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May 13th, 2010

Transocean Files Limitation of Liability in Houston, Texas Federal Court

Transocean explosion plaintiff’s lawyer and SMSH Partner Matt Shaffer learned early this morning that Transocean filed for Limitation of Liability today in Houston, Texas in the United States District Court for the Southern District of Texas, Houston Division.  Mr. Shaffer represents three clients who were injured in the Transocean Deepwater Horizon explosion on April 20.  Matthew Shaffer predicted that Transocean would file to limit its liability within days of the oil rig explosion.

Transocean, as the owner of the Deepwater Horizon drilling rig that burned and sank last month unleashing a massive oil leak into the Gulf of Mexico, can and did file in federal court to limit its liability to the value of its vessel (the Deepwater Horizon oil rig that exploded) and the vessel’s cargo (which is now underwater) after the accident.

What is a Limitation of Liability?

Limitation of Liability comes from 150 year-old maritime law allowing US shipowners to limit their financial liability.  Under the Limitation of Liability Act of 1851, a vessel owner is liable only for the post-accident value of its vessel and cargo, as long as the vessel owner can show it had no knowledge of negligence in the accident.  Certain types of dilling rigs, such as MODUs (Mobile Offshore Drilling Units) like the Deepwater Horizon are considered vessels under U.S. maritime law because they are capable of being navigated.

Therefore, since the offshore drilling rig Deepwater Horizon exploded and its remains can be found about a mile deep in the Gulf of Mexico, the value of the rig and its cargo comes to no more than $26,764,083, Transocean claims in their limitation of liability filing.  Before the accident, the rig was worth around $650 million.

Limitations of Liability were created before legal protections and maritime insurance for vessels existed.  The Limitation of Liabililty Act provides a safe haven for vessel owners, eliminating potentially unlimited liability in catastrophic maritime accidents and disasters, unless the vessel owner’s own actions contributed to the cause of the disaster or loss.  However, in the event of fire or sinking, the value of the vessel is often zero.

Transocean, as the vessel owner, can file an action within six months of receiving written notice of a claim.  Transocean will now either transfer its remaining interest in the vessel to a court appointed trustee, or deposit with the court a sum or bond equal to the value of its interest in the Deepwater Horizon.

Why Did Transocean File for Limitation of Liability?

Many maritime lawyers feel that Defendants file for Limitation of Liability to gain an edge in lengthy litigation.  This is because filing a Limitation petition allows a Defendant to gain control over the legal process in several ways.  First, once the complaint is filed, the court issues a stay of all proceedings against the vessel owner with respect to the incident in question.  Then, the court’s order requires all claimants to litigate their claims arising out of the casualty to be filed and determined in a single proceeding by the limitation court.  Third, since a limitation proceeding is considered a case in admiralty, there is little to no right to a jury trial for the injured seamen or the families of deceased maritime workers.

The filing of the limitation proceeding is governed by Supplemental Admiralty Rule F(9), Federal Rules of Civil Procedure. The transfer of venue in limitation actions based on convenience of parties and witnesses and in the interest of justice is allowed. As a general rule, a plaintiff’s choice of forum is given favor in determining whether to transfer a limitation action.

Given the nature of a limitation of liability proceeding, it is imperative for any lawyer handling a limitation of liability or exoneration from liability proceeding to have mastered the requirements of the Limitation of Liability Act and the defenses available to injured clients that allow them to defeat the vessel owner’s attempt to limit its liability. If the lawyer doesn’t have experience dealing with the complicated nuances of the Limitation of Liability Act, then the clients will not get the compensation to which they are entitled.

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