Brief Overview of Shipowner’s Limitation of Liability Act – History, Procedure and Recent Trends

By Christopher J. DiCicco, Esq.*

General Overview

The Shipowner’s Limitation of Liability Act (Limitation Act), 46 U.S.C. § 30501 et seq., is one of the distinctive features of United States maritime law. It gives a vessel owner the right to limit its liability in a maritime casualty (whether it be a claim for cargo damage, collision, personal injury or death) to the post-casualty value of the vessel, plus pending freight, so long as the casualty was “…done, occasioned, or incurred without the privity or knowledge of the owner.” 46 U.S.C. § 30505.

Historical Context

The Limitation Act was enacted in 1851 to promote and protect the American shipping industry and American shipowners. The rationale for the enactment of the Limitation Act made perfect sense at the time. Seagoing vessels faced the daunting task of traveling around the world with limited communication capabilities. If the vessel was involved in a significant maritime casualty, the vessel owner could have faced liability far exceeding the value of the vessel. The protections afforded under the Act have been greatly expanded, and owners of recreational boats have now frequently initiated limitation proceedings.

Who is Entitled to Limit and What Types of Vessels Are Entitled to Limit?

In addition to the vessel’s actual owner, bareboat charterers have the right to seek the protections of the Limitation Act as well. A bareboat charterer, essentially a leaseholder that obtains possession and full control and command of a vessel, is deemed to be an owner pro hac vice and entitled to seek limitation of liability. See, 46 U.S.C. § 30501. In order to be entitled to protection under the Limitation Act, however, the vessel must be operating on navigable water. Courts have broadly construed the term “vessel” to include pleasure craft such as jet skis.

Procedure

A vessel owner may assert the Limitation Act offensively, by commencing a limitation proceeding in a federal district court, or defensively, by raising limitation as an affirmative defense in either a state or federal court proceeding. Notwithstanding, only a federal court has jurisdiction to decide the issue of limitation. Therefore, in order to preserve its limitation protections, it would behoove a vessel owner who has asserted the Limitation Act as a defense in a state court proceeding to simultaneously file a petition for limitation in federal court.

A vessel owner must file a limitation petition in a federal district court in the proper venue within six months after the owner received written notice of a claim which may exceed the value of the vessel. 46 U.S.C. § 30511; See also, Fed. R. Civ. Supp. Rules F(1) and F(9). Once the limitation proceeding has been commenced, the court (sitting non-jury) must determine whether there was fault on the part of the vessel owner giving rise to liability for the claims of each claimant. If such fault is found, the court must then determine whether the vessel owner had the requisite privity or knowledge of such fault. The claimant bears the initial burden of proof with respect to the vessel owner’s fault. If the claimant is successful, the burden shifts to the vessel owner to establish its lack of privity or knowledge. If the vessel owner is unable to establish its lack of privity or knowledge, then the vessel owner will be unable to limit its liability, and the issue of damages will be decided in the court where the original claim was filed.

Advantages of Limitation Act to Vessel Owners

The benefit to vessel owners of commencing a limitation proceeding in federal district court is the consolidation of claims in a single federal forum. Such a consolidation of claims is known as concursus. Once such a proceeding is commenced, any and all prior state or federal court proceedings against the vessel owner involving the same incident are stayed pending the outcome of the limitation proceeding. The court prescribes a monition period during which all claimants must file claims in the single limitation proceeding. Where a prior state court proceeding was commenced against the vessel owner, the issue of liability will generally be decided by a judge in the federal court, and the issue of damages would revert to state court to be litigated and ultimately decided by a jury.

Recent Trends

Nowadays, in the age of technology, critics of the Limitation Act, including injured passengers, cargo claimants and their counsel, argue that the Act’s original purpose is no longer necessary. In recent years there has been a strong push against the Limitation Act. Courts have become more resistant in upholding a vessel owner’s petition for limitation. In addition, Congress has attempted to extinguish the Limitation Act entirely with the passing of House Bill HR 5503, although the bill has not yet been enacted into law. Despite such criticism, the Limitation Act continues to be applied by federal courts throughout the country and provides a powerful tool for maritime counsel in the defense of vessel owners, including recreational boaters and passenger-carrying vessels.

Marshall Dennehey Warner Coleman & Goggin Experience With Limitation Act

The New York office of Marshall Dennehey handles Limitation Act proceedings on both sides of the equation—in the prosecution of limitation proceedings on behalf of vessel owners in personal injury/wrongful death claims and in the defense of limitation proceedings on behalf of cargo claimants. Clients on both sides need to be aware of the Limitation Act’s unique procedural aspects, most importantly for vessel owners, the onerous time constraints within which to initiate a limitation proceeding.

*Chris is an associate in our New York, NY, office who can be reached at 212.376.6428 or cjdicicco@mdwcg.com.

Defense Digest, Vol. 20, No. 1, March 2014

Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2014 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.