Limitations of Liability Act

Limitations of Liability date back to the early Nineteenth Century, to a time before the creation of adequate protections under the law for vessel owners/shareholders and before an adequate means of insuring vessels existed to protect ship-owners against a catastrophe.  The Limitation of Liability Act of 1851 was enacted by the United States Congress to provide U.S. ship owners a chance to be competitive with foreign-flagged vessels previously provided with a limitation of liability under the European seafaring codes.  

The general purpose of the Limitation of Liability Act is to allow a vessel owner to limit its liability to the value of its interest in the vessel at the end of the voyage.  The Act provided a shelter for vessel owners, eliminating the risk of unlimited liability for consequences of catastrophic maritime accidents and disasters, unless the owner’s own actions contributed to the cause of the disaster or loss. 

The Act provides a remedy for vessel owners, which allows filing of an action within six months of receiving written notice of a claim.  The Act allows the vessel owner’s liability for personal injuries or death to be limited to the value of the interest of the owner in the remains of the vessel at the end of the voyage.  In the event of fire or sinking, the value of the vessel can be zero dollars.  The owner is required to file a petition for limitation in the appropriate United States District Court and either transfer his remaining interest in the vessel to the court appointed trustee, or deposit with the court a sum or bond equal to the value of the interest of the owner in the vessel.  The value of the vessel at the end of the voyage is the fair market value of the vessel or its remains at the end of the voyage giving rise to the claim, including the value of any pending earned freight, and any value that may be derived from claims the owner may have against any third party responsible for damages for loss or damage to the vessel arising out of the voyage.  In the case of “seagoing vessel[s]”, if the amount of the fund, or the value of the vessel at the end of the voyage is insufficient to pay all losses, the fund shall be increased to cover the amount of the losses, to a maximum of $420 per gross ton of the vessel. 

A Limitation Action may be filed in any district where the vessel has been attached or arrested.  If this action has not occurred, the action may be filed in any district in which the owner has been sued with respect to a claim against which the owner seeks to limit liability.  If no suit has commenced as of the time of filing the limitation action, the suit should be commenced in the district where the vessel is located, but if the vessel is not within any district and no suit has been commenced, then the complaint for the limitation action may be filed in any district.  The filing of the limitation proceeding is governed by Supplemental Admiralty Rule F(9), Federal Rules of Civil Procedure.  The transfer of venue in limitation actions based on convenience of parties and witnesses and in the interest of justice is allowed.  As a general rule, a plaintiff’s choice of forum is given favor in determining whether to transfer a limitation action.