Brazilian Federal Supreme Court decides on the Montreal and Warsaw Conventions within the scope of international air freight transportation and the impacts on the insurance market

On February 21, 2024, the Brazilian Federal Supreme Court (“STF”) concluded the trial on Appeal No. 1,372,360, which addressed the application of the legal thesis established in Precedent No. 210 to cases involving international air carriers’ liability for cargo damage. The court determined that the Montreal and Warsaw Conventions take precedence over Brazilian laws in such cases.

For context, we recall that Precedent No. 210 was established by the STF in the judgment of Extraordinary Appeal No. 636,331 in May 2017. The ruling stated that “International standards and treaties limiting the liability of air passengers’ carriers, such as the Warsaw and Montreal Conventions, take precedence over the Consumer Protection Code, in accordance with article 178 of the Brazilian Federal Constitution”.

Even though the Montreal Convention had been incorporated into the Brazilian legal system in 2006, the courts would typically uphold the principle of full compensation (articles 14 of the Consumer Protection Code and 944 of the Civil Code) as well as the essential right to complete and total civil compensation (article 5, paragraph V, of the Brazilian Federal Constitution). Thus, in lawsuits filed against air carriers, whether by passengers, shippers or their subrogated insurers, the compensation awarded was determined by the overall amount of the damage.

However, following the guidelines established by the STF regarding Precedent No. 210, courts have started enforcing the limitation of liability established in Article 22 of the Montreal Convention, which states that air carriers are liable for damage or loss of cargo up to 17 Special Drawing Rights per kilogram (currently, around USD 22.68/kg), unless the amount of the belongings is declared to the carrier beforehand by paying an additional fee.

Notwithstanding, the case tried by the STF aiming to define the understanding on the matter and that ultimately resulted in the creation of Precedent No. 210 addressed damage to luggage. In light of this, during the trial, the STF Justices highlighted that:

“After all, if passengers can avoid the limitation of liability provided for by the Convention by informing the real amount of the belongings in their luggage, then there is no doubt that the limitations imposed by the Convention exclusively relate to these belongings and not to any other interest or asset, especially the intangible ones.

Therefore, I vote to declare the applicability of the limitations of liability provided for in the Warsaw/Montreal Convention and other international treaties incorporated by Brazil, in relation to awards for material damage arising from lost luggage in international flights”. (Justice Gilmar Mendes, rapporteur of Extraordinary Appeal No. 636,331).

“The establishment of this binding precedent is directly connected to the case concerning the air carrier’s liability for material damages arising from the loss, destruction, damage or delay of luggage.” (Justice Rosa Weber in Extraordinary Appeal No. 636,331).

Subsequently, a debate about whether Precedent No. 210 could be applied to cases involving air carriers’ liability for cargo damage emerged, given that the precedent was supposedly established in relation to a case with different characteristics.

In addition, individual decisions rendered by STF Justices Alexandre de Moraes (ARE 1.146.801/SP), Cármen Lúcia (RE 1.252.909/SP), Ricardo Lewandowski (AgR ARE 1.240.608/RJ), and Rosa Weber (RO 1.196.955/SP), subsequent to the establishment of Precedent No. 210, clarified that the limitation of liability provided for in the Montreal Convention does not apply to air cargo transportation.

Now, by judging Appeal No. 1,372,360, which related to air carrier’s liability for cargo damage, the STF appears to have clarified the matter through a collective ruling.

When reviewing the appeal, Justice Cármen Lúcia, the rapporteur of the case, began the trial by stating her position on the inapplicability of the limitation of liability provided for in the Montreal Convention. She argued that Precedent No. 210 would not be applicable in this case, “as it refers to the failure to provide a service under an international air freight contract”, rather than “lost luggage of international flight passengers”.

Access the rapporteur’s vote, which was supported by STF Justices Alexandre de Moraes and Nunes Marques.

Justice Gilmar Mendes disagreed with the rapporteur, arguing that international conventions should take precedence over domestic laws in the Brazilian legal system, in compliance with the specialty principle – prevailing, in this case, the provisions limiting liability established in the Montreal and Warsaw Conventions.

According to Justice Gilmar Mendes, the basis of the decision that led to the creation of Precedent No. 210 “did not differentiate between luggage and cargo transport”, instead, it focused on the facts of that case, which involved luggage lost, which could apply to cargo transport as well, as “in international air freight, if there is a conflict between domestic laws and the Convention, the latter takes precedence, provided that the principle of reciprocity is complied with, under the provisions of art. 178 of the Brazilian Federal Constitution”.

Thus, the dissenting vote determined that “the legal thesis stated in Precedent No. 210 is applicable to any kind of conflict relating to international transport governed by international treaties signed by Brazil” and “in other words, within the scope of international cargo transport, the carrier’s liability for the cargo’s destruction, loss, damage, or delay is governed by article 22 of the Montreal Convention (…)”.

Finally, Justice Gilmar Mendes emphasized that this interpretation also applies to insurance companies in subrogation claims against air carriers.

The dissenting vote was deemed successful by the majority of the court, and was supported by other justices: Cristiano Zanin, Edson Fachin, Dias Toffoli, André Mendonça, Luiz Fux, and Luís Roberto Barroso.

The STF’s stance holds significant importance for the insurance market, as it impacts the compensation amount paid by air carriers for cargo damage. From one perspective, this benefits the insurer covering the carrier’s liability, but from another, puts the shipper’s insurers in disadvantage when subrogating the insured’s rights and seeking recourse against the carrier.

As a result, there is a direct impact on the underwriting of risks of air carrier’s liability and the shipper’s risks in international cargo transport insurances, which must now consider the limitation of liability under the Montreal Convention while pricing the policies.

Demarest’s Insurance, Reinsurance, Private Insurance and Supplementary Health team is available to provide any further clarification as necessary.