Under the federal Limitation of Liability Act of 1851 (“the Act”), owners of vessels (and, occasionally, charterers of vessels) can sometimes limit their exposure in vessel-related cases to “the value of the vessel and pending freight.” See 46 U.S.C. §§ 30501 et seq. If a vessel has multiple owners, any owner’s liability will not exceed its proportionate interest in the vessel and her freight. 46 U.S.C. § 30505(a). In cases involving personal injury or death, however, an owner’s exposure can be increased to $420 times the tonnage of the vessel, so long as this total exceeds the value of the vessel and her pending freight. 46 U.S.C. § 30506(b) . A shipowner can only limit its liability under the Act if the loss occurred without its “privity or knowledge.” Therefore, courts must determine (1) what acts of negligence or unseaworthiness caused the accident, and (2) whether the shipowner had knowledge or privity of the acts of negligence or conditions of unseaworthiness. See Farrell Lines Inc. v. Jones, 530 F.2d 7, 10 (5th Cir. 1976). If the claimant is able to prove negligence or unseaworthiness, the burden shifts to the shipowner to prove lack of privity or knowledge. Id. When determining whether a corporate shipowner has privity and knowledge of negligence or unseaworthiness, courts look to the knowledge of the company’s managing agents, officers, and supervising employees. See Coleman v. Jahncke Service, Inc., 341 F.2d 956, 958–59 (5th Cir. 1965). Knowledge by these individuals may bind the corporation. Id. The U.S. Fifth Circuit Court of Appeals recently applied these principles in Morrison v. Fettig, 2015 WL 7567452 (5th Cir. Nov. 24, 2015), a case in which a vessel caught fire at a dock. The trial court determined that the fire was caused by the shipowner’s negligence in plugging a damaged extension cord into a space heater. The court also held that the vessel owner had privity or knowledge of this negligence. Therefore, the owner was unable to limit its liability under the Act. The Fifth Circuit affirmed the decision. A proper defense under the Act requires compliance with certain judicial procedures. For example, the vessel owner must file a limitation within six months of notice of a claim. 46 U.S.C. § 30511(a). It also must deposit with the court an amount equal to the owner’s interest in the vessel and her freight. Id. at § 30511(b). These procedural hurdles may encumber institution of a limitation action, particularly when the vessel and her freight are highly valuable. For these reasons and others, it is important to consult with an attorney if you believe the Act may provide you with legal protections.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.