$500 Per Package: But What Is a Package? A Shift in How U.S. Courts Are Answering That Question COGSA Question

The $500 per package liability limit under the US Carriage of Goods by Sea Act is one of the most litigated provisions in American maritime law. It is also one of the most consequential for anyone with cargo moving to or from the United States, because when a carrier invokes it successfully, the gap between what cargo is actually worth and what the carrier owes can be enormous. A container of electronics worth $2 million becomes a $500 claim if the carrier can establish that the container itself is the relevant package. The stakes are not theoretical.

What constitutes a "package" under COGSA has never been defined by the statute itself, a gap that has generated decades of litigation and produced inconsistent results across different federal circuits. A recent decision from the US Second Circuit Court of Appeals, issued in May of this year, signals a meaningful shift in how that question is being answered in New York, the jurisdiction that handles the majority of US maritime cargo disputes. The shift favors carriers, and cargo interests who are not paying attention to it are carrying more liability exposure than they may realize.

The COGSA Package Limitation

The Carriage of Goods by Sea Act of 1936 governs the liability of ocean carriers for cargo loss and damage on voyages to and from the United States. Under COGSA Section 4(5), a carrier's liability for loss or damage to cargo is limited to $500 per package, or in the case of goods not shipped in packages, $500 per customary freight unit. That $500 figure has never been adjusted for inflation since the statute was enacted ninety years ago, a figure that made commercial sense in 1936 bears, but is it still appropriate today?

The limitation is not automatic. To invoke it, a carrier must give the shipper a "fair opportunity" to declare a higher value for the goods and pay additional freight in exchange for full liability coverage. Where that opportunity is genuinely provided and the shipper declines to declare excess value, the $500 per package limit applies. The practical reality is that most shippers do not declare excess value, either because they are unaware of the option, because the additional freight cost is prohibitive, or because they rely on their own cargo insurance to cover the gap. That cargo insurance is then subrogated to the shipper's position for any claim against the carrier, which is why cargo underwriters have a direct stake in how the package limitation is applied.

The Problem COGSA Never Solved: What Is a Package?

The statute limits liability to $500 per package but does not define what a package is. This was not a significant problem in 1936, when most ocean cargo was shipped in clearly identifiable units, barrels, bales, crates, and boxes. The rise of containerized shipping created a definitional crisis that the statute was never updated to address. A container can hold a single item, a hundred cartons, or thousands of individual units. Whether the container itself is the package, or whether the items inside it are the relevant units, determines whether the carrier's liability is $500 or potentially hundreds of thousands of dollars.

US courts developed various approaches to this problem over the decades. The Second Circuit's longstanding baseline position was that what constitutes a COGSA package is largely and in the first instance a matter of contract interpretation, and that the most obvious place to look first for the intent of the contracting parties is the bill of lading. In practice, however, courts frequently defaulted to a more mechanical approach, looking at how cargo was described on the face of the bill of lading, counting the number of packages listed in the packages column, and applying the limit to whatever unit was identified there. Individual cartons listed on the face of the bill were treated as the relevant packages, even when the cargo was consolidated onto pallets or loaded into a container.

This mechanical approach was broadly favorable to cargo interests. If a bill of lading described 500 cartons, the carrier's maximum liability was $250,000 — not $500 for the container. Carriers understood this and responded by attempting to insert specific package definition clauses into their bills of lading that defined pallets, containers, or other consolidation units as the relevant COGSA packages for limitation purposes. The enforceability of those clauses has been the subject of ongoing litigation for years.

What the Court Decided: HDI Global Insurance Co. v. Kuehne + Nagel, Inc.

The recent Second Circuit decision that has drawn significant attention from the maritime bar arose from a straightforward cargo loss. A container holding 24 pallets of goods was loaded in Barcelona, Spain, and went overboard during ocean transit to the United States. The cargo interests, represented in the litigation by their cargo underwriter, HDI Global Insurance, in a subrogated claim, argued that the relevant COGSA packages were the individual cartons described on the face of the bill of lading, which would have produced a substantially higher liability figure. The carrier argued that the relevant packages were the 24 pallets, because the bill of lading contained a specific US clause that defined palletized assemblages of cartons as the relevant COGSA packages for limitation purposes, regardless of what appeared on the face of the bill.

