The recent tragedy involving the Mobile Offshore Drilling Unit Deepwater Horizon has shed a very bright and very public light on a much and often litigated 159-year old law previously known to very few outside of the maritime industry—the Shipowner’s Limitation of Liability Act, (“the Limitation Act”), 46 U.S.C. § 30505 (formerly 46 U.S.C. § 183). What the Limitation Act does is entitle a vessel owner to limit its liability after a maritime incident or casualty to the post casualty value of the vessel and its pending freight, which may be zero if the vessel is a total loss, except when the loss occurred due to the vessel owner’s "privity or knowledge." Privity or knowledge is found to exist where the acts of negligence or unseaworthiness that caused the casualty were known or should have been known to the vessel owner.
In addition to limiting a vessel owner’s liability, the Limitation Act also has several procedural benefits in that it allows the vessel owner in some instances to force all claims involving a vessel casualty to be litigated in a single Federal forum, often of the vessel owner’s choosing. Additionally, claimants in a vessel casualty can also benefit to some extent in that they have some security for their claims in a limitation proceeding because the vessel owner must either deposit the claimed value of the post-casualty vessel at issue in the registry of the Court or post a bond for such amount with the Court.
The Limitation Act was passed by Congress in 1851 to encourage investment in the American shipping industry and level the playing field for U.S. vessel owners who were then competing against foreign vessel owners already benefiting from similar liability protection. Without the Limitation Act, it was felt that claims for injury, death, property or cargo loss could far exceed a vessel’s value, which would only serve to discourage maritime commerce. Notably, the Limitation Act applies to all seagoing vessels, as well as all vessels used on lakes, rivers, or in inland navigation, including canal boats, barges, and lighters, but only to incidents or casualties occurring on the navigable waters of the United States. The most famous application of the Limitation Act to date would probably be when the U.S. Supreme Court allowed the owners of the Titanic to limit their liability to the value of the Titanic’s surviving lifeboats, a mere $92,000 at the time, after the Titanic sank in April of 1912 claiming more than 1,500 lives. Despite public outrage at the time, however, the long-standing Limitation Act survived, having accomplished its intended purpose, and it has been invoked by vessel owners countless times in the last century in all manners of maritime casualties.
The Deepwater Horizon is a floating drilling platform capable of navigation, similar to a vessel, and, thus, it has the legal status necessary for its owners to seek limitation of liability for the explosion in the Gulf of Mexico. Transocean filed a Limitation of Liability proceeding in Federal Court in Texas, submitting that the post-casualty value of the Deepwater Horizon, which sank in the Gulf of Mexico, is no more than $27 million, which is considerably less than its pre-casualty value of around $650 million. Transocean’s filing of that Limitation proceeding has sparked a new national, and perhaps worldwide, debate about the viability of the Limitation Act in modern times.
Many in the maritime and legal community have argued both for and against the Limitation Act over the years. The arguments against the Limitation Act being that the public policy behind the Limitation Act is antiquated and unnecessary because vessel owners today can readily procure liability insurance to protect themselves from damage claims caused by a vessel’s alleged unseaworthiness or negligence. While it appears often reported in today’s latest debate on the Limitation Act that U.S. Courts have already begun to disfavor the Limitation Act, it would not be accurate to state that the Limitation Act is not still being successfully invoked by vessel owners in serious marine casualties.
In fact, a review of recent case law in the U.S. Fifth Circuit reveals that the Court granted limitation of liability to vessel owners in at least two cases in the last two years. Indeed, the vessel owners in those two cases limited their liability to the value of the vessel, which was considerably less in both cases than the claimants’ alleged damages, because, generally, owners of a vessel may delegate non-managerial duties and discretion to experienced employees, like vessel captains, without subjecting the vessel owner to unlimited liability.
One of the two recent U.S Fifth Circuit cases involved a fishing vessel limiting its liability to $340,000 after it struck an offshore oil platform that had been in place for twenty years, allegedly causing $4 million dollars in damage to the platform and oil well and injuring three passengers on the fishing vessel. The other case involved two barges that broke free from their moorings, struck, and damaged a bridge on Interstate 10 during Hurricane Katrina. Further, relying on the foregoing trend in the U.S. Fifth Circuit, the U.S. Sixth Circuit also recently granted a vessel owner limitation of liability, similarly finding that the vessel owner had rightfully relied upon the navigational expertise of a competent ship’s master in an accident where the owner’s tugboat created a wake that swamped a recreational fishing boat, killing one of the fishing boat’s passengers. Thus, the Limitation Act has clearly not altogether fallen out of favor with the Courts or with vessel owners.
Nevertheless, despite what appears to have been a recent trend in favor of the application of the Limitation Act, the recent Deepwater Horizon disaster and the ensuing media blitz and worldwide attention as to how the injured parties will be compensated, may prove to be the event that finally sinks the Limitation Act. To that end, bills were recently introduced in both houses of Congress that would, if enacted into law, repeal most of the Limitation Act by lifting the liability limit and also allowing claimants to seek noneconomic damages such as pain, suffering, emotional distress and other types of damages not provided for in the Limitation Act. Perhaps if the pervasive media and instantaneous information exchange that exists now had existed in 1912 when the Titanic sank, the longstanding Limitation Act would have perished sooner. In the end, however, it remains to be seen what effect, if any, the repeal of the Limitation Act, would have on the American shipping and vessel industry and whether the repeal will be retroactive such that Transocean will no longer be able to seek Limitation for the Deepwater Horizon.