The insurer sought compensation for 2,016 cartons of missing Mexican spirits. A New York court calculated it differently: not by cartons, but by pallets. The difference in the payout: from over a million dollars to $30,000.
Port of Veracruz, Mexico. Three shipments of mezcal—a Mexican distilled spirit—are waiting to be loaded for New York. The buyer is Chatham Imports, an American importer that purchased the goods on ex-works terms. The carrier is Mediterranean Shipping Company (MSC).
During the three voyages, shortages and losses occur. Some of the goods do not arrive. Chatham reports the loss to its insurer, Federal Insurance Company, which pays the claim and—having been subrogated to the rights of the insured—sues MSC to recover the funds.
The case seems straightforward. That is, until someone at MSC’s law firm opens the carriage terms and finds a single sentence that changes everything.
2,016 cartons or 60 pallets
The bills of lading listed 2,016 cartons of mezcal. At a rate of $500 per "package"—the federal carrier liability limit established by the U.S. Carriage of Goods by Sea Act (COGSA)—this would have created a theoretical compensation ceiling of over a million dollars.
MSC filed for partial summary judgment, arguing that it was liable for the pallet, not the carton. 60 pallets times $500. A total of $30,000 for all three shipments.
The crux of the dispute: what constitutes a "package" under the law?
MSC’s terms of carriage—incorporated into the bill of lading by reference, meaning they were binding even though they were not physically printed on the front—defined a "package" as "any palletized or unitized set of cartons," regardless of whether the pallet was explicitly mentioned in the document. Chatham had not declared the nature or value of the goods on the bill of lading, which is the only reliable way under COGSA to avoid the statutory limit.
The Verdict
On May 23, 2025, Magistrate Judge Stewart D. Aaron of the U.S. District Court for the Southern District of New York ruled in favor of MSC. The carrier’s liability in the three consolidated cases was limited to a total of $30,000—60 pallets at $500 each.
Citation: Federal Insurance Co. v. MSC Mediterranean Shipping Co. SA, 784 F. Supp. 3d 570 (S.D.N.Y. 2025).
This was not an isolated incident with a single judge. On March 2, 2026, the Court of Appeals for the Second Circuit—in a similar case, HDI Global Insurance Co. v. Kuehne + Nagel, Inc.—upheld the same legal precedent, ruling that the "pallet as a package" clause was decisive, even though the back of the bill of lading contained a broader, more general definition of "package" and the front of the document listed a specific number of cartons.
However, it is worth noting an important nuance that shows this rule is not automatic. In another parallel case, Alle Processing Corp. v. Mediterranean Shipping Co. (USA), the same court refused to grant summary judgment in favor of MSC. The parties disputed who had requested the palletization of the cargo and in whose interest it was done. The court held that the "for the convenience of the Merchant" clause is an independent condition that must be proven by facts, not just by the wording of the terms and conditions. In other words: a pallet does not always or automatically become a "package"—it depends on who formed it and why.
Why does the $500 limit even exist?
This limit originates from the 1924 Hague Rules and was incorporated into the U.S. COGSA in 1936. It has not been adjusted for inflation since. Five hundred dollars in the 1930s is a fraction of the real value of almost any commercial cargo today.
The system made sense back when goods were transported in individual crates and sacks, and a "package" was a natural, physical unit of cargo. In the era of containers and pallets, carrier regulations—written by the carriers themselves—have a strong incentive to define a "package" as the largest possible collective unit. The larger the unit, the lower the total liability, regardless of how much cargo was actually inside.
This is exactly the mechanism that was at play in this case.
A note for Polish importers: this is not exclusively an American problem.
Important caveat: this specific ruling was based on COGSA—American law, which is typically applied when the port of loading or discharge is in the USA. In the European Union, including Poland, the Hague-Visby Rules usually apply, which are more protective of the cargo shipper.
The key difference: Article IV(5)(c) of the Hague-Visby Rules explicitly states that if the number of packages or units loaded into a container or onto a pallet is listed in the bill of lading, then that number—not the container or pallet itself—counts as the number of "packages" for liability limit purposes. In practice, this means that in Europe, it is harder for a carrier to "hide" 2,016 cartons behind a single pallet definition in their terms and conditions if the number of cartons is stated on the document.
The problem also affects European importers when the transport route—even partially—falls under the COGSA regime: exports to the USA, imports from Mexico or South America via US ports, or transshipments in New York or Los Angeles. The same global carrier may apply different rules depending on which law governs a given leg of the journey.
The moral
In Dark Stories #6, we wrote about how a container can arrive intact, and you still end up paying. Here, the mechanism is the opposite: the container does not arrive intact, and you still receive a fraction of what you are owed—because the definition of a single word in the terms and conditions converted 2,016 cartons into 60 pallets.
A contract of carriage is rarely what you see on the first page of the document. It is what has been incorporated into it by reference—and what someone on the other side of the transaction wrote with the full awareness that you would not read it.
Our previous publications in the "Dark Stories" series
- Why do we need FOB? - Dark Stories #1
- Really CIF? - Dark Stories #2
- EXW as my shield? - Dark Stories #3
- A ticking time bomb in hold number 4 - Dark Stories #4
- To have or not to have copper? - Dark Stories #5
- Your container is intact. You will pay anyway - Dark Stories #6
- Really DDP? — Dark Stories #7
- "Fake carrier fraud" - Dark Stories #8
- Not my wagon, not my fault? — Dark Stories #9
- How a loose cable sank a bridge and cost the shipowner $2.25 billion - Dark Stories #10
- Your cargo. Not your carrier - Dark Stories #11
- Evidence that went under - Dark Stories #12
- Concrete blocks at the price of copper - Dark Stories #13
Sources
- Federal Insurance Co. v. MSC Mediterranean Shipping Co. SA, 784 F. Supp. 3d 570 (S.D.N.Y. 2025) — Magistrate Judge Stewart D. Aaron’s ruling from May 23, 2025 (Justia / FindLaw)
- HDI Global Insurance Co. v. Kuehne + Nagel, Inc., No. 25-cv-531 (2d Cir. March 2, 2026) — Second Circuit Court of Appeals affirmation (NorthStandard, P&I commentary)
- Alle Processing Corp. v. Mediterranean Shipping Co. (USA), Inc. (S.D.N.Y. 2026) — denial of summary judgment, dispute over palletization circumstances (Justia, CMI Database)
- Matthiesen, Wickert & Lehrer S.C. — “When A Pallet Becomes A Package: Lessons from Federal Insurance Co. v. MSC Mediterranean Shipping”
- Holland & Knight — “2026 Snapshot: Has U.S. COGSA Package Limitation Been Reframed?”
- Hague-Visby Rules, Art. IV(5)(c) — rule for counting packages listed in the bill of lading
Factual and legal status as of August 2026. This article presents the findings and reasoning of the courts in the cases described; it does not contain an assessment of any party's conduct. The legal regime governing a specific shipment depends on the route, ports, and bill of lading clauses — when in doubt, it is worth consulting a lawyer specializing in transport law.