Classification Societies and Limitation of Liability

Consonant with the vicissitudes and perils of maritime ventures, limitation of liability is a well-entrenched and long-established precept of federal maritime law, benefiting shipowners and mercantile interests alike. For over a century and a half, shipowners, vessel managers, and bareboat charterers have invoked the Limitation of Liability Act of 1851 (Limitation Act) to shield themselves from significant claims brought on behalf of cargo interests, crewmembers, and third parties. Likewise, the United States Carriage of Goods by Sea Act (COGSA) and its attendant package limitation have effectively limited ocean carriers' exposure to cargo claims. By virtue of Himalaya clauses and similar contractual provisions inserted into bills of lading, charter parties, and service contracts, several other parties--stevedores, terminal operators, warehousemen, and rail carriers, to name a few--have also gained the benefits of limited liability. Even the liability of vessel owners, operators, and demise charterers, with respect to environmental claims, is subject to limitation.

Historically, classification societies have played an integral role in the development of safety in shipping and maritime commerce. Yet their unique function and episodic contact with the vessels and offshore structures that they class and/or certify have left classification societies in a precarious position vis-à-vis shipowners and other maritime venturers. Although certain international conventions, as well as federal maritime law, offer limited liability to nearly all parties to a maritime enterprise, classification societies per se have not enjoyed such recognition. As both the M/V ERIKA and M.T. PRESTIGE oil spills have demonstrated, third-party claims against classification societies can result in potential liability exposure that vastly exceeds their net worth or insurable liability.

An international convention developed and adopted by the world's maritime nations that addresses the scope of a classification society's duties and provides for limitation of liability is one answer to the question of class liability. Realistically, such an undertaking likely would take years to implement, and whether those countries of strategic maritime importance would adopt such a convention remains an open question. In the absence of a convention, the issue of unlimited liability of classification societies is one for the courts and commentators to address.

Part II of this Article defines the role of classification societies and their surveyors in the maritime world. Part III traces the historical development of the liability of classification societies in the United States and, based upon this legal framework, Part IV argues that the only third-party claim cognizable in admiralty against a classification society is negligent misrepresentation. Part V proposes that a third party's reliance upon the representation that a vessel is “in class” cannot be a limited or partial reliance. Instead, the stated reliance must be analyzed in conjunction with all class representations, including those representations that portend a limitation of liability of the classification society, whether such a limitation provision is found in the Class certificate or other document upon which the third party relies, the classification contract, or even the applicable Class rules. This Article concludes by arguing that such a limitation of liability provision should be enforced against both those in privity as well as third parties that claim beneficial status or reliance on a classification society's representation that a vessel or structure was “in class.”

Allocation of Marine Risks: An Overview of the Maritime Insurance Package

Those engaged in maritime commerce are exposed to considerable risk in the day-to-day course of their business. Whether it be the owner of a vessel, the cargo on board, or the operator of the terminal at which the vessel calls to load that cargo, risk of loss and risk of liability attaches to all those involved in marine operations. This Article examines in summary fashion the various marine insurance policies and the coverage those policies afford those involved in maritime commerce.

Port Security Inside Out: A Systems Approach to Safeguarding Our Nation's Ports

In the wake of the terrorist attacks of September 11, 2001, Congress quickly realized that the porous nature of ports and waterways throughout the United States made them an attractive target for transportation security incidents. While there was a patchwork of regulations that endowed the United States Coast Guard with the authority to address port security, Congress adopted far-reaching legislative measures to bolster existing port security regulations and enhance maritime domain awareness. Both the Maritime Transportation Security Act of 2002 and the SAFE Port Act of 2006 seek to create a comprehensive and layered approach to preventing and responding to events that have the potential to disrupt the flow of waterborne commerce.

Smoother Seas Ahead: The Draft Guidelines as an International Solution to Modern-Day Piracy

Piracy is an increasing problem for commercial trade. As the oceans are used by all and controlled by no one, a regulatory vacuum exists with respect to laws guiding state responses to piratical acts. This Article promotes the Draft Guidelines as the most appropriate response to this international conundrum.

