DEFINITION of Admiralty Liability

Admiralty liability is used for insurance claims and legal purposes to describe the restitution of obligations resulting from events that occur at sea. For example, a shipping company may be responsible for repayment of goods that are lost when the ship they're being transported on sinks.

BREAKING DOWN Admiralty Liability

Admiralty liability involves a risk, event or conduct that would run afoul of admiralty (maritime) laws, thereby putting the matter under the jurisdiction of an admiralty court. Admiralty law is quite complex, and does not necessarily coincide with U.S. law, thereby creating many jurisdictional issues. Common law precedents (such as fair and equitable settlement) do not necessarily apply. Most notably, matters subject to admiralty law do not require trial by jury.

An especially unique aspect of maritime law is the ability of a shipowner to limit its liability after a major accident.

Maritime Liability Examples

Maritime casualties and catastrophes often generate claims well in excess of the value of the vessel or its cargo after the incident. One of the hallmarks of American admiralty and maritime law is the Limitation of Liability Act of 1851, which permits a shipowner to limit its liability to the value of the vessel after the event, provided the incident was beyond the owner's "privity and knowledge."

For example, in 1912, the owners of the Titanic were successful in showing that the luxury liner's 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 only to split $91,000 (the value of the lifeboats, passenger fares and freight charges) – thanks to the limitation of liability.

Almost a century later, another notorious case occurred when Transocean, the owner of the Deepwater Horizon, filed in the U.S. District Court for the Southern District of Texas to limit its liability to just its interest in the off-shore drilling rig, which exploded and sank in 2010. It valued the rig at $26,764,083 – despite the billions of dollars' worth of damage and liabilities resulting from the oil spill that followed the sinking.

Originally developed to encourage shipping commerce, admiralty law in many countries has only very recently recognized the rights of a ship's crew. In the U.S., this was accomplished back in 1920 through the Jones Act, which gives sailors the ability to seek damages from the captain or ship owner in the case of injury, and also gives crew members the right to a jury trial – for example, in negligence cases.