Limitation Fund Law and Legal Definition

The term limitation fund signifies a guarantee or deposit made by a ship owner to meet any damage claim, and calculated on the negligent ship's tonnage. Limitation fund is a statutory measure to fix the statutory limit of liability of ship owners for the negligence of their captains, officer or other operators. World nations have entered into international treaties regarding limitation fund. The International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 is an example in this regard. Many states allow a ship owner facing an applicable negligence claim to deposit with the court, on a without prejudice basis until judgment has been rendered, a monetary value limited and calculated with reference to the weight of the ship. The deposit constitutes the sole source of the monetary limit of the ship owner's liability.