New Horizons: An Analysis of Public Markets Financing of Shipping Ventures and the Impending Waves of Shipping Securities Litigation

Over the past one hundred years, the scope and variety of financial instruments used in the maritime field have evolved profoundly, and markedly so, over the past decade. IPOs, high-yield debt offerings, and SPACs are among some of the financing products shipping companies are relying on today to grow and maintain their businesses. The following traces the historical development of these products and their current usage in the shipping world. This Article then looks at the securities law implications upon the shipping industry, its new investors, and maritime law in general.

Thoughts on Professionalism in the Twenty-First Century

A perceived decline of professionalism in the legal profession has been the subject of much discussion in the academic and legal communities. This Article explores three aspects of professionalism: the evolving definition of professionalism in light of the changing legal profession, the effects of those changes on lawyers and the legal profession, and suggestions for highlighting and heightening professionalism in the future.

Plus CA Change: The Protean World of the Maritime Specialist

Admiralty attorneys traditionally have been excepted from the general ban on lawyers holding themselves out as specialists. That special status imposes a heightened ethical obligation on proctors to ensure that they achieve and maintain the highest levels of competence. This Article addresses the appropriate scope and means of preserving and enhancing competence in a field that comprises an increasing array of intricate and disparate subject matter.

Ships as Property: Maritime Transactions in State and Federal Law

This Article discusses the application of federal and state law to the construction, sale, repair, rebuilding, chartering, and financing of vessels, paying particular attention to the impact of the growing use of the Uniform Commercial Code as a source of federal law where a nonstatutory federal law solution is required. The impact of the recent United States Supreme Court decision in Stewart v. Dutra Construction Co. on transactions involving stationary vessels and marginal craft is discussed. In addition to a review of types of transactions, the manner in which federal and state law apply to various types of maritime property is also discussed, including the leasing and financing of vessel equipment; the relationship between mortgages, maritime liens, and security interests with respect to cargo and freight receivables, as well as the developing case law with respect to the attachment of ship mortgages and maritime liens to fishing rights.

The Uniqueness of Maritime Personal Injury and Death Law

Claims for personal injuries and deaths that occur on or near navigable waters generally fall within a court's admiralty jurisdiction and require the application of substantive maritime law, which is, of course, federal law. The issue of whether maritime jurisdiction exists, however, can raise intricate factual and legal issues. Certain claims, although governed by substantive federal law, do not necessarily have to be brought in a federal forum. This Article examines the statutory schemes and jurisprudence unique to the field of maritime personal injury and death.

The Shifting Nature of Salvage Law: A View From a Distance

The maritime law of salvage may seem to present a fixed body of doctrines that only require to be applied to fresh circumstances. However, there have been major changes in the doctrines of salvage law, including the shift made in the eighteenth century by which the English courts moved from giving rewards for the rescuing of goods wrecked at sea to giving rewards for the prevention of loss at sea.

Two points are now likely to force further development of the law. One point is the combination of the fact that (apart from the limited safety-net provided by SCOPIC) under existing law the amount of a salvage reward is capped by the value of the property preserved, together with a decline in the number of salvages from which salvors can earn rewards under existing law. The result is a pressure from salvors for salvage rewards fully reflecting the liabilities from which vessels and their insurers have been saved. The second point is a possible pressure from property insurers (hull and cargo) not to pay by way of the rewards for these few salvages, for the costs of the existence of professional salvors and the maintenance of vessels and equipment dedicated to salvage, which may now seem primarily to benefit liability insurers.

One possible development is that salvage operations might be performed under fixed-price contracts between the liability insurers of vessels and salvage contractors. We discuss in this Article the extent to which, under English law, a contract such as Lloyd's Open Form may replace the general maritime law of salvage.

Another possible development is that liability salvage might be recognised under maritime law as a separate route to a salvage reward, parallel to the route of property salvage. We defend the conceptual possibility of this development and deal with some difficulties that have been raised. We conclude that this change would be in accordance with the underlying principles of salvage law, in terms of rewards based on benefits conferred and in terms of encouragement, and would involve no greater departure from existing doctrine than was made by the judges of the eighteenth century.

In this Article we also review (from across the Atlantic) some issues in U.S. salvage law, including the application of salvage law to ancient wrecks, life salvage under U.S. law, and the position of Lloyd's Open Form under U.S. law.