THE LIMITATION OF LlABILITY ACT AND PERSONAL WATERCRAFT
(published December
1999)
One
of the most popular trends in the modern cruise industry is the use of so-called "private
islands" as ports of call. One of the many activities regularly offered to
passengers at these islands is personal watercraft rental. (Personal watercraft
are often referred to as jet-skis, water bikes or Sea-Doos.) Along with the
rise in popularity of these devices, came a rise in "incidents" involving them.
What happens if someone is injured while riding a personal watercraft? Under
the right circumstances, the Limitation of Liability Act, 46 U.S.C. § 183,
et al, ("the Act") can provide a strong defense to the owner of the watercraft,
be it a cruise line or otherwise.
The Act provides, in pertinent part that:
The liability of the owner of any vessel, whether American or foreign. . . for any loss, damage, or injury by collision, or for any act, matter, or thing, loss, damage, forfeiture, done, occasioned, or incurred, without the privily or knowledge of such owner or owners, shall not, except in the cases provided for in subsection (b) of this section, exceed the amount or value of the interest of such owner in such vessel, and her freight then pending.
46 U.S.C. § 183. A limitation petition must be filed within six months of first notice of a claim which could exceed the value of the vessel in question, or else a federal court petition is barred.
THE ACT
The Act was passed in 1851 for the express purpose of aiding the development of the American merchant marine. The intent of the Act was to encourage American investment in shipping by placing them on par with British owners, who had been protected by limitation laws since the 18th Century. In his treatise on Admiralty Law, Professor Thomas J. Schoenbaum provides an introduction to the Act:
Limitation of liability is an important theme of admiralty law. In the medieval sea codes the idea appears that the shipowner, the sponsor of the maritime venture, should not be liable beyond the value of his vessel. The justification was that running a ship was an inherently risky business, a fact well known to all parties to a marine venture, and the imposition of full and one-sided liability on a shipowner would discourage maritime commerce.
It was also considered unfair to impose liability on a shipowner for circumstances beyond his control, such as the acts of his agents and servants, not to mention the perils of the sea.
Prof. Thomas Schoenbaum, Admiralty and Maritime Law, § 13-1, (2d. Ed. 1994).
TITANIC
One of the more famous uses of the Act came after the sinking of the TITANIC. The owners of the vessel filed a petition for exoneration or limitation of liability in the U.S. District Court for the Southern District of New York. Since the Act allows a shipowner to limit its liability to the current value of the vessel, plus her pending freight, the TITANIC limitation fund was roughly valued at $97,722; comprised of $5,000 which was the value of her surviving lifeboats; and pending freight of gross passenger money received for the voyage. If the District Court ultimately determined that the vessel's owner had no knowledge of, or privily in the negligence or unseaworthiness which caused the sinking (and that U.S. Iaw applied over British), the claimants would have been limited to a pro rata share of the $97,772 fund, even though the filed claims totaled almost $17 million! After four years of litigation, the case settled in 1916, without a final judicial determination.
In 1935, the Limitation Act was changed to avoid the type of problem caused by a TITANIC situation. The Act was amended to include a provision requiring, in cases of claims for loss of life and bodily injury, a minimum liability fund of $60 per ton. 46 U.S.C. § 183(b). Thus, a lost vessel can no longer eliminate a shipowner's liability (or limit it to the value of lifeboats). The Act is virtually the same today as it was in 1935. As Congress has not specifically defined the term "vessel", litigation often centers around the meaning of that term, as when personal watercraft are involved.
