Limitation of Liability – Nuts & Bolts of Maritime Limitation Actions

December 8, 2020

Injuries that occur while working on navigable waters, or while out on the water for any other purpose, are handled differently than injuries experienced on land. When filing a maritime lawsuit for personal injury or wrongful death against the owner of a vessel, certain rights are afforded to vessel owners that shield them from liability or from paying large amounts of compensation. For a light overview and background of the Limitation of Liability Act, see our blog to gain a basic understanding.

The Limitation of Liability Act gives vessel owners the right to limit an injured party’s compensation in a personal injury or wrongful death suit to the amount of the value of its vessel. While seemingly outdated and at times unfair in the modern age, these laws still operate to protect vessel owners from large verdicts.

The Right to File Claims under the Limitation of Liability Act

An owner of a vessel may file a claim under the Limitation of Liability Act for cases involving accidents that result in personal injuries or other losses that occur on navigable waters in the United States. To break this down:

  • A “Vessel” includes all vessels that operate navigable waters. This includes:
    • cargo ships, transportation ships, service vessels, and other vessels that operate on the high seas;
    • barges, tugs, canal boats, and other riverboats;
    • pleasure craft, jet skis, and houseboats
    • and almost any other type of vessel that is on traversing navigable waters
  • “Navigable waters” are defined as those that:
    • Are subject to the ebb and flow of the tide;
    • Connect with a continuous interstate waterway;
    • Has navigable capacity; and
    • Is actually navigable
  • Navigable waters are governed under a vast body of federal regulation. However, using the elements above, courts have held that bodies of water even smaller than lakes and rivers can constitute navigable waters (e.g., streams that are traversable only by canoe have met the test). If a body of water is not deemed navigable, a vessel owner may not exercise the right to file a limitation suit.

To file a limitation suit, one must be an owner of a vessel. Courts have held that an “owner” can include not only registered owners, but those who exercise dominion or control over the vessel. Owners could include:

  • Individual with legal title to the vessel
  • President and sole shareholder of a vessel owning company
  • Owners at the time of the incident/injury in litigation that later sold the vessel
  • Charterers who navigate vessels at their own expense

Vessel managers or others, who cannot be considered an owner pro hac vice by exercising sufficient control over the vessel, will not be afforded the right to make claims under the Limitation of Liability Act.

Owners are prohibited from filing limitation of liability claims in certain circumstances. For personal injury claims, two claims for recovery are not subject to the Limitation of Liability Act:

  1. Past/lost wages owed to seaman; and
  2. Maintenance and Cure benefits for an injured seaman

Importantly, the Limitation of Liability Act only applies to injuries occurring on the water. Many workers in the maritime industry may suffer injuries due to the hazards of the job and/or negligence of others. However, accidents that do not occur on a vessel are not subject to the Limitation Act.

The Procedural Mechanism – How a Limitation Claim is asserted

The two ways that the vessel owner can attempt to limit liability when faced with a claim for personal injury or wrongful death are:

  1. The owner may assert the limitation of liability claim offensively by filing a limitation action in a federal district court; or
  2. the owner can assert the Limitation of Liability Act defensively in response to an injury/death lawsuit, in either a state or federal court, by raising the affirmative defense of limitation.

If the owner asserts a limitation claim offensively, then the claims may be consolidated into a single federal forum. Therefore, the strategy of filing an injury/death case in state court can be ruined if the original case and limitation suit are consolidated in a federal court.

In order to maintain a valid limitation of liability claim, the vessel owner must file the claim in a proper venue and within the applicable Statute of Limitations.

            Proper Venue for a Limitation Claim

The only courts that can govern limitation claims are federal district courts sitting in admiralty. Venue is governed by general federal venue rules. The court has discretion to dismiss a limitation proceeding if filed in an improper venue or transfer it to the proper federal district court sitting in admiralty where the claim should have been filed.

