WRECK REMOVAL IN THE 21ST CENTURY: Liability and Coverage Issues

1. WRECK REMOVAL IN THE 21ST CENTURY: Liability and Coverage Issues Harold K. Watson, Partner Locke Lord Bissell & Liddell LLP

2. LLB&L 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

3. LLB&L Locke Lord Bissell & Liddell LLP 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

4. LLB&L Locke Lord Bissell & Liddell LLP 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

5. LLB&L Locke Lord Bissell & Liddell LLP 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

6. LLB&L Locke Lord Bissell & Liddell LLP 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

7. LLB&L Locke Lord Bissell & Liddell LLP 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”

8. LLB&L Locke Lord Bissell & Liddell LLP Tort Liability • Negligence • Other theories?

9. LLB&L Locke Lord Bissell & Liddell LLP Drilling Contracts

10. LLB&L Locke Lord Bissell & Liddell LLP 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”

11. LLB&L Locke Lord Bissell & Liddell LLP 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

12. LLB&L Locke Lord Bissell & Liddell LLP Coverage for ROW/D • First party property coverage • P&I insurance • Excess liability insurance

13. LLB&L Locke Lord Bissell & Liddell LLP First Party Property Coverage

14. LLB&L Locke Lord Bissell & Liddell LLP P&I Coverage: “Compulsory by law”

15. LLB&L Locke Lord Bissell & Liddell LLP 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”

16. LLB&L Locke Lord Bissell & Liddell LLP 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”

17. LLB&L Locke Lord Bissell & Liddell LLP 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.”

18. LLB&L Locke Lord Bissell & Liddell LLP 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.

19. LLB&L Locke Lord Bissell & Liddell LLP 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.

20. LLB&L Locke Lord Bissell & Liddell LLP 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.”

21. LLB&L Locke Lord Bissell & Liddell LLP 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”

22. LLB&L Locke Lord Bissell & Liddell LLP “for damages” • Are removal costs incurred by the insured “damages”? • Guidance in environmental cases

23. LLB&L Locke Lord Bissell & Liddell LLP “on account of property damage”

24. LLB&L Locke Lord Bissell & Liddell LLP “imposed by law” • Liability that would exist in the absence of contract or agreement • Wreck Act? • Tort liability? • MMS regulations?

25. LLB&L Locke Lord Bissell & Liddell LLP “assumed under contract” • “indemnification and hold harmless agreements, whereby the insured agrees to ‘assume’ the tort liability of another” • Drilling contracts • Offshore mineral leases

26. LLB&L Locke Lord Bissell & Liddell LLP New Wordings