APPLICABILITY TO PERSONAL WATERCRAFT
Courts sitting in admiralty have ruled in recent years that the Act applies to jet-skis and other personal watercraft. In the case of Complaint of Keys Jet Ski, Inc. v. Kays, 893 F. 2d 1225 (llth Cir. 1990), the plaintiff's 13-year-old son was killed when the jet-ski on which he was a passenger collided with a 25-foot fishing boat. Keys Jet Ski, Inc., the owner of the jet-ski, filed a petition to limit its liability to the value of the vessel - the jet-ski involved. The District Court denied the petition. The 11th Circuit Court of Appeals reversed the District Court, ruling "Congress' failure to limit the applicability of the Act when additional Amendments were made . . . supports the proposition that Congress intended the Act to apply to any vessel." The Court in concluding that the Limitation Act applies to personal watercraft, held:
The Kays contend that a literal interpretation of this definition would include a styrofoam surfboard, a life preserver, or even a conventional water ski. Application of the Limitation Act to jet skis does not lead to such an absurd result. In the proper case, a valid distinction could be drawn between these flotation devices and the Code's definition of a vessel. In this case, however, we find no reasonable distinction between small motor boats capable of being used as a means of transportation on water and the jet-ski, which is also capable of substantially equivalent transportation on water.
All subsequent Circuit Court decisions involving petitions for limitation of liability and personal watercraft have ruled the Act applicable to personal watercraft as long as the requisite foundational facts are present.
CONCURSUS OF CLAIMS AND BURDENS OF PROOF
Once the owner of a vessel files a petition for exoneration from or limitation of liability, a stay will issue, requiring all claimants and/or potential claimants to file a claim within the limitation action. Once all claimants have filed their claims, the burden of proof is on the claimants to demonstrate, by a preponderance of the evidence, that their alleged loss was proximately caused by the negligence or unseaworthiness of the vessel. See, In the Matter of the Complaint of Bankers Trust Co., 761 F.2d 943 (3d Cir. 1985); In Re: The Valley Line Company, 564 F.Supp. 612 (E.D. Mo. 1983); In the Matter of: Complaint of Farrell Lines, Inc., 530 F.2d 7 (5th Cir. 1976), and Admiralty and Maritime Law, supra, § 13-6, p. 771 (2d. ed. 1994).
The legal standard applicable, as in other maritime personal injury claims involving negligence, is "reasonable care under the circumstances". Kermarec v. Compagnie Generale Transatlantique, 358 U.S. 625, 79 S.Ct. 406, 410 (1959); Everett v. Carnival Cruise Lines, Inc., 912 F.2d 1355, 1358 (11th Cir. 1990); Keefe v. Bahama Cruise Line, Inc., 867 F.2d 1318, 1322 (11th Cir. 1989). Thus, as a prerequisite to the imposition of liability, the plaintiff must offer evidence that the vessel owner had actual or constructive notice of a risk-creating condition and an opportunity to correct it. Everett, 912 F.2d at 1358; Keefe, 867 F.2d at 1322. Absent actual or constructive knowledge of an injury-producing defect, liability against the owner cannot exist. The maritime doctrine of unseaworthiness requires an owner to ensure her vessels are reasonably suitable for their intended use. See, Farrell Lines v. Jones, 530 F.2d 7 (5th Cir. 1976). In the context of a limitation proceeding, unseaworthiness means a vessel is not reasonably fit for its intended purpose due to some defect which proximately causes damages. If the Court determines that the vessel owner was not negligent and that the vessel was seaworthy, the vessel owner is exonerated from liability and the case is over. If, however, the Court finds negligence or unseaworthiness, The owner still has the alternative defense of limitation of liability.
LIMITATION OF LIABILITY
If the Court finds vessel owner negligence or unseaworthiness proximately caused the injury, a vessel owner may seek to limit its liability to the value of the vessel and freight then pending, absent evidence that the owner had "privily or knowledge" of the claimed negligence/unseaworthiness prior to the accident. See, Bankers Trust Co., supra, 761 F.2d 943; Farrell Lines, Inc., supra 530 F.2d 7. Privity or knowledge, while not defined in the Act, is generally defined as the owner's personal participation in the negligence or fault which caused the damage. Hercules Carriers, Inc. v. Claimant State of Florida, 768 F.2d 1558 (11th Cir. 1985).
