Admiralty & Maritime Claims


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ACI’s National Forum on Admiralty & Maritime Claims and Litigation has been tailored to provide corporate counsel, claims counsel, and private practice defense attorneys with the expert knowledge and key strategies that they need to successfully defend against maritime litigation.

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Admiralty & Maritime Claims

  1. 1. ACI’s 2nd Annual Forum Limitation of Liability & Indemnity Issues Post MSC Flaminia, Costa Concordia and Deepwater Horizon February 27, 2013 Houston, Texas Christopher Nolan Partner Holland & Knight LLP 212-513-3307
  2. 2. Who is this tired looking man and what is he so tired of?? 1
  3. 3. Shipowner’s Liability Act of 1851 46 U.S.C. §§ 30505 et seq. Does the Limitation Act Require Tweaking? • An owner of a vessel can limit liability for all claims arising from an incident involving the vessel to its postvoyage value and that of its cargo. • The owner of a vessel may bring a civil action in Federal district court to limit owner liability with respect to: − (1) damage done to goods onboard the vessel; − (2) damage by collision to other vessels and their cargo; and − (3) any other damage or forfeiture done or incurred without the privity or knowledge of the owner (including personal injury and death). 2
  4. 4. Shipowner’s Liability Act of 1851 46 U.S.C. §§ 30505 et seq. • INITIAL PURPOSE: Encourage the investment of capital in the construction and ultimate navigation of ships by allowing the owners of American ships to compete on equal footing with foreign ship owners whose ships were covered by similar limitations regimes (especially England). Hartford Accident & Indem. Co. of Hartford v. S. Pac. Co., 273 U.S. 207, 214 (1927); Richardson v. Harmon, 222 U.S. 96, 104-05 (1911). • TODAY: Shipowners continue to reap the benefit of the Limitation Act as it alters vicarious liability rules which traditionally allow an injured party to seek the full recoupment for injuries suffered. In re City of New York - M/V Andrew J. Barberi, 522 F.3d 279, 283 (2d Cir. 2008). 3
  5. 5. Limitation Act: Deepwater Horizon • April 20, 2010, approximately 10 PM: MODU Deepwater Horizon Explosion • May 13, 2010: Transocean files Limitation of Liability Proceeding • Main Benefit: Concursus of claims, ultimately before Judge Barbier in New Orleans • Main Detraction: Mere filing resulted in Congressional calls for repeal. − ―no longer necessary‖; − ―serves no legitimate purpose‖ − Sen. Chuck Schumer 4
  6. 6. Limitation Act: Deepwater Horizon Fallout • Repeal Efforts Thwarted − Industry and trade associations explain ultimate damage to U.S. shipowners − Impossible to overcome unlimited liability in insurance market − Limitation devices available in other legal disciplines − Concursus is more workable then MDL and solves state court issue 5
  7. 7. Limitation Act: Deepwater Horizon Fallout • Efforts to Tweak Limitation Act − Example 1: Deepwater Horizon Survivors’ Fairness Act − Legislation introduced January 25, 2011 − Purpose: Address inability for the widows and families of Deepwater Horizon workers to secure ―fair‖ compensation for their loss. Expand the remedies available to the families by allowing them to seek nonpecuniary losses and fair compensation for pain as if accident occurred on land. − Impact: retroactively removing various limits on the liability that owners and operators of vessels face as a result of the Deepwater Horizon explosion. Revisions to Shipowners’ Liability Act of 1851, DOHSA, and the Jones Act. 6
  8. 8. Limitation Act: Deepwater Horizon Fallout • Proposed Legislative Amendments: • CHAPTER 305. EXONERATION AND LIMITATION OF LIABILITY § 30505. General limit of liability (a) IN GENERAL.—Except as provided in section 30506 of this title, the liability of the owner of a vessel for any claim, debt, or − liability described in subsection (b) shall not exceed the value of the vessel and pending freight. If the vessel has more than one owner, − the proportionate share of the liability of any one owner shall not exceed that owner’s proportionate interest in the vessel and pending freight. 7
