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Recovering Damages For Oil Spills

Brian P. Flanagan

May 2011

Maritime history books as well as law books are littered with the stories of oil spills. The memorable events include Torrey Canyon (1967), Argo Merchant (off Cape Cod in 1976), Amoco Cadiz (1978), World Prodigy (off Narragansett Bay in 1989), EXXON Valdez (1989), Bouchard Barge 120 (Buzzards Bay 2003) and most recently the BP spill in the Gulf of Mexico. The New England area has seen its share of major oil spills in the last few decades. For every major spill or discharge that makes national news there are probably ten to twenty smaller spills that will have an effect on the local community by damaging natural resources, vessels, fish and wildlife and result in some economic loss to businesses dependent on the water or due to their riparian location.

There are several international conventions that deal with oil pollution prevention and claims for damages that are too numerous to set forth in this article (see generally: Schoenbaum, Admiralty and Maritime Law, 4 th Ed. Ch. 16-1, {West Publishing 2004}). The purpose of this paper is to provide basic information to the general practitioner as to how to represent a claimant that has sustained some sort of physical and /or economic damage due to an unlawful discharge of oil.

In the wake of the 1989 EXXON Valdez spill in Prince William Sound congress went about restructuring the manner in which oil spills were handled by both the United States and the party(s) responsible for the discharge. The result was the Oil Pollution Act of 1990, (33 U.C.C. 2701) which is basically a comprehensive set of amendments to the Federal Water Pollution Control Act or Clean Water Act (33 U.S.C. 1321). The Oil Pollution Act of 1990 (OPA) did very little as to change shipboard operations that may lead to a spill such as additional manning requirements. For the most part OPA set up a regimen to address matters to minimize the spill after the incident occurs and ensure that adequate compensation is available to parties, both private and public, that sustain damage from the spill. For example OPA set up requirements for tank vessels operating in the navigable waters of the United States that required the vessels to have double bottoms and /or double hull by a date certain that has now largely passed. In addition, OPA required that all vessel and terminal operators have a well documented response plan for spills that is approved by the United States Coast Guard. OPA also set minimum insurance limits for entities that move, transport and store petroleum products. (33 U.S.C. 2704).

Most importantly, OPA established a claims process to remove most private and public damages claims from the normal and lengthy adversarial litigation process and move the same to an administrative claims process that are administered by the agents of the party responsible for the discharge (Responsible Party [hereinafter RP]). Moreover OPA expanded the scope of damages that are compensable for a discharge.

Prior to OPA damages due to oil spills were consigned to the normal litigation process and there was little or no supervision over the presentation of claims and the selection of the forum in which the case could be brought. There was a further impediment to certain types of claims for economic loss due to a spill that was based on the “Rule of Robbins Dry Dock”. The Robbins case, although a case involving a vessel charter held the there could not be any recovery for purely economic loss unless the plaintiff sustained some type of physical damage to property in which the plaintiff had a proprietary interest. Robbins Dry Dock& Repair Co. v. Flint, 275 U.S. 303 (1927).

Prior to OPA, the only exception to the Robbins rule had to do with commercial fishermen. Fishermen were considered to have an inherent property interest in fish or shellfish stocks that were damage by an oil or chemical discharged and that their economic loss due to the discharge was foreseeable. Ballard Shipping Co. v. Beach Shell Fish, 32 F. 3d 623(1 st Cir. 1994), Louisiana ex rel. Guste v. M/V Testbank, 752 F. 2d 1019, 1026-1034 (5 th Cir. 1985) (en banc) [excellent discussion of the foreseeability doctrine as a limitation on purely economic losses. Thus prior to OPA many claims for economic loss such as those by hotels and restaurants that lost business as a result of a spill died a slow and lingering death in the normal process of litigation.

OPA amended existing law to create a completely new and comprehensive regime of compensation for physical and economic loss due to discharges. OPA applies to all discharges that affect the navigable waters of the United States (including the 200 mile Exclusive Economic Zone) and any adjacent shoreline. (33 U.S.C. 2702). OPA does not apply to land locked bodies of water that are wholly with one state. 1

The Act created the concept of a “responsible party” which is defined as the owner, operator and demise charterer of any vessel as well as owners of onshore facilities (oil terminals), offshore facilities and pipelines. Id. 2701 (32). 2 The intent of OPA is to capture the owner or operator of any vessel or facility from which a discharge results and require the same to respond for clean-up, remediation and damage claims.

In regard to the “responsible party (hereinafter RP) OPA established a statutory mandate for minimal levels of insurance or other types financial responsibility for vessels and other facilities to ensure that there would be adequate to respond to all types of claims and damages from a discharge. Id. 2704.