            Applicable Statute of Limitations

The time period for a vessel owner to file a limitation of liability claim, either by asserting it offensively or by affirmative defense, is six months from the date the vessel owner receives notice of the injury or wrongful death claim. The clock begins when the vessel owner receives proper written notice. Proper written notice must (1) inform the vessel owner of the details of the incident/accident that caused the injuries; and (2) inform the vessel owner that the vessel owner is responsible for the injuries in question. Two tests have arisen to determine whether notice to a vessel owner is sufficient to trigger the statute of limitations:

Test #1:

  1. the vessel owner was informed of the actual or potential claim;
  2. that the claim may exceed the value of the vessel and pending freight; and
  3. the claim is subject to limitation

Test #2:

  1. the notice demands a right;
  2. the notice blames the vessel owner for damages/losses; and
  3. The notice demands the vessel owner to pay what is owed to the claimant

If the Vessel owner fails to file a limitation of liability claim within the 6-month time period, then the claim may be dismissed. If the claim is not dismissed, then the order consolidating claims in the federal forum can be lifted, and/or the stay may be lifted that precludes multiple actions.

After the Limitation of Liability Claim is filed; How to Continue Litigation

After a vessel owner files a limitation of liability claim in federal court, that court will immediately issue an injunction, or a stay of all other claims originated from or related to the same incident. This means that if a personal injury case is filed in state court, and the vessel owner files a limitation action in federal court to limit its liability, then the state court case will be stayed until the federal limitation claim is resolved.

The court will set a “monition period” that allows for any other potential claimants, who may have claims related to the same incident, to come forward and file their claims in the single limitation proceeding. This is referred to as the “concursus.” The concursus puts the vessel owner on notice of all potential claims, and allows the court to prioritize all claims according to which ones might exceed the value of the vessel.

The vessel owner, at the time of filing a limitation action, must provide funds to the court that cover the value of the vessel. This is called the “limitation fund.” The vessel owner will stipulate to the value of the vessel, and deposit an equal amount of money with the registry of the court. Unfortunately, for cases involving multiple claimants against the vessel owner, each claimant can only recover a pro-rata portion of the limitation fund if the fund is insufficient to cover all claims against the vessel. Claimants are forced to compete for pro rata shares, and claimants may be left without the total amount of their damages resulting from their injuries.

            How can I continue my case in state court?

A highly important carve-out to the limitation injunction, or stay, issued by the court is referred to as the “single-claimant rule.” Essentially, a plaintiff who files a case in state court against a vessel owner who files a limitation action in federal court can avoid consolidation of claims in federal court, and continue litigating the case in state court by filing certain stipulations in the federal court action. See our blog on battling limitation claims against maritime injuries to learn more.

Limitation Proceedings – Burden of Proof, and How the Court Decides the Issues

If a claimant is unable to lift a limitation injunction and is forced to proceed in federal court with the limitation action, the respective burdens of proof for the claimant and vessel owner are as follows:

Claimants have the burden to show the court that the personal injuries/wrongful death was caused by the negligence or unseaworthiness of the vessel; if the claimant succeeds, the burden shifts to the vessel owner.

Vessel owners must prove that they lacked “privity or knowledge.” Privity and knowledge can be proven by the claimant by showing that the means of obtaining knowledge existed, or the knowledge could have been learned through reasonable inspection of the vessel.

The Disadvantages to Plaintiffs – Why Your Case is Harmed by the Limitation of Liability Act

There two biggest advantages to vessel owners who file a limitation of liability claim, which serve to harm your personal injury/death cases, are: (1) the concursus; and (2) denial of the right to a jury trial. First, the concursus may bring in other cases for similarly injured parties. If the limitation fund is not large enough to cover all the damages for every claimant, then you are stuck with a pro rata share of the fund as an award for your damages. Second, because a limitation proceeding is a case in admiralty, there is no right to a jury trial. Therefore, if your claim was made under state jurisdiction, your right to a jury trial may effectively be denied by a federal judge. See our blog on battling limitation of liability claims to learn more about how to avoid this issue.

Morrow & Sheppard LLP has experienced trial attorneys that have successfully defended against limitation of liability claims. It is vital to any maritime injury case to understand and navigate these laws. Call or inquire online to speak with a Jones Act lawyer about your injury or death case.

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