C. Damages for Injury to Vessel—total Loss

• Library: South Carolina Damages (SCBar) (2009 Ed.)

C. Damages for Injury to Vessel—Total Loss

1. Measure of Recovery

When a vessel is sunk or totally destroyed in a collision, the owner may generally recover the vessel's value at the time of the loss, plus (1) pending freight, (2) interest from the date of collision, (3) necessary expenses of raising the vessel, that is, expenses necessarily incurred to determine whether the vessel can be repaired, (4) any expenses of removal when the vessel poses an obstacle to navigation, and sometimes (5) interest on the funds expended.³⁴ Total loss may be either actual (e.g., a sunken vessel is never raised) or constructive (e.g., a damaged vessel cannot be repaired economically). Damages for constructive total loss are frequently shown by estimated costs of repair or surveys.³⁵

2. Valuation of Vessel

The valuation of a lost vessel should be based on the maxim of restitution in integrum, that is, the owner is entitled to damages that place the owner in the position he or she would have been in if the property had not been destroyed.³⁶ The usual method of determining damages when a vessel is a total loss is the market value of the vessel at the time of the loss.³⁷

In valuing vessels, problems may arise if there are insufficient sales to establish market value. in the absence of such evidence, other factors can be considered. Replacement cost, expert opinions, depreciation, and the insured value of the vessel are admissible as reliable evidence of value.³⁸ An owner also may be able to establish a pre-collision value unique to an owner, for which the court will allow recovery even over objections that such evidence is speculative.³⁹

in situations where the unique purpose of the vessel makes valuation difficult, replacement costs "may be the most accurate basis for determining damages."⁴⁰ in such cases, a court should determine whether the replacement would add new value or extend the useful life of the property, and if so, make appropriate reductions in the full repair or replacement costs. This is known as the "new for old rule" and fulfills the objective of the law in restoring a party's damages property to the same condition that existed prior to the tortious injury. Typically, a court will determine the expected useful life would be after repairs or replacement. The court would then make reductions for prior depreciation and anticipated betterment, normally using a strait-line depreciation method.⁴¹

3. Net Freight Pending

The term freight is generally used in maritime contracts to denote payment for the carriage of goods by ship, rather than the goods themselves.⁴²

When a fishing vessel is totally destroyed, the owner may recover the value of fish already on board or netted.⁴³ The value of fish netted in a total loss case may be based upon testimony of the master or crew of the vessel.

4. Loss of Use

in a total-loss situation, damages for loss of use are not recoverable.⁴⁴ Prospective net earnings of a vessel are usually in the form of charter hire, as distinguished from freight. it has long been established that prospective profits under a charter not yet effective are not recoverable.⁴⁵

5. Prejudgment Interest

a. Allowance is Discretionary

Admiralty courts generally award prejudgment interest in collision cases. An award of prejudgment interest, however, is within the discretion of the trial court.⁴⁶ The trial court record of a discretionary denial of prejudgment interest should set forth the reasons for the denial.⁴⁷ The exceptional circumstances sufficient to deprive a successful litigant of prejudgment interest may involve the following:

(1) An unexcused delay by the plaintiff in prosecuting the claim;⁴⁸
(2) The owner's failure to minimize damages, resulting in total loss;⁴⁹ or
(3) Failure of proof of alleged damage and loss of use.⁵⁰

There is authority for the proposition that a trial court's denial of prejudgment interest will not be reversed when the denial is based on the owner's unreasonably high valuation of the vessel.⁵¹

Even in mutual fault cases, interest is commonly awarded. The concurrent fault of the parties seeking interest is not such an exceptional circumstance to justify denial of interest. Although some courts have denied interest because of mutual fault,⁵² the Ninth Circuit's dictum suggests such a rule is obsolete.⁵³ Prejudgment interest in an admiralty action is considered an element of compensation, not a penalty.⁵⁴ The Ninth Circuit decision in Alkmeon Naviera, S.A. v M/V Marina L,⁵⁵ has been adopted in several other circuits to allow for awards of prejudgment interest in cases of mutual fault.⁵⁶

b. Rate

in the past, admiralty courts often adopted the state court's statutory interest rate.⁵⁷Today, however, the discretionary award of interest by an admiralty court does not carry with it a requirement that the rate be fixed at the legal rate in the state where the court sits.⁵⁸The circuit courts vary on whether the federal post judgment rate, set by 28 U.S.C. §1961(a), is controlling. in Ingersoll Milling Machinery Co. v M/V Bodena,⁵⁹the court held that the rate of interest is within the discretion of the trial court and affirmed the trial court's application of variable rates between 9.676% and 10.112% for prejudgment interest.⁶⁰ in International Ore & Fertilizer Corp. v. SGS Control Services, Inc.,⁶¹the court approved a magistrate's application of the interest rates paid each month on the fifty-two week United States Treasury bills during the applicable period in calculating prejudgment interest.⁶² This decision acknowledges that in cases based solely on admiralty jurisdiction, the trial court is not bound by any state statutory interest rate in calculating prejudgment interest.⁶³ Where a marine insurer recovers for damages to an insured vessel and declines to pay a claim, there is authority for the proposition that the insurer may be held liable for the payment of prejudgment interest in excess of the policy limits if it is held liable on the claim.⁶⁴

A distinction should be made between the rate-of-interest issue in cases involving tortious injury to property under admiralty jurisdiction and contract cases, where parties may agree to have their disputes resolved under state law.⁶⁵

c. Date of Accrual

Usually in a total-loss situation, the award of interest begins to run from the date of loss. on the other hand, the vessel may be a constructive total loss but the owner may undertake repairs that exceed the vessel's value. interest could then run from either the date of loss or the date of payment of the repair invoices.⁶⁶ Prejudgment interest may be awarded on the value of a replacement even though greatly in excess of the owner's actual cost of the lost vessel.⁶⁷

Claims for vessel damage or total loss are frequently pursued by subrogated hull underwriters. The date of payment under the hull policy may thus be the appropriate starting date for the computation of prejudgment interest.⁶⁸

Maritime tort claims against the United States present special problems. Under the Suits in Admiralty Act,⁶⁹ interest runs from the date the suit is filed,⁷⁰ but an award of prejudgment interest is still discretionary.⁷¹ The annual rate is set by statute at 4%.⁷² No prejudgment interest is allowed under the...