How Would You Feel If Your $4,179,938 Yacht Was Dropped During Unloading From the Vessel and You Received a Check for $500?

Federal - Maritime

Key Points:

• COGSA's limit of liability is $500 per yacht.
• The Rotterdam Rules, once ratified by 20 nations, will become effective and improve maritime recoveries.

How would you feel if you were standing on a pier, hoping to catch a glimpse of your brand-new 72-foot Sunseeker Predator yacht being unloaded off the vessel M/V Madam Butterfly when, suddenly, the crane lifting your yacht topples over and the yacht smashes to the ground? This true story is related in St. Paul Travelers Insurance Co. v. M/V Madam Butterfly, et al., 700 F.Supp 2d 496 (S.D.N.Y. 2010), affirmed by St. Paul Travelers Insurance Co. v. Wallenius, 433 Fed.Appx.19, (2nd Cir. May 20, 2011), and Madam Butterfly did not sing a very satisfying song to the unfortunate yacht owner and his underwriter.

In the Madam Butterfly case, the critical question the court had to decide was whether a service contract for the shipment of the yacht existed and applied or whether the carrier's regular form bill of lading's terms and conditions applied. Ultimately, the court held that no valid service contract existed for this shipment and, therefore, the bill of lading's terms controlled.

As one would imagine, the offer to pay what the bill of lading issuer claimed to be their maximum liability under the bill of lading, the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. §30701, note, limitation in the amount of $500 for the yacht (considered one "package" under COGSA) was rejected. The plaintiff, the subrogated underwriter, argued that a service contract should control and that under the service contract, the higher Hague-Visby rules limitation should apply. In this particular case, the Hague-Visby limitation, which was incorporated into the inapplicable service contract, would have been about $1.3 million. This amount, although still unsatisfactory to the owner, would have been far greater than the $500 found to be due by the court.

In 1936 when the COGSA became United States law, $500 was a considerable amount of money and covered most "packages." In 2011 that amount of money covers very few "packages." In the fall of 2009, over 20 countries signed the Rotterdam Rules—a new international treaty which attempts to bring international shipping into the 21^st Century. Had the Madame Butterfly event occurred when the new treaty was in force, the recovery from the bill of lading issuer would have been about $3.2 million – not a full recovery, but certainly better than $500!

At the present time, most countries have not yet ratified the treaty; they are waiting for the United States to do so. The State Department is currently preparing its recommendation to the President. The President must then send the treaty to the Senate for an advice and consent vote. Assuming the Senate approves the treaty, the United States' ratification will be filed and, hopefully, joined by the other original signatories. Once 20 countries have ratified the treaty, it will become effective within a year.

The Rotterdam Rules will not help the owner of the 72-foot Sunseeker Predator, but this new treaty will provide an equitable solution to international shipping by water going forward. The Rules balance the rights of shippers, receivers, vessel owners, bill of lading issuers and, yes, yachtsman, who may no longer have to watch their dream yacht sail away—in pieces.

*Bob is Of Counsel and works in our New York City office. He can be reached at 212.376.6417 or wrconnor@mdwcg.com.

Defense Digest, Volume 18, No. 1, March 2012