By Amanda Howard Lowe

In a decision of first impression interpreting the meaning of “operating” under the Oil Pollution Act of 1990 (“OPA,” 33 U.S.C. §§2701 et seq.), the U.S. Fifth Circuit held the owner and operator of a tugboat liable as the “responsible party” for a spill emanating from a tank barge in its tow, and consequently found the owner ineligible for reimbursement for the cleanup costs. See U.S. v. Nature’s Way Marine, LLC, 904 F.3d 416 (5th Cir. 2018).

The underlying incident occurred in January 2013 when a tug owned by Nature’s Way was moving two oil carrying tank barges owned by Third Coast Towing, LLC (“TCT”), down the Mississippi River. The barges allided with a bridge over the Mississippi River, resulting in a release of over 7,000 gallons of oil into the river. The Coast Guard designated both Nature’s Way and TCT as “responsible parties” under OPA §2702(a). Nature’s Way and its insurers spent nearly $3 million in clean-up costs and the federal government incurred another $792,000.

Following settlement of auxiliary disputes between Nature’s Way and TCT, in May 2015, Nature’s Way submitted a claim to the National Pollution Funds Center (“NPFC”)[1] seeking reimbursement of over $2.13 million it spent in clean-up on the grounds that its liability (if any) should be limited to the tonnage of the tug alone, and not the tonnage of the barges. OPA limits liability of a “responsible party” based on tonnage of the vessel it was operating. While Nature’s Way admitted it operated the tugboat, it contested its status as operator of the oil-discharging barge. The NPFC rejected the request to decrease the limit of liability, concluding instead that Nature’s Way was the “operator” of the barges under §2702(a) and thus both barges were properly included in the limitation assessment.

In light of the NPFC dispute, the United States sued Nature’s Way and TCT in the Southern District of Mississippi to recover the $792,000 in cleanup costs directly funded by the federal government. Nature’s Way denied liability, and counterclaimed against the government asserting that the NPFC’s “operator” determination was wrong and violated the Administrative Procedure Act (“APA”) by erroneously applying §2702(a).

The U.S. moved for partial summary judgment on the sole question of whether the NPFC violated the APA by declaring that Nature’s Way was the “operator” of the barge. In opposition, Nature’s Way argued that TCT was actually the “operator” of the barge as it was responsible for instructing when the barge would be loaded, unloaded, and moved.  The district court disagreed with Nature’s Way, holding that a “common sense” interpretation of “operator” as used in the statute supports the conclusion that a “dominant mind” tug moving “dumb” barges (lacking the ability for self-propulsion or navigation) through the water is “operating” those barges. Nature’s Way appealed.

The Court focused on the express language of the statute, which defines an “operator” as “any person … operating” a vessel and a “responsible party” as “any person owing, operating, or demise chartering the vessel.” Though both terms use the word “operating,” the Fifth Circuit noted that “operating” is not defined within the statute. The Fifth Circuit also relied on Supreme Court jurisprudence construing the definition of “operator” in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”) as any person “who directs the workings of, manages, or conducts the affairs of” the facility/equipment in question.” U.S. v. Bestfoods, 524 U.S. 51, 66 (1998). Given that OPA and CERCLA have common purposes and a shared history, the Court found the parallel language between the statutes significant. The Fifth Circuit concluded that the ordinary and natural meaning of “operating” a vessel under OPA would thereby include the act of piloting or moving a “dumb” vessel like the TCT tank barges. The Court held that because “Nature’s Way had exclusive navigational control over the barge at the time of the collision, and, as such… was a party whose direction (or lack thereof) caused the barge to collide with the bridge,” Nature’s Way was the “operator” of the barges under OPA.

Significantly, the Fifth Circuit has now recognized the potential increased liability for negligent vessel operators who cause spills subject to OPA, as the Court has very plainly held that a tug pushing loaded “dumb” barges can only limit its liability to the full value of the entire flotilla. With the potential for increased exposure, this decision will obviously impact vessel operators and the oil and gas industry, as well as their respective insurers. Additionally, the ruling does not appear to foreclose the argument that the barge owner might also be considered an operator under OPA 90, if its actions also rise to the level of “operating.”

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[1] The National Pollution Funds Center oversees the Oil Spill Liability Trust Fund, 26 U.S.C.§9509, an OPA-created mechanism, funded by inter alia OPA civil penalties, from which faultless or partially at-fault “responsible parties” can recoup, to the extent of their non-fault, clean-up costs paid out pursuant to their strict OPA liability, see 33 U.S.C. §2708(a), 26 U.S.C. §9509)

By Michael J. O’Brien

A “no claims bonus” is an attractive carrot that insurers can write into a policy to attract more customers. Indeed, the recovery of a “no claims bonus” can result in a substantial payoff for an insured. Given the maxim: “accidents happen”, the question arises, can the “no claims bonus” be recovered as an element of damages if a third party causes you to forfeit the bonus through their fault. Currently, this exact issue is making its way through the Eastern District of Louisiana in Cox Operation, LLC v. Settoon Towing, LLC et al., Civil Action No. 17-1933 c/w 17-2087.

