By Stefanos Roulakis and Efimia Karageorgiou
Congress passed the U.S. Limitation of Liability Act (the “Act”) in 1851, the year of Moby Dick’s publication, to encourage investment in the shipping sector and carriage of goods to and from the U.S. The Act limits the financial responsibility of a shipowner to the value of the ship plus pending cargo. When casualties occur—as in the case of the recent Baltimore Bridge allision—the Act causes controversy due to the ability of the shipowner to have significantly less than the amount of losses caused by the casualty.
Limitation can be broken if the owner had “privity or knowledge” of the negligence or fault that caused the accident. Generally, a ship owner will lack privity or knowledge if they hire a competent crew and remedy any defects that with reasonable diligence would have been found1. This standard is slightly different for corporate shipowners whose privity or knowledge extends to individuals who are “sufficiently high on the corporate ladder,” which would include negligence or fault of an executive officer, manager, or superintendent2. Courts have found that even if a captain has knowledge of a deficiency, it may not be sufficient to break liability. Similarly, defects that are reported internally may be sufficient evidence for a court to determine that an owner may not limit liability.
If the owner or corporate owner is found to have no privity or knowledge of the cause of the accident, the limitation of financial responsibility is capped at the value of the vessel at the end of the voyage or the value of the vessel after the accident occurred3. If the vessel owner has privity or knowledge then the judge may “break” the limit and allow for claims to extend past the limitation amount.
The Baltimore Bridge collapse shows the benefits and the shortfalls of the Limitation of Liability Act. On March 26, 2024, the Dali, a 947-foot-long cargo vessel, collided with the Francis Scott Key Bridge in Baltimore. The crash caused the bridge to collapse into the river. Six construction workers on the bridge were killed and one crewman was injured4. The National Transportation Safety Board (NTSB) reported that the incident was caused by a malfunction in the ship’s generator leading to a blackout minutes before the accident. The outage caused the three steering pumps to fail, leading the vessel adrift5. However, another blackout happened 10 hours before departing Baltimore while at the dock for maintenance.6
The owners of the Dali filed for limitation of liability for $43.7 million.7 The damage is estimated to cost $2-4 billion.8 The major question that will be litigated is whether the shipowner had privity or knowledge of the electrical malfunctions prior to the accident. If the court finds that the shipowner has no privity or knowledge then the shipowners will only be held responsible for a small fraction of the actual cost of the damage. If the court rules the owner knew about the blackout prior to the ship leaving the dock, then the judge may “break” the limitation of liability.
As is common when major casualties occur, the Baltimore Bridge allision has ignited argument about the policy aspects of the limitation of liability act. Some argue that the Act is outdated and unjustly benefits shipowners by allowing them to limit liability to a fraction of the relevant costs. On the other hand, repeal of the Act would dramatically alter the landscape of U.S. shipping. The insurance costs of visiting the U.S. would be untenable for vessel owners and operators because their insurers would have to factor unlimited liability into their premiums. This in turn would have radical effects for U.S. consumers and producers, who would struggle with rising costs to both import and export goods.
These policy arguments will be in the background when the court in the Dali case sits to decide whether the owner can liability. However, the key issue facing the court under the Act will be if there was any privity or knowledge of any negligence or fault.
1 Bryan L. Adkins et al., Cong. Rsch. Serv., LSB11155, Legal Sidebar: The Baltimore Bridge Collapse and the Limitation of Liability Act of 1851 (2024).
2 Ibid.
3 Robert Force, Admiralty and Maritime Law, Federal Judicial Center 2d ed., 146-147 (2013).
4 MV Dali Ship Suffered Multiple Power Failures Before Colliding With Baltimore’s Key Bridge, NTSB Reports, MI News Network, (May 15, 2024), https://www.marineinsight.com/shipping-news/mv-dali-ship-suffered-multiple-power-failures-before-colliding-with-baltimores-key-bridge-ntsb-reports/
5 Id.
6 Id.
7 Id.
8 Id.