The RP, in the first instance is strictly liable for damages related to a discharge or a substantial threat of discharge emanating from its vessel or facility. The damages include physical loss, economic loss, environmental damage, removal costs, loss of subsistence (Native Americans) loss tax revenues due to damages and the costs of remediation of the habitat. Id. 2702 (b).

In the event of a discharge the limitations in Sec. 2704 will apply. However if the RP is found culpable of gross negligence, willful misconduct or a violation of federal law and/or regulation the limits on liability are waived. 3

The only defenses to liability for the RP are Act of God, Act of War or Act or Omission of a third party. Third parties do not include employees of the RP or any entity that is in a contractual relationship with the RP unless the RP has taken steps to guard against the act and omissions of the same. Id. 2703(a) 3.

When a discharge occurs, the United States will make an initial determination as to whom the RP is and notify the RP of the designation. Id. 2714 (a). 4 Upon the designation it is

mandatory for the RP to advertise to the public as to where and how claims may be presented. Id. 2714(b). Spill response and claims response infrastructure is required to be organized in advance by potential RPs. Most every RP will have contractors available in a particular area to contain, begin to clean-up and start reviewing claims after a discharge.

Once the claims process is established, claimants may begin to file partial or complete claims with the RP. Indeed, some claimants may interim relief to assist in preventing more extensive damages. 5

After the administrative claims process is set up all potential claimants must file an administrative claim with the RP. Id. 2713(a). The RP will then have 90 days in which to accept, reject or negotiate the claim. The filing of an administrative claim with the RP is a jurisdictional prerequisite to filing a lawsuit against the RP or seeking compensation from the National Pollution Fund Center. 6 Boca Ciega Hotel Inc., et.al. v.Bouchard Trans. Co. Inc., et.al. 51 F. 3d 235 (11 th Cir. 1995). The administrative claim that is submitted to the RP cannot be a simple demand for payment of an undocumented amount that only sets forth the general types of damages claimed. The claim “… must inform the responsible party with some precision of the nature and extent of the damages alleged and the amount of monetary damages claimed.”

Johnson v. Colonial Pipeline Co. 830 F. Supp. 309, 311 (E.D. Va. 1993). In other words a claim that is for a fixed amount without a description of the type of damages and documentation of the damages will not pass muster. The claim must be well documented because the 90 day period in which the RP must respond is intended to be for negotiation rather that further investigation.

Johnson, at 311. 7

If the claim is denied or not settled by the RP within the 90 day window the claimant has two options. The first is to file suit against the RP in state or federal court. 33U.S.C. 2717 (b&c).the second is to submit a claim to the NPFC. 8

Claimants will likely have more success negotiating the claim directly with the RP instead of filing suit if they are forthright and reasonable as to the damages claimed. The main intent of OPA was to remove damages claims from spills from the adversarial litigation process to ensure that the claims are handled in an expeditious manner.

If the claimant decides to take the litigation route for recovery they may file in either state of federal court for relief. ## U.S.C. 2717 (b &c). Although OPA creates a right to a trial in federal court it is silent on the right to a jury absent another basis for federal jurisdiction that would require a jury such a diversity jurisdiction. 28 U.S.C.1332 . if the matter is brought in a U.S. District Court without a separate basis of subject matter jurisdiction the specifically allows for a jury, the right to a jury trial may originate from the nature of the claimants damages. South Port Marine, LLC. V. Gulf Oil Ltd. Partnership, et al. 56 F. Supp. 2d 104, 1999 AMC 2106 (D. Me. 1999). [ floating docks land based structures and prior to the U.S. Const. damage to them would have been as state common law claim]. 9

The damages that are recoverable under OPA are set forth in 33U.S.C. 2702. In addition, pre-judgment interest is also recoverable for OPA claims. Interest begins to accrue 31 days after a legitimate claim is presented to the RP and runs until the claim is paid by either settlement or judgment. Id. 2705. There are exceptions to the payment of interest. Id. 2705 (b) 1 and 2. In addition the means to calculate the rate of interest is set forth in 2705 (b) 4. 10

OPA sets forth the types of damages for discharges that are available under federal law. In addition, it preempts other non pecuniary damages under the general maritime law or federal common law. South Port Marine, LLC. V. Gulf Oil Ltd. Partnership, Et. al. 234 F. 3d. 58, 64-65(1 st. Cir. 2000). Despite that holding, OPA did leave open the possibility for additional claims under state law including additional damages and fines. 33U.S.C. 2718 (a ,b and c). 11

If there is no resolution of the claim after submission to the RP, there are two options available to claimants. The first is to file in state or federal court and abide the adversarial litigation process that OPA attempts to avoid. The second option is to file a claim with the U. S Coast Guard National Pollution Funds Center (NPFC). The NPFC administers the Oil Spill Liability Trust Fund (OSLTF) that was created by OPA to allow for the prompt payment of claims that result from the discharges. The types of claims that may be submitted to the NPFC include any and all claims that could be made against the RP. More importantly, in the event of a “phantom” spill that occurs from an unknown source and an RP cannot be designated the NPFC may be the only recourse for claimants.

