[Dataloss] time to name names (was Re: MORE BNY (Mellon Corp) Tapes lost)

[Marjorie Simmons]

< Friday muse on a shipper's duty >

 | Even if you go with a conservative estimate that one 
 | 'identity' is worth less than 20 bucks (recently stated 
 | in a paper) . . .

First, the worth of an identity is not the market value 
of the identity, because the market is illegitimate.

  : if a package's worth is more than insurance will 
  : cover the carrier can refuse to carry the package 

Second, many carriers will not refuse such shipments 
but will limit their liability instead. The focus of the 
liability for losses needs to remain on the shipper 
rather than the carrier. 

It may be helpful to view these losses through a legal 
"damages" lens. First tho, a simple cost-benefit analysis. 
Last time I read the standard contract of carriage for a 
FedEx overnight item it limited damages to the extent 
of the insurance, which was itself limited to a specific 
amount. For example, an item with a liquid value of 
$3000 (a negotiable instrument) could have a maximum 
insurance of $500, and so carrier loss of the item limits 
the carrier's liability to $500. The risk of loss beyond 
the $500 cap is upon the shipper, not the carrier.

In commercial contracts (B2B) involving carriers the 
loss limits can be higher but still have a cap, thus claims 
are similarly limited to no more than the pre-arranged 
damages cap, no matter how much the actual value of 
the incurred loss. The calculation businesses often use 
in determining the benefit of a low-cost (low insurance) 
shipping rate involves the statistical loss rate of the 
carrier.  The value of the shipper's benefit in using a 
specific carrier can be (simplistically) derived from the 
cost of carriage plus the statistical likelihood of loss, 
minus the benefit derived from the carrier's actual 
delivery of the shipped item(s). One accounting 
method for a cost-benefit analysis is:

   1. Identify a risk [ here, carrier loss ]
   2. Estimate the potential loss from the risk. 
       Multiply the loss by its likelihood to get the 
       risk exposure.
   3. Determine a control procedure that, 
       if implemented, reduces the risk.
   4. Determine the reduction in risk exposure 
       resulting from the control procedure. 
       This is the quantitative benefit.
   5. Identify incremental costs of the control 
       procedure.
   6. Compare the incremental costs with the 
       reduction in risk exposure.
   7. Consider qualitative benefits (those difficult to 
       state in financial terms) and the accuracy of 
       your estimates.

(http://www.mhhe.com/business/accounting/boockholdt/cost.html)

The question thus becomes whether the shipper (not 
the carrier) has a duty to insure beyond the limits of the 
contract of carriage. A shipper's duty does not pass to a 
carrier because the shipper's relationship with regard to 
the item shipped is with the shipper's intended recipient. 
Such a duty cannot be contracted to a carrier without the 
consent of the recipient.

Most carriers limit absolutely the insurance available to 
items of "extraordinary value" (negotiable instruments, 
works of art, jewelry, etc.) because such items have 
value beyond their face value which is often speculative. 
For example, let's say a lawyer FedEx's a legal 
document to a court, knowing that document must be 
received by a date certain, but FedEx loses the shipment. 
What are the losses flowing from that event?  FedEx 
loses $100 unless the lawyer declared a higher value 
and paid the fee, but still stands to lose no more than $500. 
The lawyer's clients may stand to lose millions if the 
court where the document was to be filed does not 
excuse the lawyer's FedEx loss.

The loss of data which can be used in identity theft and 
is normally considered private also has a speculative 
value (as far as most carriers are concerned), and thus 
is something that most carriers class like the above 
items of "extraordinary value". Such data has intrinsic 
value but is not currently measured with an absolute 
value.

</ Friday muse on a shipper's duty >

###