Question

Liberty Machinery shipped 200 crates of gears by DD Carriers, a common carrier. DD offered Liberty a shipping rate of $1,000 for a limited liability of $25,000 or a rate of $5,000 for full liability for any harm to the gears. Liberty chose the $1,000 rate. In transit, DD Carrier's driver had a accident during an snowstorm and all of Liberty's goods were destroyed, causing a loss of $100,000. If Liberty sues DD Carriers ________.

Answer 1

Based on Liberty Machinery's choice of limited liability shipping with DD Carriers, the likely recoverable damages in a lawsuit will be limited to $25,000. This is analogous to an insurance model where premiums are set based on a collective estimation of risk and potential damage.

Step-by-step explanation:

If Liberty Machinery sues DD Carriers, the outcome of the litigation would likely depend on the terms of the carrier's limited liability clause chosen by Liberty. Liberty selected a shipping rate with a limited liability of $25,000, thus if the contract is upheld in court, Liberty may only be entitled to recover that amount despite the actual losses amounting to $100,000. Common carriers often offer such limited liability options as a means to limit their financial exposure in case of damages or loss, similar to the way insurance companies calculate premiums based on risk assessment. Using the example provided, if 100 drivers each pay a premium to cover the anticipated total damage for the year, it reflects how businesses like DD Carriers assess the costs and premiums for their services. In this situation, Liberty's choice to opt for lower cost but also lower coverage limits their recovery in such an accident.