The United States Fifth Circuit Court of Appeals recently rejected a claim by a vessel owner for economic loss resulting from the negligence of a shipyard in the installation of additional living quarters to a lift-boat in the case of Smith Maritime, Incorporated v. L/B Kaitlyn Eymard, et al.

A. Background  

In February 2010, Associated Gas & Oil Company, Ltd. ("Associated") purchased two self-elevating lift-boats "as-is, where-is" from Offshore Marine, Inc. ("OMI") for $35,200,000 to be used in Nigeria. OMI agreed to provide spare parts and install living quarters on the two lift-boats. The living quarters were installed by Tram Shipyards, Inc. ("Tram") in Golden Meadow, Louisiana. In the course of installing additional living quarters on one of the lift-boats Tram cut, extended, and re-welded the crane boom cradle stanchion of a pedestal crane mounted aboard the vessel. As the lift-boats were being transported from Louisiana to Nigeria they encountered rough seas and the stanchion snapped at the site of the weld, causing the crane boom to swing wildly and crash into the additional living quarters, causing damage. The lift-boats aborted their voyage to Nigeria and returned to Louisiana for repairs. Associated sustained crippling economic loss from the delay and failure of the vessels to reach Nigeria.

B. Dispute  

Associated sued Tram for damages from the swinging crane, the diversion from the planned route for evaluation of the damage, and failure of the lift-boats to reach Nigeria to work. Associated maintained that its damages were a direct result of Tram (1) unilaterally deciding to cut and re-weld the crane boom cradle stanchion; (2) re-welding the crane boom cradle stanchion with such inferior workmanship that the weld could not withstand the stresses of rough seas; and (3) failing to have the weld inspected to ensure its structural integrity. Tram asked the court to dismiss Associated's economic loss claims based on the Supreme Court case East River Steamship Corp. v. Transamerica Delaval, Inc. The court ruled in Tram's favor and dismissed Associated's economic damage claims. Associated filed an appeal and the Fifth Circuit Court of Appeals affirmed the ruling in Tram's favor.

C. Discussion  

The Fifth Circuit found that the crane boom cradle stanchion and living quarters that were damaged were integral parts of the lift-boat as it was sold to Associated. The Court instructed that the rule announced by the Supreme Court in East River case controlled and, therefore, the economic losses that Associated suffered as a result of products liability or Tram's negligence were not recoverable. The Fifth Circuit held that Associated's recovery was limited to its rights under the contract.

D. Relevance  

The Smith Maritime case illustrates why a vessel owner should secure written warranties in vessel purchase agreements and contracts with shipyards, naval architects, and/or construction supervisors. A carefully worded contract which clearly defines satisfactory performance and allocates risk of defective performance can short circuit disputes over substandard work and afford a remedy not available under a products liability or tort theory.