The Limitation of Liability Act

Maritime Attorneys Serving Clients Nationwide

Under maritime law, the owner of a vessel may be subject to liability for any loss or damage that occurs during the vessel's voyage. However, the owner in certain cases is allowed to limit liability if the negligence or unseaworthy condition of the vessel causing the loss occurred without the knowledge or privity of the owner. A loss of property, goods, or merchandise placed on board the vessel as well as losses resulting from personal injuries or death, collisions, and cargo losses fall within the Limitation of Liability Act. The liability for the loss is limited to the value of the vessel and its "freight then pending" after the time the loss occurred. Thus, in many cases, victims suffering injury or property loss may have claims for damages that greatly exceed the value of the vessel and its pending freight. The Act has been largely criticized as antiquated, considering the fact that there are several modern tools available such as comprehensive insurance protection, liability-limiting statutes and corporate structuring that encourage investment in maritime commerce without the fear of facing unlimited liability. Nevertheless, the Act is still in force and plays an important role in deciding the availability and amount of compensation for damaged claimants.

A thorough understanding of the Limitation of Liability Act is an important aspect of the legal knowledge that the offshore injury lawyers at Arnold & Itkin LLP have to apply to maritime injury claims. We know when ship owners may attempt to limit their legal accountability after an offshore accident or injury and can determine how the Act applies in the specific scenario we are dealing with. Our attorneys are committed to asserting the rights of seamen and maritime workers throughout the U.S. in these matters. If you would like to learn more about how we can handle your claim, we welcome you to call for a free consultation: (888) 346-5024.

Understanding Limitation of Liability in Maritime Claims

The most important aspect of the Limitation of Liability Act for the claimant is the knowledge and privity of the ship owner. If the ship owner can prove that the loss occurred without its knowledge or privity, the claimant's source for recovery shrinks and in most cases—especially those involving multiple claimants—it becomes inadequate. Because a limitation action involves a stay of all other pending litigation and a consolidation or "concursus" of all claims in one proceeding, rarely will the claimants be made whole. The purpose of this consolidation into one proceeding is to gather the assets and prioritize the claims where the value of the vessel and its freight provide inadequate satisfaction. If the ship owner is able to limit their liability, the competing claimants will be limited to their pro rata shares. For this reason, it is crucial for the claimant's lawyer to gather evidence early on that will lead to a finding of knowledge or privity in order to avoid the limitation of liability.

Generally, privity or knowledge is found to exist where the acts of negligence or unseaworthiness that caused the loss were known or should have been known by the vessel owner. In today's jurisprudence, privity and knowledge remain vaguely defined and imprecise terms; however, the ease with which the courts may find knowledge and privity greatly relies on whether the ship owner is an individual or a corporate entity.

Individual Ship Owner Liability

The courts are usually more lenient towards an individual ship owner. There is no requirement that the individual ship owner must supervise the vessel at sea or in port, nor will he be charged with privity and knowledge if he hires competent personnel that later engage in negligent acts. There are, however, exceptions to this general rule. If the ship owner seeks to limit his liability for personal injury or death upon his vessel, he is charged with the privity or knowledge of the master of the vessel at or prior to the commencement of the voyage upon which the personal injury or death occurred. Furthermore, if an individual owner delegates full management and control of the vessel to another, the owner may be charged with the knowledge and privity of the delegate under the theory that the delegate acts as the individual ship owner's "alter ego". Finally, an owner aboard a vessel who is not in active control at the time the loss occurs may not be able to limit his liability unless he can show he could not have reasonably been expected to discover or prevent the negligence or unseaworthy condition. Whether the court finds that the individual ship owner is entitled to a limitation of liability depends on the circumstances and the evidence in each case.

Corporate Ship Owner Liability

Corporate ship owners face more difficulty in disproving their knowledge and privity in the event of a loss. What constitutes knowledge or privity in the context of a corporate ship owner has been largely decided by the lower courts. Generally, limitation of liability has been denied where actions of "high level managerial personnel" were found to have contributed to the negligence or unseaworthy condition of the vessel. This would include an officer of the corporation or an employee having control or authority over the corporate action which caused the loss. In contrast to the individual ship owner, a corporate owner is required to supervise the vessel in port and will be accountable for anything that should have been reasonably discovered. If an unseaworthy vessel leaves port, limitation of liability may be denied due to the failure of "high level managerial personnel" in discovering the unseaworthy condition before the vessel set sail or in negligently supervising those delegated with the task of making the vessel seaworthy.

Another consideration important to the claimant is the right to a jury trial. Cases in admiralty law do not afford a right to a jury trial, and limitation actions are considered cases in admiralty. However, the "saving to suitors" clause saves to the claimant all other remedies to which she is otherwise entitled, i.e. jury trials in the forum of the claimant's choice. Thus, in order to reconcile these two concepts, courts have identified exceptions to the federal court's exclusive admiralty jurisdiction in which the claimant will be allowed to litigate issues of liability and damages in his or her chosen forum in front of a jury.

Where the value of the limitation fund exceeds the aggregate amount of all claims, claimants are allowed their saving to suitors entitlements as there is no need for concursus since the limitation fund would satisfy all claims. In other words, the purpose for the limitation of liability does not exist, thus, a claimant is entitled to a jury trial.

Another exception exists where there is a single claim to an inadequate limitation fund. Under this scenario, the claimant must agree to make certain stipulations, including an agreement that the limitations court will have exclusive jurisdiction to decide limitation of liability issues and that a collection on a judgment issued by a state court or other forum will not be asserted to the extent it exceeds the value of the limitation fund. Furthermore, the claimant must agree to waive any claim of res judicata—a defense where the claimant asserts an issue has already been settled in another proceeding—relative to the limitation issue. In the case where there are multiple claimants to an inadequate fund, those claimants may try liability issues in state courts before a jury as long as they make the same stipulations required in the single claimant scenario, including the additional stipulation that they must prioritize their claims.

Involve a Skilled Offshore Injury Lawyer

If you or a loved one has suffered damages to property or personal injuries or death aboard a vessel it is important to be represented by a seasoned admiralty attorney who can immediately identify what evidence is needed to attack the shipowner's claim of lack of privity and knowledge. Furthermore, such attorney will be able to guide your case through the limitation action and make sure your right to a jury trial is protected. For these reasons, it's important to seek advice immediately.

Contact an offshore injury lawyer at Arnold & Itkin today.