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The Limitation of Liability Act

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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 the following:

  • Liability-limiting statutes
  • Comprehensive insurance protection
  • Corporate structuring that encourages investment without fear of unlimited liability

Nevertheless, the Act plays an important role in deciding the availability and amount of compensation for claimants.

What the Limited Liability Act of 1851 Says

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 ship owner may claim limitation of liability in cases involving casualty to the value of the vessel. In general, if a shipping company loses a vessel, they 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, however, is a stipulation for ship owners: They must have lacked knowledge about the problem.

How Maritime Injury Lawyers at Arnold & Itkin Can Help

A thorough understanding of the Limitation of Liability Act is an important aspect of the legal knowledge that the maritime lawyers at Arnold & Itkin LLP apply to maritime injury claims. We know ship owners may attempt to limit their legal accountability after an offshore accident, and we can determine how the Act applies in your specific scenario. Our attorneys are committed to asserting the rights of seamen and maritime workers throughout the U.S.

If you would like to learn how we can handle your claim, 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 toward individual ship owners. There is no requirement that the individual ship owner must supervise the vessel at sea or in port, nor will s/he be charged with privity and knowledge if s/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/her liability for personal injury or death upon his/her vessel, s/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/her liability unless s/he can show s/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.

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 that caused the loss. In contrast to the individual ship owner, 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.

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—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 stipulation that they must prioritize their claims.

Why You Need a Skilled Maritime Lawyer on Your Side

It is crucial for maritime workers and their families to understand their rights in similar cases.

Knowing that a negligent company may try to avoid liability, individuals must be informed about their legal options. Even if the Limited Liability Act of 1851 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 the legality of this act and seek to hold a negligent company responsible for their reckless actions and decisions.

Due to the complexities of limitation actions, it requires a truly knowledgeable and proven maritime attorney who has a firm grasp on the laws to represent you. They can demonstrate the unjustness of such a law and work to protect your rights and the rights of your loved ones after a devastating incident. With a skilled offshore accident lawyer on your side, you don’t have to worry about being denied compensation you are owed.

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 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 offshore workers, earning landmark verdicts and settlements on their behalf. We have secured billions of dollars in settlements and verdicts for our injured clients. If you are facing severe injury, you need substantial help, and quickly.

For these reasons, it's important to seek advice immediately by contacting Arnold & Itkin.

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~ Deepwater Horizon Crew Member

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