Should the owner of a vessel be awarded damages for economic loss due to negligence in the absence of physical damage to its property?
That issue was addressed once again in a recent court decision (American Petroleum And Transport Inc v. City Of New York. 2nd Circuit. No. 12–4505–CV. Dec. 6, 2013) that turned on earlier interpretations of an 87-year old U.S. Supreme Court decision (Robins Dry Dock & Repair Co. v. Flint. 275 U.S. 303.1927) that has been seen as creating a “rule” prohibiting such damages.
The incident that gave rise to this recent litigation occurred in March 2011, when American Petoleum, a company in the business of transporting oil products, had a tug and barge travel on the Hutchinson River in the Bronx. (About three miles of the river is navigable.)
The tug and barge passed under the Pelham Parkway Bridge on their way upstream, but on the return voyage the city was not able to open the bridge, delaying American Petroleum’ shipment for two and a half days.
The company alleged the mechanical malfunction that prevented the bridge from being raised was the result of negligence, and said it suffered $28,828 in economic losses, albeit without any property damage.
In Robins, a drydock damaged a propeller, making a ship unusable by a time charterer for two weeks. An attempt by the charterer to recover damages was denied by the Supreme Court, which held the time charterer could not prevail as a third-party beneficiary of the contract between the vessel owner and dry docking company.
“The law does not spread its protection so far,” the high court held.
In 2012, when the U.S. District Court agreed to dismiss American Petroleum’s complaint, the judge wrote “American is quite correct that, on its facts, Robins Dry Dock itself does not address the situation here: a claim for economic damages by a vessel’s owner (as opposed to a time charterer). However, since that decision, the courts in this Circuit have extracted from it a broader prohibition with respect to maritime tort suits that is fatal to American’s negligence claim here.”
The judge pointed to non-precedential summary orders issued by the 2nd Circuit in 2008 and 2010 that found the Robins Dry Dock rule effectively bars recovery for economic losses caused by an unintentional maritime tort absent physical damage to property in which the victim has a proprietary interest.
Reviewing the District Court’s dismissal, the 2nd Circuit observed nowhere in the text of Robins Dry Dock, written by Justice Oliver Wendell Holmes Jr., “is there a broad statement that economic losses for an unintentional maritime tort are not recoverable in the absence of physical damage to the claimant’s property.”
Nevertheless, in the decades since, George Washington University professor Thomas J. Schoenbaum wrote in his treatise Admiralty and Maritime Law that the decision has been “transformed into a bright-line rule against liability for pure economic loss that has been consistently applied in admiralty in a wide variety of contexts.”
In a 1985 opinion (State of Louisiana ex rel. Guste v. M/V Testbank, 752 F.2d 1019. 5th Cir. 1985.) Judge Patrick Higginbotham argued a broad rule is implicit in the narrow rule in Holmes’ 1927 decision. He said there was a well established principle “that there could be no recovery for economic loss absent physical injury to a proprietary interest.”
Higginbotham’s opinion prompted a strong dissent from Judge John Minor Wisdom, who said “Robins is the Tar Baby of tort law in this circuit.” He said it was “out of step with contemporary tort doctrine, works substantial injustice on innocent victims, and is unsupported by the considerations that justified the Supreme Court’s 1927 decision… Whatever the justification for the original holding, this court’s requirement of physical injury as a condition to recovery is an unwarranted step backwards in torts jurisprudence.”
“What Judge Wisdom meant was that American tort law was still stuck fast to the Robins Dry Dock ‘bright line’ rule, with no sign of being able to escape,” explained Martin Davies, a professor at Tulane Law School in a 2002 speech in Australia, speaking to an audience who might not be familiar with the tales of Georgia’s Joel Chandler Harris.
In upholding the District Court’s decision, the 2nd Circuit said it was explicitly accepting the broad rule attributed to Robins, but was “mindful that for some categories of claims, exceptions may well be appropriate.
“We see little point in endeavoring to determine whether the broad rule that has been attributed to Robins Dry Dock was implicit in that decision or has resulted from an unstated extension of the narrow rule there announced,” the court added.
The 2nd Circuit said it accepted the broad rule based on four reasons:
- It has been accepted by a clear consensus of courts throughout the country.
- Congress has neither altered nor made any serious attempt to alter it.
- The rule has the virtue of certainty.
- “The context in which the broad rule primarily applies—financial losses incurred in the course of commercial shipping—is marked by the well recognized availability of first-party insurance to cover such losses and the frequent purchase of such insurance.”
The 2nd Circuit said it was not unsympathetic to American Petroleum’s plea that “recovery could be allowed in this case without countenancing an unbounded exposure of maritime tortfeasors to a vast number of economic loss claims.
“It was surely foreseeable that an operator who had opened a drawbridge to let vessels move upriver and negligently failed to open the bridge when the vessels returned will cause economic losses to at least some of the vessels expecting to pass under the bridge. And when that operator is a governmental entity, the burden of such foreseeable losses can be spread narrowly through user fees or broadly through taxation,” it said.
The appeals court said “Although we conclude that Robins Dry Dock has been overread to establish a rule barring damages for economic loss in the absence of an owner’s property damage, we believe the rule has been so consistently applied in admiralty that it should continue to be applied unless and until altered by Congress or the Supreme Court.”