plained that “the determination whether to award simple or
(continued...)
26 Nos. 02-1639 and 02-1741
Conclusion
For the foregoing reasons, we affirm the district court’s
decision as to all matters except the award of freight,
taxes, insurance and fees, and the award of simple rather
than compound interest. National Insurance is only en-
titled to recovery for freight, taxes, fees and insurance for
the portion of the shipment that was damaged. Further-
more, on remand, the district court must explain its ratio-
nale for changing its award from compound to simple
interest or, in light of this opinion, award compound
interest to National Insurance from the day it paid the
claim and became subrogated to its insured’s cause of
action against Yellow Freight. National Insurance may
recover its costs of this appeal.
AFFIRMED in part, REVERSED in part,
and REMANDED
11
(...continued)
compound interest is a matter largely within the discretion of
the district court” and “Rite-Hite has not persuaded us that
the court abused its discretion in awarding interest at a simple
rate.” Id. However, we do believe that, at least in a federal
question case, a district court must explain why it believes
it appropriate to deviate from the norm of compound interest,
the measure that most completely fulfills the purpose of pre-
judgment interest of ensuring “complete compensation.” West
Virginia v. United States, 479 U.S. 305, 310 (1987). There well
may be countervailing considerations in a particular case
that would make compound interest, or even any interest, inap-
propriate. For instance, if the prevailing party has caused
unreasonable delay in the proceedings and thus artificially
delayed the rendition of judgment, a district court might be
well within its discretion to deny interest or to deny at least
compound interest for some of the period before rendition of
judgment.
Nos. 02-1639 and 02-1741 27
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-10-03