Dispute Within the Navy Arising From the Destruction of Two Missile Units

B-195214: Jul 18, 1979

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In accordance with the valuation provisions of the government bill of lading (GBL) contract, the Navy negotiated a settlement with the railroad concerning damages resulting from the destruction of two missile units in a derailment accident. A dispute arose within the Navy, however, as to whether the settlement might be ignored and the railroad prosecuted for the full value of the destroyed missiles on the ground of negligent violations of pertinent safety regulations. In the opinion of GAO, the alleged violations of the railroad safety regulations would not provide a legal basis for overturning the settlement. Should the Navy prevail before the Federal Railroad Administrator, the judgment would be that the railroad was in violation of the railroad safety standards, subjecting it to civil penalties. While this would probably further the case that negligent maintenance of the railyard resulted in the derailment, GAO did not believe that it would abrogate the released value provision of the contract. The stipulation in the GBL limits liability to an agreed valuation which has been made the basis of a reduced freight rate to the government, and the shipper receives consideration in the form of a lower rate for the greater risk he must bear. The government is then estopped because of the valid arrangement from asserting loss or damage in an amount in excess of the declared valuation upon which the rate was fixed. Thus, where a contract of carriage fixes the valuation of a shipment as a stated sum per unit, the limit recovery for loss or damage will control in an action against the carrier for such loss or damage.