1. Global Corporate Four Issues That Every Marine Insurer Should Know (And How Recent Events in the Gulf May Change These) January 20, 2011 John K. Weber, CPCU Zurich Marine in North America

2. Global Corporate 01/20/2011 2 The Four Issues: Limitation of Liabilities Act Robins Dry Dock Punitive Damages in regard to Jones Act Seamen OPA 90

3. Global Corporate 01/20/2011 3 First enacted March 3, 1851 to encourage US maritime commerce Both limitation and exoneration – must involve “navigable” waters. Owner seeks to limit liability to post-accident value of vessel and pending freight, or a minimum of $450 per GRT for bodily injury or death arising from ocean going passenger vessels. Vessel owner petitions to limit in federal court, can be no owner’s “privity or knowledge” of conditions leading to loss. Mainly seeking concursus, or a single forum. Single claimant may have damages decided in state court, while a federal court decides upon limitation if a petition has been filed. State courts may also hear limitations if no federal petition sought. In practice limitation is almost never granted – instead a method to consolidate cases with efficiency and more predictability in a single forum. Limitation of Liability Act 46 USC Section 183

4. Global Corporate 01/20/2011 4 Conyers, Leahy, Schumer, Oberstar and Rockefeller all seek to end the right to file Limitations. Expect that if the act or parts of it are retained, the new limits will be substantial, and not post-loss vessel value and pending freight. Bifurcation between coastal and offshore oil facilities; vessels carrying petroleum product; and all other vessels. Limitations Post BP Macondo

5. Global Corporate 01/20/2011 5 Robins Dry Dock Full reference: Robins Dry Dock and Repair Co. v. Flint, et al. 275 U.S. 303 Supreme Court Decision of 1927 written by Chief Justice Oliver Wendell Holmes. Involved the charterer of a vessel seeking recovery for economic loss due to damages to vessel propeller that took place at Robins. The court ruled that no one without a direct “property right” in any damaged property can recover for economic damages. Most often comes into play in blocked waterways. Loss of profits to fishermen has been excepted. Loss of profits for use of “marine ecosystems” generally due to oil spills has also been allowed as exception.

6. Global Corporate 01/20/2011 6 Robins Post Macondo Robins is not specifically addressed in any current proposed legislation as this is judicial precedent, and not statutory. Given exceptions already granted in regard to pollution incidents by courts for Robins, the effective defense of Robins for vessel owners and their insurers may be greatly weakened for losses due to oil spills as the legal liability will be broadened and the financial costs of such incidents may rise significantly.

7. Global Corporate 01/20/2011 7 Punitive Damages for Jones Act Seamen Jones Act traditionally excluded non-pecuniary losses to seamen. Atlantic Sounding vs. Townsend allowed punitive damages for lack of paying maintenance and cure – ruling M & C a common law remedy that preceded the Jones Act. Upheld by the Supreme Court in 2009 – citing the allowance of punitive remedies in common law for wanton and reckless conduct. Mare’s nest: Separating out the punitive reward – insurances for punitive and exemplary losses not allowed in certain states. Punitive exclusions in usual excess policies – pitting primary v. excess carrier. Wagner vs. Kona Blue Water Farms heard in Ninth Circuit in 2010 also a recent case pushing for punitive awards for unseaworthiness. Continued pressure on advancing the argument that the Jones Act should not restrict the common law remedy for seamen to recover punitive awards for egregious conduct.

8. Global Corporate 01/20/2011 8 Punitives Post Macondo Various post-loss legal filings of Transocean in regard to Jones Act lead to strong reaction in Congress. The proposed bills of Conyers, Leahy, Oberstar, Jackson Lee, Rockefeller, Reid all seek to specifically add “non-pecuniary” losses to maritime claims in regard to the Jones Act. All proposed legislation specifically seeks to also include non-pecuniary loss in the Death on the High Seas Act.

9. Global Corporate 01/20/2011 9 Passed in 1990 in reaction to the Exxon Valdez oil spill. Established broad range of regulations expanding federal oversight for vessel construction, manning, and mandatory contingency planning for spills. Established the Oil Spill Liability Trust Fund. Established minimum financial requirements and limits of liability per ton; made distinction between tank vessels and other vessels. Required Certificates of Financial Responsibility to back up obligation. Established maximum liability for $75 million of offshore rigs such as Transocean. Strict limits rarely enforceable, multiple jurisdictions and other state and federal acts may be involved. OPA 90

10. Global Corporate 01/20/2011 10 OPA 90 Post Macondo Up, up and away. Rebell, Jackson Lee, Menendez/Holt, Buchanan and Reid all seek to greatly expand or eliminate any financial limitation for offshore facilities. $10 billion mentioned in Congress as appropriate minimum. Insurance industry groups in Europe said they could conceivably provide $20 billion in coverage. Expect continued bifurcation between oil vessels and facilities, and all others non-oil vessels and marine operations. Expect minimum financial requirements to continue to go up significantly.

11. Global Corporate 01/20/2011 11 All four matters we have discussed will be significantly impacted by the BP Macondo well loss. However, in each case the legislation and precedential law had already been moving in the direction of what some members of Congress are currently proposing – this will speed up the process Will the global insurance market have the ability over the long terms to provide such higher limits for the production and carriage of petrochemical products? Punitive damages, if generally allowed, will present a significant challenge for insureds and insurers, as some states do not allow this to be insured, and there is inconsistency within the insurance community over how this is provided. This must inevitably drive up the cost of Jones Act claims for seamen. Conclusion

12. Global Corporate 01/20/2011 12 American Institute Of Marine Underwriting Bulletin for BP Macondo Legislation

13. Global Corporate 01/20/2011 13 American Institute Of Marine Underwriting Bulletin cont’d

14. Global Corporate 01/20/2011 14 American Institute Of Marine Underwriting Bulletin cont’d

15. Global Corporate 01/20/2011 15 American Institute Of Marine Underwriting Bulletin cont’d

16. Global Corporate 01/20/2011 16 American Institute Of Marine Underwriting Bulletin cont’d