Cox Operation concerns a September 13, 2016, accident where a Settoon vessel allided with a well owned by Cox. In addition to its property damage claims, Cox seeks to recover the loss of its “no claims bonus”, allegedly due to Settoon’s neglect.

Specifically, Cox had insured the well with a policy that provided a “10% no claims bonus payable at expiry subject to a total gross earned premium exceeding USD 2,000,000 hereon.” Accordingly, if Cox submitted no claims under the applicable policy, then the insurer would refund Cox 10% of the total premium amount for the policy period, assuming that total premium amount exceeded two million dollars (which it did). If Cox submitted a claim during the policy period, then no refund would issue. Interestingly, Cox also insured the potential loss of its “no claims bonus” through a separate policy.

As a result of the subject allision, Cox was forced to submit a claim under the policy. It then became obligated to repay the “no claims bonus” which the insurer had prepaid to Cox. Critically, the claim associated with the allision was the only claim Cox filed during the applicable policy period. Thus, it was Cox’s contention that Settoon’s negligence caused a loss/damage to Cox in the amount of the loss “no claims bonus.” Settoon challenged Cox’s entitlement to the “no claims bonus” and moved for summary judgment arguing that Cox was precluded as a matter of law from pursuing recovery of the “no claims bonus.” Settoon also put at issue the policy insuring Cox’s loss of the bonus, which Cox argued should be excluded as a collateral source.

Settoon argued that Cox could not recovery the no claims bonus under either the General Maritime Law or the Oil Pollution Act (OPA). Cox did not address Settoon’s arguments that the no claims bonus was not recoverable under the OPA. Instead, Cox focused on the recoverability of the “no claims bonus” under the General Maritime Law.

In analyzing this issue, the EDLA cited the U.S. Fifth Circuit’s opinion in Louisiana ex rel., Guste v. M/V TESTBANK, 752 F.2d 1019 (5th Cir. 1985) (en banc), which holds that “physical injury to a proprietary interest is a pre-requisite to recovery of economic damages in cases of unintentional maritime tort.” Next, the District Court reviewed Corpus Christi Oil & Gas Co. v. Zapata Gulf Marine Corp., 71 F.3d 198, 203. (5th Cir. 1995) where the Fifth Circuit interpreted the TESTBANK rule and held that simply meeting the requirement of showing physical damage of a proprietary interest does not automatically open the door to all foreseeable economic consequences.” Rather, “economic consequences” must be “attendant” to the physical damage to a Plaintiff’s own property to be recoverable economic damages under TESTBANK.

Based on the facts that had been established to date, the District Court held that TESTBANK’s pre-requisites were satisfied. Thus, the door to the recoverability of the “no claims bonus” was opened.  The alleged damage to Cox’s well constituted physical damages to Cox’s own property. Cox’s loss of the “no claims bonus” was tied to the physical damage to Cox’s well. Bottom line: if Cox suffered physical damage to its property and suffered an economic loss that was attendant to that damage, then “all of the TESTBANK rules boxes have been checked.” As such, Cox could pursue recovery of the “no claims bonus.”

After concluding that recovery of the “no claims bonus” was an allowable element of damages, the District Judge next addressed whether the Collateral Source Rule barred Settoon from introducing evidence of the separate insurance policy that insured Cox against the loss of the bonus. It is longstanding jurisprudence that the Collateral Source Rule bars a tortfeasor from reducing the quantum of damages owed to a Plaintiff by the amount of recovery the Plaintiff receives from other sources of compensation that are independent of (or collateral to) the tortfeasor. Davis v. Odeco, Inc., 18 F.3d 1237, 1243 (5th Cir. 1994). The underlying rationale of the Collateral Source Rule is that Plaintiffs should not be penalized because they have the foresight and prudence (or good fortune) to establish and maintain collateral sources of compensation, such as insurance. Insurance policies, such as the one purchased by Cox, clearly fall within the definition of a collateral source. As such, the District Court concluded that Settoon could not introduce – and the Court could not consider – evidence that Cox was, in fact, insured against the loss of the “no claims bonus.”

Ultimately, Cox was not legally precluded from seeking recovery of the no claims bonus. However, at trial Cox must still prove the value of its loss related to the “no claims bonus” in order to recover that loss. Be on the lookout for future updates as this matter proceeds to a final resolution.