Limitation of Liability
An owner of a vessel is sometimes permitted to file for limitation of
liability with regard to an event which may expose him to a claim or suit
for damages. The institution of limitation of liability has its roots
in medieval sea codes to encourage maritime activities and protect vessel
owners at a time when corporate entities were not yet in existence. The
institution, however, with some modifications, is still very much alive.
Normally, the vessel owner will institute limitation proceedings without
admitting liability. He must do so within six months of the event or accident
giving rise to the claims. He must also turn over to the court the ship
or the equivalent value of it, whatever it might be after the event giving
rise to the claims. Notice must also be given to the known claimants and
is to be published. Once the limitation is in place, if the trial exonerates
the vessel owner, he will owe nothing. If he is found at fault, he may
be able to limit his liability to the value of the ship. A part owner
of a vessel may limit his liability to his share in the vessel.
An additional bonus to vessel owners, and the subject of some controversy,
is the insurance issue. An insurance company is apparently subrogated
to the vessel owner and enjoys the same limitation of liability. If a
yacht, following a maritime disaster, is worth $5,000 that would be the
maximum the insurance would have to pay to the claimants if the limitation
of liability is granted. On the other hand, because the hull insurance
(which, as we have seen, is the portion of the policy which covers the
vessel itself) does not go to the limitation fund, the vessel owner may
collect the proceeds of such insurance, while the claimants are limited
in their recovery to the value of the vessel.
Pursuant to 46 U.S.C.A. § 188, limitation is available to owners of "all seagoing vessels, and also to vessels used on lakes and rivers or in inland navigation." It is clear from the language of the statute that pleasure boats are well within the limitation provisions. The Loss of Life Amendments to 46 U.S.C.A. increased the vessel owner's responsibility for personal injury or death caused by or on a "seagoing vessel". The limitation fund would then be raised to $420 per ton which could amount to a considerable sum for vessels which weigh thousands of tons. The above amendments, however, only apply to "seagoing vessels" which would exclude tugs and towboats, fishing boats and most pleasure yachts not engaged in the carriage of passengers for hire.
