Limitation of shipowner's liability
One of the unique aspects of maritime law is the ability of a shipowner to limit its liability to the value of a ship after a major accident. An example of the use of the Limitation Act is the sinking of the RMS Titanic in 1912. Even though the Titanic had never been to the United States, upon her sinking the owners rushed into the federal courts in New York to file a limitation of liability proceeding. The Limitation Act provides that if an accident happens due to a circumstance which is beyond the "privity and knowledge" of the ship's owners, the owners can limit their liability to the value of the ship after it sinks.
After the Titanic sank, the only portion of the ship remaining were the 14 life boats, which had a collective value of about $3000, and the "pending freight" bringing the total to about $91,000. The cost of a first-class, parlor suite ticket was over $4,350. The owners of the Titanic were successful in showing that the sinking occurred without their privity and knowledge, and therefore, the families of the deceased passengers, as well as the surviving passengers who lost their personal belongings, were entitled to split the $91,000 value of the remaining lifeboats and pending freight.
In the era of modern communications, continued need for the Limitation Act is questionable. The theory behind the Act was that a shipowner who properly equipped and crewed a ship shouldn't be liable for something that happens when the ship is out of his control. Modern ships are seldom out of the control of their shoreside owners, but the Act remains a viable protection to them.
The Limitation Act doesn't just apply to large ships. It can be used to insulate a motorboat owner from liability when he loans his boat to another who then has an accident. Even jet ski owners have been able to successfully utilize the Limitation Act to insulate themselves from liability.
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