When a ship meets with an accident, which is beyond the knowledge and control of the ship owner, his maximum liability is limited to the value of the vessel remaining after the mishap or to the value of salvage in case of a sunk or destroyed ship. This is according to the provisions of the Limitation of Liability Act (46 US Code section 183), which had its origin in 1851.
The rationale behind this proposition of law is that a ship owner who has properly equipped or crewed a ship as per standard norms should not be held liable or responsible for an accident when the ship is no longer within his control.
The families of the deceased passengers or the owners of the lost cargo are in all together entitled to share aggregate compensation to the tune of the value of the remaining vessel or recoveries there from.
It has been felt in many quarters that the Limitation of Liability Act has outlived its utility since in this era of modern communications seldom ships, even when on the high seas, go out of the control of the shore side owners. Critics have suggested discontinuing with such undeserving protectionism.
(More http://www.access.gpo.gov/uscode/title46a/46a_7_.html )
