Dictionary of Maritime Terms

DAMAGES The Limitation of Liability Act ("LOLA"), originally enacted in 1851, allows a ship owner to limit its liability. Liability is limited to the value of the vessel and its cargo. The limitation only applies if the loss is incurred without the "privity or knowledge" of the owner. This act of the U.S. Congress was passed "to encourage ship building and to induce capitalists to invest money in this branch of industry." The Act achieves this purpose by "exempting innocent ship owners from liability, beyond the amount of their interest." When faced with liability for a maritime accident, a vessel owner may file a petition in federal court seeking limitation of liability under LOLA ( Norwich & N.Y. Transp. Co. v. Wright, 80 U.S. 104, 121 (1871)). Provided that the accident in question occurred without the owner's "privity or knowledge," LOLA limits the owner's liability to the value of his interest in the vessel and its pending freight. 46 U.S.C. § 183(a).

After the vessel owner deposits with the U. S. District Court an amount representing the value of the vessel and its freight, the "limitation fund", the District Court stays all related claims against the vessel owner pending in any other court and directs all potential claimants to file their claims with the district court within a specified time. 46 U.S.C. § 185; Supp. R. for Certain Admiralty and Maritime Claims F(3), F(4); see also In re Dammers & Vanderheide & Scheepvaart Maats Christina B.V., 836 F.2d 750, 755 (2d Cir. 1988); Universal Towing Co. v. Barrale, 595 F.2d 414, 417 (8th Cir. 1979). After the damage claims have been filed, the district court may resolve the vessel owner's claim to limitation of liability. See In re Dammers, 836 F.2d at 755. If a court in which the liability issues are adjudicated finds liability, but also upholds the limitation of liability, then the district court distributes the limitation fund.. If there is more than one damage claimant, the district court distributes the fund among the claimants via an equitable proceeding called a concursus. See S&E Shipping Corp. v. Chesapeake & Ohio Ry. Co., 678 F.2d 636, 643 (6th Cir. 1982)