Understanding The Limitation of Liability Act of 1851 & The Deepwater Horizon Tragedy

For better or worse, this April’s tragic Deepwater Horizon offshore rig accident has shined a light on the sometimes odd, often old, and always complex ins and outs of federal maritime law. In particular, today’s announcement that Transocean will file a petition in a Houston court to limit their liability to $27 million has many struggling to understand the Limitation of Liability Act of 1851.

Very simply, the act makes it possible for vessel owners to avoid unlimited liability for personal injury or death in the event of an offshore accident. The fiscal liability limit for vessels is the amount ship and its cargo is worth after the wreck takes place and when the voyage is over – as long as the owner of the vessel was not at fault for the accident. In the case of the Deepwater Horizon oil rig disaster, the rig was worth $650 million before the accident and $26,764,083 where it lies on the floor of the Gulf of Mexico.

Passed almost 160 years ago, the Limitation of Liability Act of 1851 was initially used by vessel owners in a very different way in which it is now utilized by those who are facing litigation following an accident at sea. Originally, the United States Congress passed the Limitation of Liability Act of 1851 in order to help American vessel companies compete with European ship companies that were already protected by a similar law overseas.

While this law made some sense in the 1800s, when modern insurance policies were not available, ship owners today use the law for very different ends. Today, while judges rarely grant liability limitations to vessel owners, companies can often gain a legal edge by filing a liability limitation petition: they can stall litigation, choose a litigation venue, avoid jury trials, and generally gain more control over what may be a flood of accident and injury lawsuits related to their accident and loss.