WRECK REMOVAL IN THE 21ST CENTURY: Liability and Coverage Issues LLBLLocke Lord Bissell & Liddell LLP 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 LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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

LLBLLocke 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

Applicability of the Wreck Act LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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

The Wreck Act and Limitation of Liability: Negligent Owners LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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

Wreck Act and Limitation: Non-Negligent Owners LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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

The Wreck Act and Offshore Activities LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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”

LLBLLocke Lord Bissell & Liddell LLP Tort Liability Negligence Other theories?

LLBLLocke Lord Bissell & Liddell LLP Drilling Contracts

MMS Decommissioning Regulations LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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”

LLBLLocke 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

LLBLLocke Lord Bissell & Liddell LLP Coverage for ROW/D First party property coverage P&I insurance Excess liability insurance

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

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

Coverage under traditional marine P&I policies LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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”

Progress Marine, Inc. v. Foremost Ins. Co. LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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”

Continental Oil Co. v. Bonanza Corp. (“The AQUA SAFARI”) LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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.”

Grupo Protexa, S.A. v. All American Marine Slip (“The HUICHOL”) LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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.

LLBLLocke 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.

Coverage under “broad form” ROW/D clauses LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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.”

LLBLLocke 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”

LLBLLocke Lord Bissell & Liddell LLP “for damages” Are removal costs incurred by the insured “damages”? Guidance in environmental cases

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

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

“assumed under contract” LLB&L Locke Lord Bissell & Liddell LLP LLBLLocke 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

LLBLLocke Lord Bissell & Liddell LLP New Wordings