Second Circuit Ruling Shines Light on Confusion About Admiralty Law and Economic Damages

Contributed by Jesse Morris

A recent Second Circuit maritime opinion set an unusual precedent by explicitly affirming the continued viability of a rule of maritime tort law that has been followed for years, despite an uncertain origin in the Supreme Court.

The case – American Petroleum and Transport v. City of New York  – arose from an incident in which a barge owned by the plaintiff, American Petroleum, was delayed in its voyage for two and a half days by a mechanical malfunction that prevented a New York City bridge from opening so the barge could pass.  Though there was no physical damage to the barge itself, the plaintiff claimed nearly $30,000 worth of financial damages resulting from the delay.  The  Southern District of New York dismissed the case, citing a 1927 Supreme Court decision,  Robbins Dry Dock v. Flint, for the proposition that economic recovery is prohibited for unintentional maritime torts without physical damage to the plaintiff’s property.

Many cases over the years from district and circuit courts, including the Second Circuit, have cited Robbins Dry Dock for the rule that without physical injury, economic losses can not be recovered in maritime tort cases.  The Second Circuit thereby affirmed the district court’s American Petroleum ruling with an opinion that revisits Robbins Dry Dock and explains that while no such bright line rule was explicitly created by the 1927 case, the rule should be upheld.  The original Robbins Dry Dock decision addressed claims brought by a charterer of a steamship against a dry docking company when damages the defendant caused to the vessel – and the defendant’s subsequent delay in repairing those damages – delayed the charterer’s shipment; the Supreme Court held that economic damages could not be recovered by the plaintiff charterer, who suffered no property damages (the charterer did not own the damaged vessel) and alluded to the tenuous – if not forseeable – relationship between the charterer’s losses and the defendant dry docker’s damage and repair of the steamship.

The Second Circuit acknowledged that a broad rule prohibiting all economic recovery in maritime tort cases that lack physical damage to property will mean that recovery is disallowed in many instances where the damages were reasonably forseeable by a negligent defendant and are closely related to the negligence, and therefore the rule may be counter to the general principles of tort law.  The Second Circuit, however, justified its holding on the following four factors: a consensus among courts; the lack of federal legislation to address this consensus; the certainty that the rule affords; and the availability of private insurance to redress the types of claims that are barred by the rule.  The Second Circuit added that this rule should hold unless and until it is explicitly overruled by Congress or the Supreme Court.

The rule announced by this opinion is of interest to maritime defendants in that it greatly limits their liability exposure.  Of far greater interest, however, may be the Second Circuit’s declaration that a bright line rule of law can be named and followed based on factors of policy and past precedent even without certaintly that any Supreme Court case law or legislative act anticipated such rule.  The decision is both an open invitation – and expressly so – to Congress or the Supreme Court to clarify their intent, but also a bold pronouncement that a clear rule of law will be followed – and indeed is necessary – even in the absence of any such action.  It will be interesting to see if this opinion sets the stage for any future such pronouncements by circuit courts dealing with a range of uncertainties in tort law – many of which are covered regularly on this blog – that have been left unresolved by the highest branches.