The Problem: Shipment destroyed in transit.
The Key Point: Following a breach of contract, the injured party is entitled to be made whole.
The Solution: Recognize a receiver’s right to recover the destination market value of the lost product.
Question: We are a truck broker with offices throughout most of the United States. Recently we had a shipment that was destroyed in transit. The carrier’s insurance policy covered the replacement cost of the product, excluding the deductible, but our customer, a wholesaler, is also seeking its lost profit based on the USDA’s Market News service reports. Are they entitled to this? After all, they avoided the expense of having to sell this product, right? Please advise.
Answer: Although insurance policies typically only cover the replacement cost of the product, the shipper’s claim is not limited by the carrier’s policy. The shipper (i.e., your customer) is entitled to be made whole, and because this cargo was known to be for immediate resale, the shipper is not made whole unless it recovers the destination market value of the product in question—which, in theory, includes the profit it would have made had the product been delivered as contracted, and which may be determined with reference to the USDA’s Market News report for the commodity, date, and market in question.
While it’s true that your customer may have avoided some handling expenses as a result of the breach, it is also possible their best customer sourced product from their competitor as a result of the carrier’s failure to deliver as contracted. The idea that the injured party is entitled to be made whole is best thought of as a theory, rather than an attempt to assess the actual financial impact of the breach in question.
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