Appeals Court Upholds UPS "3rd Party" Suit Against Airline for Compensation

Engine Damaged During Air Transport, Shipper Got $120K from Insurer

In November 2004, Air New Zealand Engineering, Ltd. contracted Menlo Worldwide Forwarding, Inc. to ship a turbine aircraft engine from New Zealand to the U.S. Menlo, in turn, contracted Qantas Airways, Ltd. to transport the engine. During transportation, the engine was damaged and the engine's owner filed a claim with its insurer, Chubb Insurance Co., which paid the owner $119,666.62.

Insurer then Sued UPS for Damages on Last Day of 2 Yr Period, UPS Paid $80K

In November 2006, on the last day of the two-year period following the date of the engine's shipment, Chubb brought suit against Menlo’s successor-in-interest, UPS Supply Chain Solutions, Inc., to recover the money it had paid to the engine’s owner. Chubb argued that UPS was liable for the damage to the engine under Montreal Convention Article 35, and UPS agreed to pay Chubb $80,000.

(The Montreal Convention governs the liability of air carriers in the international carriage of persons, baggage or cargo. Under Article 35, the Montreal Convention² states that the right to damages must be brought within a period of two years from the date of the subject aircraft's arrival at the destination.)

UPS Sought 3rd Party Compensation from Airline, but District Court Dismissed as Outside 2 Yr Period

In September 2007, UPS filed a third-party complaint against Qantas, seeking indemnification and contribution (compensation) for sums it had paid Chubb. UPS argued that the engine was damaged as a result of Qantas' negligence and that UPS was not responsible. However, because UPS had not brought claims against Qantas within the two-year statutory period following the engine's shipment, the district court dismissed UPS’ complaint. UPS appealed.

Appeals Court Overrules District, Says 3rd Party Compensation Not Subject to Time Limit

The Court of Appeals stated that Article 35 only extinguishes "the right to damages" and because UPS's claims against Qantas do not assert such a right, they are not affected by Article 35. The Court ruled that an action between carriers for indemnification or contribution is premised on the “right of recourse,” rather than the “right to damages,” and therefore Article 35’s statute of limitations does not apply but is, instead, governed by local law. The Court therefore reverses the district court's judgment and remands the case for further proceedings not inconsistent with this opinion.

(Qantas had argued that Article 35 of the Montreal Convention is substantially identical to Article 29 of the Warsaw Convention and that because the Warsaw Convention superseded the Montreal Convention, the court must follow pre-Montreal Convention precedent to interpret Article 29. Qantas cited preceding cases that applied third party actions for indemnity and contribution under Article 29. However, the court stated that it followed a Canadian Supreme Court ruling that Article 29 of the Warsaw Convention does not apply to suits brought by one carrier against another.)

¹Menlo Worldwide Forwarding was acquired by UPS Supply. This case's full title is: Chubb Insurance Company of Europe S.A., v. Menlo Worldwide Forwarding, Inc., v. UPS Supply Chain Solutions, Inc., v. Qantas Airways Limited.

²Indemnity refers to the compensating, or reimbursing a victim of loss to the position as if the event of loss had not occurred.

(DN 08-55281, filed 02/10/11)