The Limitation of Liability Act of 1851
How Shipowners Use an Archaic Law to Avoid Accountability
The Limitation of Liability Act (46 U.S. Code Chapter 305) is a federal law that provides a legal framework for shipowners to limit their liability for maritime incidents. The primary purpose of this act is to encourage investment in the shipping industry by limiting the financial risks faced by shipowners in the event of accidents or incidents involving their vessels.
When the Limitation of Liability Act was passed more than 170 years ago, it served a vital purpose in the maritime industry. During that time, ships and their crews faced numerous dangers, including unpredictable weather and the threat of piracy. In such perilous conditions, shipowners couldn't effectively safeguard their vessels and crews. When unfortunate incidents did occur, victims who suffered injuries or property losses often had claims for damages that far exceeded the value of the vessel and its pending cargo. The Limitation of Liability Act addressed this.
The Limitation of Liability Act was a practical solution in 1851.
In modern times, it has been largely criticized as antiquated.
Several modern tools now exist to address once-crippling maritime concerns:
- Advancements in equipment and technology have made navigation and storm tracking more accurate than ever.
- Vessels and platforms are built to withstand stronger seas and harsher winds.
- Advanced weather predictions give more time to maneuver out of a storm’s path or evacuate a fixed platform.
- Comprehensive insurance coverage is available, providing a safety net for shipowners and maritime companies.
- Companies can structure themselves in ways that encourage investment without the fear of unlimited liability.
Shipowners are better equipped than ever to protect crews, passengers, and cargo.
Maritime companies have run out of reasons to avoid responsibility for accidents and injuries at sea. And yet, they continue to invoke the Limitation of Liability Act in an attempt to reduce their legal responsibility to their crews and others who are injured or killed on their vessels. From the sinking of the Titanic to the explosion of the Deepwater Horizon, vessel owners have attempted to hide behind the Limitation of Liability Act.
Arnold & Itkin has extensive experience protecting crews and families in these scenarios. We represented over one-third of the crew of the Deepwater Horizon and three widows who lost their husbands when the El Faro sank in Hurricane Joaquin. In both of those cases—and countless others—the shipowners attempted to invoke the Limitation of Liability Act. We overcame these attempts and sought the answers and accountability that our clients deserved.
How the Limited Liability Act of 1851 Works
The Limitation of Liability Act says that a shipping company may only be forced to pay the remaining value of the ship and cargo following a disaster. It may also be based on the tonnage of the vessel.
In many cases, such as the El Faro, there is likely no financial value remaining.
Originally, the purpose of the Act was to help promote the growth of American shipping. Now, under this law, any commercial shipowner may claim limitation of liability in cases involving casualty to the value of the vessel. In general, if a shipping company loses a vessel, it can attempt to invoke this unfair law. If approved, the insurance company that provides their coverage would not be required to compensate the families of the crew who lost their lives at sea.
There is, however, a stipulation for shipowners. They must have lacked knowledge of the problem.
Knowledge & Privity of the Shipowner
The most important aspect of the Limitation of Liability Act is the “privity and knowledge” of the shipowner. In general, this means that the shipowner knew or should have known about the negligence or problems that caused the loss. However, these terms can be a bit unclear in today's legal system, and whether the court decides that the shipowner knew about it often depends on whether the shipowner is an individual or a company.
If the shipowner can prove that the loss occurred without their knowledge or that no legal relationship exists, the claimant's source for recovery shrinks, and in most cases—especially those involving multiple claimants—it becomes inadequate.
A limitation action results in the suspension of all other ongoing legal cases and consolidates all related claims into a single legal proceeding. This process aims to pool the assets, particularly when the value of the vessel and its cargo is insufficient to fully cover all claims. If the shipowner successfully limits their liability, the claimants will only receive a portion of their claims based on a pro-rata distribution. Because of this, it's rare for claimants to receive full compensation. This makes it critical for a claimant's attorney to collect evidence that can lead to a finding of knowledge or privity—preventing the limitation of liability and opening the door to full and fair compensation.
Individual Shipowner Liability
Courts tend to be more forgiving toward individual shipowners compared to corporate ones. An individual owner is not expected to directly supervise their vessel, nor are they automatically responsible for the negligent acts of competent personnel they hire. However, if an individual shipowner wants to limit liability for an injury or death on their vessel, they are accountable for what the vessel’s master knew or should have known at the start of the voyage.