In the case of a corporate vessel owner, which acts through agents of the corporation, the individual charged with privily or knowledge must be sufficiently high in the corporate hierarchy so that the individual's knowledge would be chargeable to the corporation itself. Spencer Kellogg & Sons, Inc. v. Hicks, 285 U.S. 502 (1932). In other words, limitation of liability is available to shipowners so long as the causes of the accident were not within the privily or knowledge of "managing officers or supervisory employees." In Re: The Valley Line Co., 564 F.Supp 612, 616 (E.D. Mo. 1983). The privily or knowledge of the Master of a vessel, however, is deemed to be the privily or knowledge of the owner. Moore McCormack Lines, Inc. v. Armco Steel Corp., 272 F.2d 873 (2d Cir. 1959); 46 U.S.C. § 183. Absent evidence that a vessel owner's managing officers or supervisory employees were aware of the alleged risk-creating condition prior to the accident, the owner is entitled to limit its liability to the value of the subject vessel and her freight then pending. See, Bankers Trust Co., supra 761 F.2d 943; Farrell Lines, Inc. 530 F.2d 7.
Most recently, the U.S. District Court for the Southern District of Florida granted Summary Judgment in Re The Complaint of Royal Caribbean Cruises Ltd., 55 F.Supp.2d 1367 (S.D. Fla. 1999), a case handled by KRP.* The action stemmed from a collision between two rental jet skis in the waters of Coco Cay, Bahamas, Royal Caribbean's private island. Royal Caribbean owned the two jet ski vessels involved in the collision and was sued for negligence in the operation and supervision of its watercraft rentals. Royal Caribbean subsequently filed a petition for Exoneration from or Limitation of Liability, pursuant to 46 U.S.C. § 181-188. Royal Caribbean then moved for summary judgment seeking exoneration from or, alternatively, limiting its liability to $7,200, the value of the two Sea-Doo vessels. The passenger injured in the collision moved for a multi-million dollar limitation fund to include not just the Sea-Doos, but also the value of the cruise ship which transported her to Coco Cay.
The Court granted Summary Judgment for Royal Caribbean holding that plaintiff was unable to offer any evidence of culpability that Royal Caribbean's safety training or supervision was inadequate. The Court further held that even if it had not concluded Royal Caribbean was entitled to exoneration, the cruise line would nonetheless be entitled to limit its liability to $7,200, the value of the two personal watercraft. The Court specifically found the value of the cruise ship was not to be included. The Court also found that plaintiff had failed to put forth any evidence that any individual with knowledge or privily was sufficiently high in the corporate hierarchy so that the individual's knowledge of negligence would have been imputed to Royal Caribbean.
(*This case has since been appealed to the Eleventh Circuit Court of Appeals.)
PRACTICALITIES
1. Shipowners should be mindful of the involved corporate entities. Only the owner of a vessel has the right to invoke the procedures of the Act. If a cruise line were to establish a subsidiary company as owner of the personal watercraft on their out-island, that is the company which would be entitled to limit liability, not the cruise line. Similarly, if a cruise line were to direct guests to a concessionaire/owner, the concessionaire may be able to limit its liability while the vessel owner and its manufacturer could not.
2. Safety procedures should be carefully crafted and documented. Royal Caribbean was exonerated from liability because of the numerous safety features built into their personal watercraft rental operation, including the following: a videotape explanation of how to ride the watercraft and all safety procedures, a hands-on, shore-side explanation of how to ride the watercraft with a mock-up vehicle, and the signing of a detailed release which confirms that passengers understand all of the safety rules and requirements. An ounce of prevention is worth a pound of cure.
3. A petition for limitation should be filed prior to the filing of actions by potential claimants. When you know that litigation is likely, take the offensive. A petition for limitation must be filed within six months of first notice of a claim which arises out of a casualty likely to exceed the value of the vessel. By filing the petition for limitation in Federal Court, the shipowner places all potential claimants on notice, stays any previously filed actions and forces all claimants to file suit, under the terms and condition of the Act. Furthermore, the Court will establish a monition period during which all claimants must file their respective claims in the limitation action or face default.
CONCLUSION
The Act can be a powerful tool for vessel owners. Its range of uses extends to TITANIC proportions. While this article has focused primarily on personal watercraft operations, the limitation procedure is equally useful in the context of any vessel, fishing boat, freight carrier, tug or cruise ship.
