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Congress may repeal maritime law after Gulf spill

In response to the April Deepwater Horizon rig accident in the Gulf of Mexico, which resulted in the largest offshore oil spill in U.S. history, federal legislation has been introduced calling for the elimination of or dramatic changes to the Limitation of Liability Act of 1851 (the “Act”).

Many politicians and other groups argue that the 150-year-old law applicable to vessel owners is archaic and unfair to parties injured in serious maritime casualties.

On July 1, the U.S. House of Representatives passed the Securing Protections for the Injured from Limitations on Liability Act (SPILL), which would repeal the 1851 Act. The proposed legislation was referred to the U.S. Senate on July 13, but the bill stalled before August recess. There is expected to be a renewed push for SPILL or a broader measure when the Senate reconvenes in September.

While some aspects of the 1851 Act may need to be updated, certain portions still contribute value in this age of multi-year protracted litigation and can encourage the prompt resolution of many maritime claims relating to vessel owner liability.

One aspect of the Act was, in fact, key in the settlement of one of the most serious maritime casualties to occur in Maryland waters in the last 20 years: the capsizing of the water taxi Lady D in Baltimore.

Under the Act, a vessel owner may file what is known as a limitation action in federal court following a marine casualty. In such a filing, the vessel owner will ask that its financial liability as to the casualty be limited to the post-accident value of the vessel and its pending freight. For this to occur, a federal judge must find that the vessel was negligent or unseaworthy and that such negligence or unseaworthiness was not within the privity and knowledge of the vessel owner.

The historic rationale behind this law related to a belief 150 years ago that water transportation was a very risky venture and that without such a law in place, maritime and world commerce would be discouraged. A classic example would have involved a sailing vessel that was thousands of miles from its home port and out of communication with the vessel’s owner for weeks, if not months. If an accident occurred that was related to a problem arising during the voyage, of which the owner had no knowledge, such owner may have been able to limit its liability.

However, in this age of modern electronic communication, many owners are in constant communication with vessels, and it is very difficult for an owner to establish a lack of privity to or knowledge of an accident. In practical terms, it would be unusual today for a vessel owner to escape paying significant damages in a maritime casualty involving vessel negligence or unseaworthiness.

While the relevance of the Act has significantly decreased over the years, it remains pertinent in this era of long, drawn out litigation and can promote the prompt and uniform resolution of claims. Once a limitation action is filed in a federal court, most claims against the vessel owner relating to the maritime casualty must be filed in that single federal court, pursuant to a principle known as “concursus” of claims. With such claims in one court, it is typically much easier for a vessel owner, its insurers and attorneys to access and attempt to settle these claims in a prompt and uniform manner.

This Act played a key role following the 2004 capsizing of the water taxi Lady D. With 25 passengers and crew on board, and five deaths, this was one of the most serious maritime casualties to occur in Maryland waters in the last 20 years. After the owners of the Lady D filed a limitation action in Baltimore federal court, all passengers and crew were required to file their claims in this single action. All such claims were confidentially settled just 10 months after the accident. Without this “concursus” element of the Act, it would have been virtually impossible to settle all claims so quickly, as the matter likely would have evolved into multiple lawsuits in multiple jurisdictions that could have dragged on for years.

In the Deepwater Horizon rig accident, 11 individuals on the rig died and over 100 individuals were allegedly injured. Transocean, the owner of the rig (which is considered a vessel for purposes of maritime law), filed a limitation proceeding in federal court in Houston within weeks of the accident. The court in Houston entered an order requiring that certain claims against Transocean — including personal injury and death claims of those who were aboard the rig — must be filed in the limitation action.

Thus, Transocean will be presented with an opportunity to quickly evaluate and attempt to settle the claims of those injured or killed in the accident. Despite the fact that Transocean has been severely criticized for filing a limitation action, this move could result in a much faster and more uniform resolution of claims.

Finally, the court in Houston made clear that the Act does not apply to direct claims for environmental damages associated with the oil that has leaked because of the accident. As a result, such claims against Transocean do not have to be filed in the Houston limitation action because they are not subject to the Act and are instead governed by the Oil Pollution Act of 1990 (“OPA”).

OPA was enacted following the 1989 Exxon Valdez oil spill, and under OPA, responsible parties — the owners or operators of the vessel or facility from which oil is discharged — are strictly liable for both full clean-up costs and the environmental damage claims of individuals and businesses impacted by the leaking oil. This second element theoretically could be limited to $75 million under OPA.

Transocean has been named a responsible party by the Coast Guard under OPA. BP, which was leasing the Deepwater Horizon rig from Transocean and was the operator and developer of the oil field in which the rig was operating, has also been named a responsible party. BP has publicly stated that it is committed to paying the clean-up costs and all legitimate claims relating to the leaking oil. BP estimates that, through the end of July, its clean-up costs were already close to $4 billion. As to direct environmental claims of businesses and individuals impacted by the oil, BP also has agreed to create a $20 billion fund to pay such claims.

Robert B. Hopkins is a partner in the trial group in the Baltimore office of Duane Morris LLP and was counsel to the owners of the Lady D as to her 2004 capsizing.