Limitation of Liability Act: What boat owners need to know

Q: I operate a boat rental business in California, and a customer who claimed to be a maritime attorney advised me that if a jet ski hits and injures someone, the owner of the jet ski may limit his liability under a 19th century law that is still on the books. He said he had a case and recovery was limited to the value of the jet ski. If this is true, then why do I (or anyone with a small vessel) need a million dollar (or more) liability insurance amount? Are we overpaying for a risk that does not exist?

A: I will first note that the advice given by our reader’s attorney was irresponsible. It was a very broad statement, and like anything else in the law, nothing is automatic even if the general concept has merit.

Our reader and his attorney are referring to the Limitation of Liability Act (Title 46 U.S> Code, section 30305). The Act dates back to the 19th century, when cargo ships would disappear on voyages that lasted several years. During the time that the ships were away from their home port, the owner had very little – if any – control over the operation of the ship. A legal concept developed to limit the owner’s liability in recognition of the owner’s lack of control over vessel operations.

The legal concept continues today under the Limitation of Liability Act, and if limitation is found, an owner’s liability is limited to the post-incident value of the vessel. The most famous limitation case was filed by the White Star Line after the Titanic incident. White Star lost that case because the Court found that the owners did in fact exert control over vessel operations, but if they had succeeded, their liability would have been limited to the value of the nine surviving life boats.

Modern day limitation actions are common, but the actual finding of limitation by the court (and therefore the ability of the owner to limit liability) is NOT common. In a limitation action, the first task will be to establish that the incident occurred on “navigable waters” subject to the jurisdiction of a federal court. Navigable waters are bodies of water that are navigable to the ocean or bodies of waters that traverse state line in the United States (such as Lake Havasu or Lake Tahoe).

If the incident occurred on navigable waters, a court must then (1) determine what acts of negligence or conditions of unseaworthiness caused the accident; and (2) determine whether the ship owner had knowledge or privity of those same acts of negligence or conditions of unseaworthiness.

Those two elements are a big deal. In a circumstance where the owner, or the owner’s employees or independent contractors, have daily contact with the vessel, it is extremely difficult to imagine a scenario where the owner did not have knowledge or privity of the circumstances that led to the accident. “Privity”is basically some level of involvement, oversight or responsibility in the operation of the vessel or the circumstances of the accident.

In our reader’s case, we can assume that the owner or owner’s employees will not be aboard a jet ski or small rental boat. In that case, the owner will probably not have any involvement in the actual accident. However, a court may still find “privity” in a case such as that because the owner will be responsible for evaluating the competence of the operator before renting the boat to them, and they are responsible for ensuring that the vessel is safe and seaworthy.

With all of these restrictions, it is extremely difficult for an owner to limit liability in a recreational boating accident. Nonetheless, competent maritime attorneys will always explore this option when they are defending a boat owner after a maritime accident.

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

 David Weil is the managing attorney at Weil & Associates (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-438-8149 or at dweil@weilmaritime.com.

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