Limited Liability Rule in Maritime Law

Owning or operating a vessel is a daunting endeavor. A lot of risk and liabilities may arise from the unpredictability of the sea. Good thing the law protects shipowners and ship companies from liability in case of loss or damages due to factors such as unforeseen events and negligence of the crew or the captain.

Limited Liability rule simply means "no ship, no liability". This principle stems from the characteristic of Maritime Law to be real and hypothecary in nature. Real means that it follows the vessel and hypothecary means that the vessel is in some way, a pledge on the liabilities of the shipowner. The law understands the risks involved in owning a ship and engaging in shipping business. The sea is unpredictable and there are a lot of factors that can cause damage to the vessel. Thus the limited liability rule is placed to still encourage people to venture into the shipping business and continue to accommodate commerce by sea. This rule limits the liability of the shipowner to the vessel only. if there is no vessel anymore, then the shipowner's liability ends. The limited liability rule takes effect upon the abandonment of the shipowner of the vessel and all receivables on the vessel.

However, limited liability rule only applies in cases where the shipowner has no concurrent negligence or fault. In one case decided by the Supreme Court, Monarch Insurance Co. Inc. vs Court of Appeals (GR 92735, 8 June 2000), the unseaworthiness of the vessel was found to be because of the negligence of the shipowner, the captain and the crew. The Supreme Court denied the defense of the Shipowner in seeking the application of limited liability rule because of his concurrent negligent. Be it noted that the burden of proving that the shipowner exercised extraordinary diligence as a common carrier is on the shipowner.

As cargo owners, you are not left with recourse in the application of the Limited Liability Rule. If you had your cargo insured you can claim the insured amount from the insurer and subrogating your claim against the shipowner to the insurer. In this case, however, all defenses that the shipowner can raise against cargo owners, can be raised against the insurer that is subrogated - including the limited liability rule.