The normal litigation process will probably be the least efficient in order for the claimant to recover as the matter will have to abide some rites of passage in the federal or state court. That may involve mandatory filings, mandatory disclosures and a couple of hearings before consul is able to file a summary judgment motion.

If the claimant elects to submit the claim to the NPFC there are strict deadlines that must be adhered to. The materials in the booklet include a copy of the NPFC’s Claimant’s Guide. The Claimant’s Guide (hereinafter “Guide”) provides a well thought out structure for preparing and presenting a claim. Indeed, the Guide should the starting point for a claimant prior to preparing a claim to submit to the RP as it will prompt the claimant to get the information for the initial presentation required by Johnson v. Colonial Pipeline Co.. Supra. The NPFC web site also has much more information that is too extensive to reprint herein. The site can be found at www.uscg.mil/ccs/npfc

Once a claimant chooses to file a claim with the NPFC that will be the only remedy. The NPFC may not entertain a claim if a suit is pending in state or federal court. 33 U.S.C. 2713 (b)(2). 12

Once the claimant submits a claim to the NPFC the Center will evaluate the claim. The claim must be submitted within three years of the date the damage and its connection to the spill was reasonably discoverable. Guide p. 6. 13

After a claim is submitted the NPFC will review the claim and provide the claimant with an offer. The claimant will then have sixty days to accept the offer or request reconsideration if there is new information available. Guide, p.2. If there is new information the review of the claim will be de-novo. Attention to timing is very important with regard to the NPFC claims process. In addition to actual damages, a claim may include any costs any for avoidance or mitigation of damages. 33 U.S.C. 2702(a), Guide, p. 3. 14

The Guide, as do most other statutes and documents relating to claims against the United States, state that there are criminal penalties for submitting a false claim pursuant to 18 U.S.C. 287. Guide, p.3. Do not let this dissuade you from claiming what you think a legitimate claim may by worth. I would suggest that you include all aspects of the claim and then add at least 25% for interest.

When you submit a claim for pollution damages to the RP or the NPFC make sure that you have reviewed the applicable statutes and regulations. Reading the fine print normally results in very good education. Do not be afraid to be creative in the claims process and think outside the box. A month or two after the World Prodigy spill off Rhode Island, the lobstermen were landing the same amount of product. At face value it appeared that there was no real damage. Upon further review, the lobstermen were having to set the traps further offshore and well beyond their usual fishing grounds. The result was that the cost of fuel, insurance and wear and tear on the vessels and traps had increased quite a bit and resulted in loss of profit.

1 See the Jurisdictional section of the materials for a discussion of what constitutes navigable waters.

2State and federal governmental entities are exempt from the definition.

3Limits are also waived if the RP fails to report a known discharge or fails to assist in the mitigation or removal of a discharge. Id. 2704(c).

4The power is reserved to the President but has been delegated to the Secretary of the Dept. in which the U.S. Coast Guard is operating. Sec. 7(d)(2) of Executive Order No. 12777, 18 Oct. 1991.

5E.g. The aquaculture business that has the opportunity but not the immediate funds to harvest the product and remove it from the approaching spill. Be creative in the approach as a partial claim will not foreclose further compensation.2705 (a).

6NPFC is discussed infra. And the basic Claimant’s Guide is enclosed with the materials.

7See: 33 C.F.R. Secs. 136.105 and 136.109.

8Claims to the NPFC are discussed infra with reference to the Claimants Guide in the attached materials..

9If the case if brought in a state court a jury will be available in most states as the right to a jury if procedural rather that substantive.

10It could be argued that even if an OPA case is brought in state court, the federal interest rate under OPA rather than the state rate should apply.

11In terms of Massachusetts law see: MGL Ch. 21M (8). Also see for Maine, Coastal Conveyance Act, 38 MRSA, Secs. 541-560.

12There is no authority to suggest that if a claimant does not like the offer from the NPFC they may not revert to the litigation process.

13While the Guide is a good reference, claimants should review OPA and the regulations at 33 CFR Part 136 as the statute and the regulations are controlling.

14In addition, a claim can be made for the services of an accountant or the like to assess you business losses but not for preparing the claim itself. Attorney fees are not recoverable. Guide, p. 5.