wreck removal in the 21st century: liability and coverage issues harold k. watson, partner locke...
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WRECK REMOVAL IN THE 21ST CENTURY: Liability and
Coverage Issues
Harold K. Watson, Partner
Locke Lord Bissell & Liddell LLP
Vessel owner’s liability for wreck removal
• Wreck Act
• Tort theories
• Drilling contracts
• Minerals Management Service regulations
• Nairobi International Convention on the Removal of Wrecks
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Wreck Act
• Prohibits allowing a vessel to sink in a navigable channel “in such a manner as to obstruct, impede, or endanger navigation”
• Requires the owner to mark and remove the wreck
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Applicability of the Wreck Act
• Applies to “navigable channels”• Part of Rivers and Harbors Act• Other provisions refer to “waters of the United
States• Conclusion: only territorial waters
• Only applies if wreck obstructs navigation
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The Wreck Act and Limitation of Liability: Negligent Owners
• Prior to 1986, only applied to vessels that sank “voluntarily or carelessly”
• Wyandotte Transp. Co. v. U.S. (1967): negligent owner cannot abandon to the US
• The Ida Green (5th Cir. 1977): negligent owner cannot limit liability
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Wreck Act and Limitation: Non-Negligent Owners
• 1986 amendment removed words “voluntarily or carelessly”
• In re Southern Scrap Material Co. (5th Cir. 2008): non-negligent owner cannot limit
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The Wreck Act and Offshore Activities
• OCSLA extends the Wreck Act to “artificial islands, installations, and other devices”• Requires removal of platforms and MODUs• Still requires an “obstruction to navigation”
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Tort Liability
• Negligence
• Other theories?
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Drilling Contracts
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MMS Decommissioning Regulations
• Require removal of “installations” and “obstructions” upon termination of the lease
• Apply to “lessees,” “owners of operating rights” and “the person actually performing the activity to which the requirement applies”
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Nairobi Convention • Applies to wrecks in the Exclusive Economic
Zone• “Hazard to navigation”
• Danger or impediment to navigation• “may reasonably be expected to result in major
harmful consequences to the marine environment, or damage to the coastline or related interests . . ..”
• Exceptions for war, sole cause willful act of third party, negligence of government in maintaining navigation aids
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Coverage for ROW/D
• First party property coverage
• P&I insurance
• Excess liability insurance
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First Party Property Coverage
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P&I Coverage: “Compulsory by law”
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Coverage under traditional marine P&I policies
• Seaboard Shipping Corp. v. Jocharanne Tugboat Corp.: “compulsory removal” . . . refers to a situation in which a hull has been abandoned by the owner and the hull underwriter but, pursuant to government order, must be removed from navigable waters”
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Progress Marine, Inc. v. Foremost Ins. Co.
• “where failure to remove would have reasonable [sic] exposed an insured to liability imposed by law sufficiently great to justify the expense of removal”
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Continental Oil Co. v. Bonanza Corp. (“The AQUA SAFARI”)
• “To be compelling, the duty must be clear and the sanctions for its violation both established and sufficiently severe to be impelling, that is to warrant the cost of removal.”
• “[R]emoval occasioned by a reasonable apprehension of slight consequences for inaction or by an unreasonable apprehension even of grave consequences is not compelled.”
• To be compulsory there must be “a clear legal obligation to remove, imposed by statute or by judicial decision.”
• “[D]uty must be present and unconditional, not remote and contingent.”
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Grupo Protexa, S.A. v. All American Marine Slip (“The HUICHOL”)
• “[R]emoval is considered compulsory by law if either 1) the removal is directed by governmental order, statute or regulation or 2) if removal is reasonable under a cost-benefit analysis taking into consideration the probable cost of removal and both the likelihood and amount of liability which could be imposed for failing to remove the wreck.
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Summary• Removal is “compulsory by law” when
• applicable statute or valid order requires removal
• owner faces liability in tort and the likelihood of liability and the potential consequences are sufficient to outweigh the cost of removal.
• Removal is not compulsory when there is an invalid order, the statute does not apply, or the concerns about civil liability are not reasonable.
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Coverage under “broad form” ROW/D clauses
• “when removal is compulsory by law, statute or regulation, when required by contract, or when necessary for the Assured’s/Operator’s operations.”
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Coverage for ROW/D under excess liability policies: square pegs in
round holes• “liability imposed upon the insured by law
or assumed under contract . . . for damages . . . on account of . . . property damage”
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“for damages”
• Are removal costs incurred by the insured “damages”?
• Guidance in environmental cases
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“on account of property damage”
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“imposed by law”
• Liability that would exist in the absence of contract or agreement• Wreck Act?• Tort liability?• MMS regulations?
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“assumed under contract”
• “indemnification and hold harmless agreements, whereby the insured agrees to ‘assume’ the tort liability of another”• Drilling contracts• Offshore mineral leases
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New Wordings
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