If an individual owner hands over management and control of the vessel to someone else, they might still be liable for that person's knowledge and actions. This is because the person managing the vessel is seen as acting on behalf of the owner. Additionally, an owner present on a vessel but not in active control at the time of an incident may struggle to limit their liability unless they can prove ignorance of the negligence or unseaworthy condition was reasonable.
Corporate Shipowner Liability
Corporate shipowners 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 shipowner 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 that caused the loss. In contrast to the individual shipowner, a corporate owner is required to supervise the vessel in port and is accountable for anything that should have been 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.
Jury Trials in Admiralty Cases
Admiralty law cases, including limitation actions, typically don’t offer a right to a jury trial. However, the "saving to suitors" clause allows claimants other legal remedies, like jury trials in their preferred forum. This leads to exceptions in admiralty jurisdiction where claimants can litigate liability and damages before a jury.
If the value of the limitation fund exceeds all claims, claimants can pursue other legal remedies, as the need for limitation doesn't exist, and they're entitled to a jury trial. In cases with a single claim to an inadequate fund, the claimant must agree to certain conditions, like recognizing the limitations court's jurisdiction and waiving any res judicata claims regarding limitation issues. In scenarios with multiple claimants and insufficient funds, these claimants can try liability issues in state courts before a jury, provided they agree to similar stipulations.
The El Faro Disaster & The Limitation of Liability Act
In the fall of 2015, the shipping vessel El Faro sailed directly into a hurricane despite having a history of engine failure. The ship sank, killing all 33 crew members. Recorded conversations revealed that the captain of the vessel wanted to sail around the storm by taking a slower route. Investigators believed that TOTE Maritime, which owned the vessel, might have pressured the captain into saving time by sailing through the hurricane. Investigators also found that TOTE Maritime vessels had a long history of sudden power loss. The U.S. Coast Guard documented 23 instances of mechanical issues with El Faro. Investigators determined that the cargo vessel likely lost power during the storm, causing it to sink.
News of the El Faro’s fate had hardly begun to spread when TOTE Maritime filed a petition using the Limitation of Liability Act of 1851. Grieving families were placed in a difficult position: they would need to bring their cases to court immediately or face the possibility of never getting answers.
Not only did TOTE fail to respect the lives of its crew, but it also disrespected dozens of grieving families.
TOTE Maritime severely restricted the compensation each family could obtain by claiming that the El Faro was only worth a small amount of money. However, the company filed a claim with their insurer that was much higher. This company was trying to limit its liability for the lives that it shattered, while making money off the incident. TOTE was blatantly valuing profits over the lives of 33 people and their families.
The California Dive Boat Fire & the Limitation of Liability Act
On September 2, 2019, a dive boat owned by Truth Aquatics caught on fire off the coast of Santa Barbara, claiming the lives of 34 people. The vessel was on a 3-day excursion with 39 people on board—6 crew members and 33 passengers. 5 crew members, who were on the top deck, were able to escape the burning boat, which eventually sank more than 60 feet beneath the surface. The rest of the 39 were sleeping below deck when the fire broke out; they couldn’t get out.
Just as seen with TOTE Maritime and the El Faro, Truth Aquatics filed a limited liability claim just days after 34 people died on their vessel. Once again, a company that should have been working with grieving families forced them to find legal help. While filing a claim like this is common in the maritime industry, many experts still call it “heartless” and brutal.
A History of Defeating Limitation of Liability Act Claims
We have so much to say about the Limitation of Liability Act because we have extensive experience with fighting it in court. When BP attempted to use the archaic law to escape responsibility for the Deepwater Horizon, we were there to stop them. We helped one-third of the crew receive compensation by defeating BP’s “Limited Liability” defense. After the loss of the El Faro, we refused to let TOTE profit on 33 lives by claiming limited liability. We challenged their claims and secured the compensation our clients deserved instead of the much smaller amount that TOTE wanted to pay.
Knowing that a negligent company may try to avoid liability, maritime workers and their families must be informed of their legal options. Even if the Limited Liability Act is used by defendants, that does not mean it will stand up in a court of law or that the stipulations of the Act are met. With the right attorney on your side, you can fight to hold a negligent company responsible for its reckless actions and decisions.
Call (888) 346-5024 to Schedule a Free Review of Your Case
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 an attorney will be able to guide your case through the limitation action and make sure your right to a jury trial is protected.
The offshore injury lawyers at Arnold & Itkin have protected the rights of hundreds of maritime workers, earning landmark verdicts and settlements on their behalf. We have secured more than $20 billion in settlements and verdicts for our injured clients. If you are facing severe injury, you need substantial help, and quickly.
Contact our team today to find out how we can help you.