The Duck Boat / Tugboat Crash And The Limitation of Liability Act
Today’s The Legal Intelligencer includes an article titled, "Limited Liability Law May Apply in Duck Boat Accident" about the effect of the Limitation of Liability Act of 1851 on claims arising from last’s weeks collision between a tugboat and a duck boat on the Delaware River.
The Limitation Act — which nominally limits the liability of a ship owner to the value of the ship itself — is a fascinating relic from a turbulent time in the United States, when whispers of war were beginning and the young agrarian nation was painfully converting to a steam-powered industrial society. The world’s first commercial oil well would not be built, in Poland, and the world’s first union railway station would not be built, in Indianapolis, for another two years.
With a lot of output, a big country, and not much transportation infrastructure, we needed investment in shipping, and lots of it.
Hence the Act.
Few would disagree that the Act has outlived its purpose, but it’s still on the books.
It’s just as well that the Legal article is subscription only, since it doesn’t tell us much other than that defense lawyers think the tugboat and duck boat are free and clear while plaintiff’s lawyers believe there are ways around it.
The press did a similar dance a few weeks ago, after Transocean invoked the same act to limit its liability following the catastrophic oil leak caused by the sinking of the Deepwater Horizon oil rig. Transocean’s use of the Act so bothered Congress that they’re trying to get the entire Act repealed; if that happens, this entire discussion will be rendered moot in the near future, as it should be: in our modern world of insurance, re-insurance, global finance, and limited liability companies, there’s no need to give vessel owners special treatment. Ships will still be built and used, regardless of the Act.
But the Act is still on the books. I’m with the plaintiff’s lawyers; there’s plenty of ways to get around the Act and get these types of maritime accidents back in the state courts where they belong.
First, the Act doesn’t apply if the liability of the vessel owner isn’t actually at issue:
In construing the Limitation Act, this Court long ago determined that vessel owners may contest liability in the process of seeking limited liability, and we promulgated rules to that effect pursuant to our "power to regulate . . . proceedings." The "Benefactor," 103 U. S., at 244; Supplementary Rule of Practice in Admiralty 56, 13 Wall., at xiii; Supplemental Admiralty and Maritime Claims Rule F(2). Thus, we agree with respondent that a vessel owner need not confess liability in order to seek limitation under the Act. The Act and the rules of practice, however, do not create a freestanding right to exoneration from liability in circumstances where limitation of liability is not at issue. In this case, petitioner stipulated that his claim for damages would not exceed the value of the vessel and waived any claim of res judicata from the state court action concerning issues bearing on the limitation of liability. The District Court concluded that these stipulations would protect the vessel owner’s right to seek limited liability in federal court. Then, out of an "abundance of caution," the court stayed the limitation proceedings so that it could act if the state court proceedings jeopardized the vessel owner’s rights under the Limitation Act. 31 F. Supp. 2d, at 1170-1171. We believe nothing more was required to protect respondent’s right to seek a limitation of liability.
Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438 (2001). Here, it’s already been reported that K-Sea had an insurance policy* in excess of $100 million; if the plaintiffs stipulate their damages don’t exceed that (which they reasonably could), then the Act’s purpose has been met.
Second, even where the Act applies, there are plenty of exceptions:
The Limited Liability Act allows a vessel owner to limit its liability for any loss or injury caused by the vessel to the value of the vessel and its freight. "Under the Act, a party is entitled to limitation only if it is `without privity or knowledge’ of the cause of the loss." If the shipowner is a corporation, "knowledge is judged by what the corporation’s managing agents knew or should have known with respect to the conditions or actions likely to cause the loss." Once the claimant establishes negligence or unseaworthiness, the burden shifts to the owner of the vessel to prove that negligence was not within the owner’s privity or knowledge.
In re Hellenic Inc., 252 F.3d 391 (5th Cir. 2001)(footnotes omitted, but they’re worth reading if you’re looking for more cases).
For anyone interested in the subject, the Admiralty and Maritime Law Guide has a couple cases on the Act. For anyone really interested, yesterday I went to a CLE on Boating Law and Liability — hosted, coincidentally, by Ride The Duck’s maritime lawyer — that included a thick book of materials on maritime law that can be purchased, even after the CLE.
As noted by those materials, "the knowledge of a corporation necessarily is measured by the knowledge of the corporation’s employees and agents." A clever plaintiff’s lawyer would point out that the knowledge and negligence of the mate — the one who took the Fifth and refused to testify — is imputed back to the owners of the vessel.
All of which is to say: as nice as the Act sounds on its face to defense lawyers, that tugboat company and its insurer aren’t going to just walk away from this tragedy.
If you have been seriously injured, contact a personal injury lawyer.
* Some defense lawyers would argue that insurance isn’t considered among the "value" of the vessel limited by the Act. I say insurance proceeds are an asset tied to the vessel and the owner and thus obviously have "value."