The district court found for the carrier. On March 2, 2026, a three-judge panel of the Second Circuit affirmed in a summary order. The panel agreed that the US-specific clause addressing limitation took precedence over both the general definition on the reverse of the bill and the information appearing on its face. The court also noted that the broader definition of package on the reverse of the bill served functions beyond liability limitation, including customs-related purposes, and therefore did not undermine the effect of the more specific limitation clause. Extrinsic evidence, including the parties' course of dealing and the fact that the cargo was palletized at cargo interests' request and for their convenience, further supported the conclusion that pallets were the intended COGSA packages.

Cargo interests filed a petition for rehearing en banc on March 18, 2026, requesting reconsideration by the full court. That petition was ultimately denied, and the judgment mandate entered after denial of the motion for rehearing, confirming the panel's decision as the operative Second Circuit authority on the point.

What Has Shifted and Why It Matters

The significance of this decision is not that it introduces an entirely new legal principle, the Second Circuit has always said that package definition is primarily a matter of contract interpretation. What it does is give meaningful effect to that principle in a way that earlier decisions did not. By holding that a specific US limitation clause in the bill of lading overrides both the general cargo description on the face of the bill and the broader package definition elsewhere in the document, the court has confirmed that carriers who draft their bills of lading carefully can successfully limit their liability to the pallet or container level even when the face of the bill describes individual cartons.

The practical consequences run in opposite directions for carriers and cargo interests.

For carriers, the decision is a significant win, but only for those who actually have well-drafted limitation clauses in their bills of lading. The decision does not automatically limit carrier liability to pallets or containers across all trades. It limits liability to whatever unit is defined as the relevant package in a specific, clearly drafted US limitation clause. Carriers who do not have such clauses, or whose clause language is ambiguous or inconsistent with other provisions in the bill, will not be able to invoke this decision as authority. The message from the court is that the bill of lading controls, which means carriers who invest in careful bill of lading drafting can control the outcome, and those who do not are still exposed to carton-level limitation claims.

For cargo interests and their underwriters, the decision means that the traditional assumption that carton-level description on the face of the bill of lading will determine the package count is no longer reliable in the Second Circuit. A shipper whose cargo moves under a bill of lading with a specific US limitation clause defining pallets as packages may find that a cargo loss producing a seven-figure claim against the carrier resolves at $500 per pallet — a fraction of the actual loss. The gap between the carrier's liability and the cargo's value is then borne entirely by the cargo insurance policy, which is exactly why cargo underwriters were the claimants in HDI Global in the first place.

What Operators on Both Sides Should Do

For carriers and NVOCCs: review your standard bill of lading terms for US trades, specifically your COGSA package limitation clause. If you do not have a specific US limitation clause that defines the relevant package unit for limitation purposes, or if your existing clause is ambiguous or potentially inconsistent with other provisions in the document, this decision provides both the authority and the incentive to address that gap. The court has confirmed that a well-drafted, specific limitation clause will be enforced, but the drafting has to be clear, it has to be specific, and it has to be consistent throughout the document.

For cargo interests and shippers: the lesson is equally clear. Understand what your bill of lading says about package definition before cargo moves, not after a loss. If your carrier's bill of lading contains a US limitation clause that defines pallets or containers as the relevant packages, the $500 per pallet figure is your ceiling for carrier recovery on a US trade. The difference between that figure and your cargo's actual value is your cargo insurance policy's problem. This means ensuring that your cargo coverage is sized to absorb that gap is not optional. Relying on carrier liability to backstop a portion of your cargo value that your policy does not cover is a structural vulnerability that this decision has made considerably more visible.

For cargo underwriters: the subrogation picture on US trades has shifted. Recoveries against carriers on US-trade cargo claims where the bill of lading contains a specific limitation clause defining pallets or containers as packages are now materially harder to pursue in the Second Circuit. That affects how claims should be reserved and how subrogation potential should be assessed at the time of loss.

The statute has not changed. The $500 figure remains where Congress left it in 1936. What has changed is the judicial willingness to enforce specific contractual package definitions that override the mechanical face-of-the-bill approach. In a jurisdiction that handles as much cargo litigation as New York, that shift is not a footnote.