Ship classification societies are non-profit organizations that formulate and publish rules and standards that rate the fitness of merchant vessels for their intended services. Shipyards build vessels in accordance with plans and specifications approved by the societies. However, the primary duty of these internationally recognized and respected classification organizations is to certify the soundness of ships.

Without classification certificates, ships cannot operate. Certification is a prerequisite for ship registry and insurance coverage. Charterers will not hire non-registered ships, and cargo interests will not use non-classed vessels.

The recent Shipping Corp. of India case (1990 WL 133187) raises an interesting point concerning potential liabilities of classification societies for negligent services that cause purely economic losses to vessels. This case, in the federal district court for the Southern District of New York, involved a motion by a classification society, American Bureau of Shipping, to dismiss a negligence tort action brought against it by the purchaser of four vessels it had serviced.

Plaintiff (Shipping Corp. of India) brought action in tort and contract to recover $88,965,000 against the classification society (defendant) for damages suffered as a result of alleged fault, negligence, errors and omissions of defendant in connection with its classification services.

Shipping Corp. of India owned four ore-bulk-oil vessels that were approved and classified by the defendant. Problems developed after the vessels were put into service, which required remedial measures to be taken by the defendant. Plaintiff alleged the ships were not suited for use as OBOs because they were incapable of withstanding normal vessel stress.

The classification society successfully defeated the tort claim (the contract action still continues) based upon the Supreme Court's 1986 landmark East River case (476 US 858) holding that marine equipment manufacturers had no duty under tort negligence law to prevent marine equipment from injuring itself. When the only injury involves the failure of the marine product to function properly, the commercial purchaser suffers purely economic loss, which is not actionable in tort. The Supreme Court reasoned that commercial parties are free to allocate their risks and liabilities in their sales contracts.

In 1989 the Fifth Circuit Court of Appeals in the Employers Insurance Case (866 F. 2d 752) expanded the marine manufacturer's protection of the East River case to include tort actions for professinal services rendered in connection with the construction of ships by parties, other than shipbuilders. There the defendant was the supervisor of the design and construction of the vessel. The Fifth Circuit based its decision on the principle that contract law provided adequate remedies for parties to allocate among themselves risk of defects.

The Shipping Corp. of India case expands the East River tort economic loss protection of manufacturers to classification societies that provide service to vessels. However, the decision would appear to provide the same tort liability protection to any contractor providing services to a vessel, such as a surveyor or repair technician. Shipping Corp. of India has requested leave to appeal the decision. However, at the present time, the case is now the law in the Southern District of New York.