A California appeals court has ruled that Hanover Direct subsidiary Brawn of California did not engage in a deceptive business practice by charging customers a $1.48 “insurance fee” with every order.
The decision has potential legal ramifications for what catalogers and online retailers should and should not disclose as charges on their order forms. It also could be a factor in determining the types of financial arrangements distance sellers should make concerning goods in transit.
Justice William Stein, writing for Division One of the First Appellate District Court in San Francisco in September, said Superior Court Judge Diane Elan Wick erred in awarding plaintiff Jacq Wilson more than $24,000 in litigation expenses and $420,000-plus in legal fees. Stein reversed the ruling and dismissed the case.
Wilson contended the $1.48 fee Brawn charged to insure goods against loss or damage during shipping was deceptive. Because items could be returned for a full refund, he said, Brawn was providing nothing of value, and already bore the risk of such losses under California law.
The central legal question of the case was whether merchant or customer assumed the risk in these circumstances, said Chuck Bergen, principal at Grippo & Elden of Chicago, one of the law firms that represented Brawn.
“It was surprising how little case law there was on this,” said Bergen. “Once Brawn ships, it no longer has risk of loss. That passes to the common carrier.”
Wilson also argued that since the charge was itemized rather than included in shipping and handling charges, potential customers would compare Brawn's shipping and handling charges to other merchants' and mistakenly think Brawn's terms were more favorable. The appeals court disagreed.
So what does this decision mean for other remote sellers? They should consider it when making financial and insurance arrangements for goods in transit, Bergen said.
And he added: “You probably want to have an expressed disclosure [to your customers regarding] what your insurance charge is and what it covers” rather than burying it in shipping and handling charges. He said the fact that Brawn explicitly stated what the charge was for helped its case.
“What this says is, make a clean disclosure. If part of your fee is for a particular service, disclose that service,” said Bergen. “It's impossible to give definitive legal advice, but that [disclosure] is something one must consider.”