  9. 9. Limitation Act: Deepwater Horizon Fallout (b) CLAIMS SUBJECT TO LIMITATION.—Unless otherwise excluded by law, claims, debts, and liabilities subject to limitation under − subsection (a) are those arising from any embezzlement, loss, or destruction of any property, goods, or merchandise shipped or put − on board the vessel, any loss, damage, or injury by collision, or any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, − or incurred, without the privity or knowledge of the owner. c) CLAIMS NOT SUBJECT TO LIMITATION.—Subsection (a) does not apply— (1) to a claim for wages; or [NEW] (2) to a claim for personal injury or wrongful death arising from the blowout and explosion of the mobile offshore drilling unit Deepwater Horizon that occurred on April 20, 2010. 8
  10. 10. Limitation Act: Deepwater Horizon Fallout • Status: Bill died at end of 112 Congress. • Future: December 5, 2012 report issued by Senator Rockefeller IV analyzing impact of the bill and need for its passage. Likely to reintroduce before retirement. • Good idea? − 1851 Act remarkably durable. − Few tweaks over the decades. − Potential Retroactive efforts add uncertainty to shipowner viability post incident and could impact insurance premiums. − Indications bill will be introduced by Sen. Rockefeller (retiring) For Copy of Report, email me at 9
  11. 11. Limitation Act: Deepwater Horizon Fallout • Efforts to Tweak Limitation Act − Example 2: MLA committee recommendation to consider adopting Convention on Limitation of Liability for Maritime Claims, 1976 (ratified by over 70 nations (but not the U.S.)) with 1996 Protocol Amendments − Differences between 1851 Act and Convention: (a) (b) (c) (d) broader scope for those who may limit (charterer, insurer, salvor); types of vessels (drilling floating platforms); harder to escape limitation; set statutory type limits − Likelihood: Though size of the fund would be larger with 1996 Protocols to Convention, breaking limitations is harder and makes wide congressional and some industry approval unlikely. 10
  12. 12. Limitation Act: Costa Concordia • Tragic shipwreck of the cruise ship Costa Concordia on January 13, 2012. • Random suits filed around the U.S., most significantly the Giglio Sub S.N.C. in S.D. Fla. U.S. Limitation Act Proceeding? No. • September 26, 2012 ruling in S.D. Fla. granting forum non conveniens motion per five conditions concerning primarily jurisdiction issues. − Giglio Sub s.n.c. v. Carnival Corp., 2012 WL 4477504 (S.D.Fla.) 11
  13. 13. Limitation Act: MSC Flaminia • July 14, 2012 container vessel MSC Flaminia suffers fire and explosions while sailing from the Port of Charleston to Antwerp, Belgium. • Towed to Germany where cargo remained; General Average claimed. • U.S. Limitation Act Proceeding? − Yes – Filed in S.D.N.Y. December 7, 2012 12
  14. 14. Limitation Act: MSC Flaminia Fallout • Purpose for Limitation Petition − Take advantage of concursus: at the timing of filing the limitation petition, two other civil suits had been filed in the S.D.N.Y. arising out of damage to cargo − Bond posted: None. − Why? Ad Interim Stipulation for Value = $0 Reminder: Limitation fund equals the value of the vessel after casualty plus freight pending Value of vessel pre-casualty: Value of pending freight: Estimated cost to repair: $26 million $737,000 $23 million Estimated owner general average contribution: between $5 and $35 million January 18, 20-13: Court approves order restraining suits and Petitioner’s ―security‖ 13
  15. 15. Limitation Act: MSC Flaminia Fallout • Case Status: Cargo interests file OSC to release cargo in Germany upon posting of appropriate security; owners oppose as issue should be determined by GA adjuster in London; likely result? Court will deny motion; end around GA adjuster’s powers. • Will Incident Result in Limitation Act Tweaking? Unlikely (1) No public outcry (3 seamen killed but no Americans; happened 1000 miles from shore) (2) general average fills the gap – GA adjuster will require security to cover expenses and sacrifices from all parties to the adventure. 14
  16. 16. Indemnity Agreements v. Public Policy General Maritime Law After Deepwater Horizon • In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) • Course Correction For The General Maritime Law Of Indemnity Contracts? − Yes. New Framework Suggested for Interpreting Maritime Indemnity Clauses − Judge Barbier ruled on January 26, 2012 BP required to indemnify Transocean for pollution claims asserted by third parties, even if claims were caused by Transocean's gross negligence. − Surprise to maritime industry: well-settled maritime law concept that public policy prohibits and invalidates a contractual indemnity that purports to include gross negligence or intentional misconduct 15
