Limitation of Liability Act
The Limitation of Liability Act of 1851, also known as the Limitation Act, or the Shipowner’s Limitation of Liability Act of 1851, is a statute that allows the owner of a vessel to have any damage claims arising from a maritime casualty to be limited to only the value of the vessel and the freight earned at the end of the voyage. In other words, under this concept, the shipowner is entitled to limit his liability for maritime claims up to a maximum sum — regardless of the actual amount of the claims. The law was originally passed 169 years ago, before the Civil War, to help protect America’s burgeoning shipping industry by reducing some of the financial risk shipowners took when they sent their ships into unpredictable waters.
The Limitation Act applies to all types of marine vessels both commercial and private — from oceangoing cargo ships to riverboats to personal watercraft, and only losses that occur on navigable waters are covered by the Limitation Act.
Shipowners attempting to use the law to limit their liability after a disaster include the owners of the RMS Titanic, the Deep Water Horizon oil rig and the cargo ship SS El Faro. Fortunately, Kreindler maritime attorneys have fought and won or settled cases in which ship owners have attempted to use the Limitation of Liability Act of 1851.
Currently, the company that owned the MV Conception, a chartered scuba dive boat that tragically caught fire and sank in 2019, killing 34 people, filed a complaint three days after the disaster to limit their liability to the current value of the ship (since the ship was a total loss, that liability would be zero). Kreindler partner and U.S. Navy veteran, Daniel Rose leads the firm’s litigation against the owner of the Conception on behalf of the family of a Silicon Valley, California, man who was killed as a result of the fire. The early morning fire was California’s worst maritime disaster in over 150 years.
In order to limit liability, the owner has to prove there was no prior knowledge of any problems that could cause a mishap. In situations where the shipowner or corporate management was aware of any negligence or if the vessel was unseaworthy, the limitation of liability does not apply. The result is a two-step burden of proof falling on both parties. Plaintiffs must first establish the negligent action or how the vessel could be considered unseaworthy; then the shipowner must prove that the fault was outside of its purview. Because the Limitation Act falls under Admiralty Law, that decision is made solely by a judge, not a jury.
In cases where the Limitation Act is found to be applicable, plaintiffs’ recovery amounts may be quite low.
Another advantage shipowners receive from the Limitation Act is the ability to proactively file a limitation action even before any plaintiffs’ claims are filed. If any claims have been filed, once a shipowner invokes a limitation action, called a complaint, the court issues a stay of all proceedings against the defendant.
Some claims, however, are exempt from being limited, including any unpaid wages as well as housing and medical reimbursement for injured maritime workers. Overall, though, the Limitation Act is seen as being very favorable toward shipowners.
Perhaps one of the most famous uses of the Limitation of Liability was after the sinking of the Titanic, a tragedy in which over 1,500 passengers and crew lost their lives. White Star Lines, the company that operated the Titanic, was able to limit its liability to the value of the lifeboats that survived the accident, a mere $92,000.
In a case with egregious facts, shipowners don’t want to push too far because they risk raising the ire of the public and people in Congress who maybe take a look at the law anew.
Today, there is some debate as to whether the Limitation Act is obsolete or unfair. Modern communications and constant contact between a ship’s crew and its owner have made it less likely for owners to have no knowledge of any conditions that would make the ship unseaworthy. Oftentimes, by invoking the act, owners can appear as if they are attempting to evade any and all responsibility, even in accidents in which, had they occurred on land, they would be liable for substantial amounts of money.