NY Federal Court Declines to Recognize Tort of “Financial Unseaworthiness”

August 14, 2014

Although over several decades a handful of decisions from District Courts around the country recognized under certain circumstances a maritime tort of “financial unseaworthiness”, only one Court of Appeals, the 5th Circuit, has endorsed it.  The Southern District Court in New York noted this recently and refused to recognize such a tort in Maritime Law.

An importer in New York asserted tort claims of financial unseaworthiness to recover alleged losses resulting from a three- month delay in shipping cargo from Turkey, due to arrest of the vessel by creditors. During the course of the voyage, the vessel was seized at Baltimore, and it took over 90 days before the owner put up security.

The plaintiff claimed that the intended purchaser of its steel shipment rejected the steel because of the delay, and that it was obliged to sell the cargo at a discount to other buyers, resulting in a loss of $577,000. The District judge in New York reviewed the maritime cases in other Districts that had recognized the alleged tort of financial unseaworthiness.  He said none were binding in the Second Circuit, and he was not going to be the first one to enforce the alleged maritime tort. The theory is that when a carrier fails to maintain the financial security of a vessel and its seizure by creditors result in damage to a shipper’s cargo because of delay, the carrier has breached its duty to the cargo owner and is liable for the resulting loss.

The Court also noted the Second Circuit had ruled that “purely economic losses” are not recoverable for an unintended maritime tort in the absence of physical injury. The Court allowed the case to proceed on the basis of breach of contract. Thyssenkrupp Materials v. Western Bulk Carriers (S.D.N.Y. June 16, 2014).