  17. 17. Photo of BP Lawyer Inside Litigation Bunker When Reading Judge Barbier’s Indemnity Decision 16
  18. 18. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) • How was a new framework articulated? − The court distinguished a contract that acts as a "release" from an "indemnity" for damages owed a third party: " As distinguished from a [exculpatory clause] release, a true indemnity agreement determines which party to a contract ultimately bears the risk of injury to a third party." (bold in original) (citations omitted).* ________ *Judge Barbier's distinction between a release and a pure indemnity situation had not previously been relied upon in any reported maritime cases analyzing public policy limits on gross negligence in indemnity provisions. 17
  19. 19. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) Expansion of Indemnity Under Maritime Law to Include Gross Negligence: 1. Found contract explicitly contemplated TO gross negligent conduct covered by indemnity; 2. No limiting Fifth Circuit authority on gross negligence issue a. Recent Becker decision – gross negligence dicta b. Earlier decisions (Houston Exploration & Todd Shipyards were ―release‖ cases 18
  20. 20. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) 3. Two competing principles underlying extension of indemnity to include grossly negligent conduct: "the issue creates tension between two policies: freedom of contract, which weighs in favor of enforcing the indemnity, and a reluctance to encourage grossly negligent behavior, which weights against enforcing the indemnity." a. Freedom of contract issues: TO and BP roughly equal bargaining power both being sophisticated entities engaged in a "potentially lucrative and obviously risky endeavor. " b. Drilling contract reflects the parties' attempts to "allocate risk ahead of time in order that a certain degree of certainty may be brought to the risks inherent in that undertaking. " c. The court also noted that with a true indemnity, the injured third party typically is not restrained from seeking compensation; rather, the source of the compensation is shifted to the indemnitor. 19
  21. 21. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) Why does new framework matter? • Limits commonly accepted principles • Royal Insur. Co. of Am. v. S.W. Marine, 194 F.3d 1009, 1014 (9th Cir. 1999) ―We are persuaded, however, that a party to a maritime contract should not be permitted to shield itself contractually from liability for gross negligence.‖ 20
  22. 22. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) Indemnity clause from company to contractor covering contractor’s gross negligence could in fact be struck down as unenforceable Public policy: Restatement (2d) Contracts: "A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.... The law of torts imposes standards of conduct for the protection of others against unreasonable risk of harm. One cannot exempt himself from such liability for harm that is caused either intentionally or recklessly.)" 21
  23. 23. Well-settled common law contract principles: Corbin on Contracts: "It is generally held that [a party] may properly bargain against liability for harm caused by their ordinary negligence; but such an exemption is always invalid if it applies to harm willfully inflicted or caused by gross or wanton negligence " Williston on Contracts: "An attempted exemption from liability for ... a future willful or grossly negligent act is generally held void...."); Prosser & Keeton, Torts: "such agreements generally are not construed to cover the more extreme forms of negligence, described as willful, wanton, reckless or gross‖. Holding in Royal: May now simply be limited to ―release‖ type reasoning 22
  24. 24. In re Deepwater Horizon, 841 F. Supp. 2d 988 (E.D. La. 2012) Fallout? 23
  25. 25. Still Too Soon To Tell Judicial – No reported decisions yet analyzing gross negligence in indemnity in the ―release‖ v. true indemnity context • In re Aramark Sports & Enter. Svcs., 2012 WL 3776859 (D. Utah Aug. 29, 2012) • Limitation action • Powerboat accident on Lake Powell • Decedent signed rental agreement with indemnity clause (release/exculpatory clause scenario) • Court: clause consistent with public policy; own negligence can be absolved, not gross negligence. • Cites Royal Insurance, not In re Deepwater Horizon Business – owners/operators; brokers; banks; shipowners 24
  26. 26. Thank You. Christopher Nolan Partner Holland & Knight LLP 212-513-3307