Limitation of Liability

Limitation of Liability is a historical legal principle developed to protect shipowners from catastrophic liabilities in the case of a maritime disaster. The principle developed before corporations became a common method to limit shareholder liability or indemnity insurance became widely available. This legal principal was adopted into US Law when Congress first enacted the Limitation of Liability Act in 1851. Congress’s goal was to provide US documented ships with the same competitive edge as foreign counterparts, whose owners could limit their liability.

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The Act is now codified under 46 U.S.C. § 30501 et seq. and is formally known as the Limitation of Vessel Owner’s Liability Act. It applies to most vessels operating on navigable bodies of water, including some lakes and rivers. The Act does exactly what the title says. It allows a vessel owner the ability to limit liability for personal injuries, death, embezzlement, loss, or destruction of any property, goods, or merchandise shipped on board a vessel to the value of the vessel and pending freight. 

 

However, a vessel owner's ability to seek limitation is not absolute and may be contested.  A few issues a damaged party may raise to contest a vessel owner's claim of limitation of liability may include:

• Whether the vessel owner timely initiated an action for limitation after written notice of a claim; 

• Whether the individual initiating an action for limitation is truly a vessel owner;

• Whether the loss occurred on a navigable body of water;

• Whether the loss involved a vessel as defined by the act;

• Whether the vessel owner is with privity or knowledge of the negligent acts or unseaworthiness that caused the loss; and

• Whether the amount of the limitation fund is correct.  

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