## Facts

- Lykes Bros. Steamship Co., Inc., a commercial shipowner, operated the SS ALMERIA LYKES, which used a stern tube bearing sealing system to prevent seawater intrusion where the tail shaft passed through the hull.
- Waukesha Bearings Corp. furnished and installed the vessel’s stern tube bearing sealing system during construction (1971–72), with Lykes’s approval.
- The system included an aft liner; Waukesha and Union Carbide Corp. later promoted a ceramic-coated liner as an improved design.
- In February 1974, Waukesha and Union Carbide jointly issued a technical/promotional report to Lykes recommending replacement with a ceramic-coated liner and representing, among other things, that the coating would not chip or crack under normal conditions and would resist corrosion and wear in seawater service.
- Lykes purchased and installed the ceramic-coated liner in reliance on those representations, which were later found to be innocent but material.
- Contract documents used by both Waukesha and Union Carbide disclaimed warranties and excluded consequential damages (including drydocking costs and loss-of-use); Waukesha’s documents also purported to disclaim liability for gross negligence.
- Two failures occurred: (1) a check relief valve failure on June 5, 1975; and (2) a ceramic coating failure on the aft liner in August 1975, requiring drydocking and repairs and allegedly causing loss of use.
- The case proceeded in admiralty; trial was limited to liability, with damages reserved.

## Issues

1. Whether the stern tube system components (the check relief valve and the ceramic-coated aft liner) failed in a manner attributable to the defendants for purposes of maritime products-liability and warranty-based fault.
2. Whether warranty disclaimers and consequential-damages exclusions in maritime commercial contracts are enforceable between sophisticated parties under maritime law informed by U.C.C.-type principles.
3. Whether an exculpatory clause purporting to disclaim liability for gross negligence is unenforceable as against public policy, and whether its presence affects enforceability of related limitations on consequential damages.

## Decision

- The court found Waukesha liable for the June 1975 check relief valve failure and for defects/failures in the stern tube sealing system linked to its supplied equipment, subject to later proof of damages.
- The court found the ceramic coating did not perform as represented under normal operating conditions and linked the August 1975 failure to the ceramic-coated liner promoted to Lykes.
- Union Carbide’s warranty disclaimer and consequential-damages exclusion were held valid and enforceable, limiting any recovery against Union Carbide to the contractually permitted scope.
- Waukesha’s disclaimer/limitation scheme was held unenforceable to the extent it attempted to disclaim liability for gross negligence; the court refused to enforce Waukesha’s consequential-damages exclusion.
- Waukesha’s counterclaim against Lykes and the parties’ cross-claims were addressed within the liability framework, with damages and precise allocations deferred.

## Legal Principles

- In maritime commercial transactions, courts generally enforce clear, conspicuous warranty disclaimers and exclusions of consequential damages, particularly between sophisticated parties and absent fraud or egregious misconduct.
- Maritime law may apply U.C.C.-type concepts (including policy limits on exculpation) by analogy when assessing contractual risk allocation for maritime equipment and services.
- Clauses purporting to exculpate a party from liability for its own gross negligence are contrary to public policy and are unenforceable.
- When a consequential-damages limitation is intertwined with an overbroad attempt to disclaim gross negligence, a court may decline to enforce the limitation, allowing recovery of consequential damages otherwise excluded.
- Innocent but material misrepresentations in technical/promotional materials may be relevant to reliance and risk-allocation analysis even when they do not amount to fraud.

## Conclusion

The court held that consequential-damages exclusions in maritime contracts are generally enforceable, but it enforced Union Carbide’s limitation while refusing to enforce Waukesha’s because Waukesha attempted to contractually disclaim liability for gross negligence; liability was determined with damages reserved for later proceedings.


Lykes Bros. S.S. Co. v. Waukesha Bearings Corp., 502 F. Supp. 1163 (E.D. La. 1980)