Houston Marine Insurance SeminarHouston Marine Insurance Seminar20022002

Pollution BasicsPollution Basics

• ExposuresExposures

– OPA 90OPA 90

– CERCLACERCLA

– State lawState law

– Cargo owner’s contingent exposuresCargo owner’s contingent exposures

– Criminal and civil penaltiesCriminal and civil penalties

OPA 90 DefinitionsOPA 90 Definitions

Act of godAct of god Gross ton- ITC verses GRTGross ton- ITC verses GRT Owner and operatorOwner and operator

– Means owner and operatorMeans owner and operator– Demise chartererDemise charterer– Shipyards and boat dealersShipyards and boat dealers

Tank vesselTank vessel

OPA 90 AmendmentsOPA 90 Amendments

• Exclusions from definition of tank vesselExclusions from definition of tank vessel

• Edible oils financial responsibilityEdible oils financial responsibility

• Offshore facility financial responsibilityOffshore facility financial responsibility

• Interim paymentsInterim payments

• Response vessel financial responsibilityResponse vessel financial responsibility

• Clarification of liability in responseClarification of liability in response

Additional OPA 90 IssuesAdditional OPA 90 Issues

Act of war /terrorismAct of war /terrorism Mobile offshore drilling unit (MODU)Mobile offshore drilling unit (MODU) Carrying oil from an offshore facilityCarrying oil from an offshore facility Failure to cooperateFailure to cooperate

State RegulationState Regulation

Liability limits often greater than Liability limits often greater than

federal limitsfederal limitsFinancial responsibility Financial responsibility

requirementsrequirementsResponse/contingency planning Response/contingency planning

State Regulation…continuedState Regulation…continued

AlaskaAlaska CaliforniaCalifornia State law broader in scopeState law broader in scope

State Regulation…continuedState Regulation…continued

OPA 90 does not preempt state law in many areas of OPA 90 does not preempt state law in many areas of regulationregulation

U.S. v. Locke (INTERTANKO)U.S. v. Locke (INTERTANKO)– Supreme Court Decision Supreme Court Decision – Federal law controls equipment and operating Federal law controls equipment and operating

standardsstandards– State standards OK for liability and financial State standards OK for liability and financial

responsibilityresponsibility– Bottom Line : States continue to pass new Bottom Line : States continue to pass new

requirements for financial responsibility,ballast water, requirements for financial responsibility,ballast water, and in other environmental areas.and in other environmental areas.

Criminal Liability Criminal Liability

BackgroundBackground– Greater potential that environmental Greater potential that environmental

violations will be treated criminallyviolations will be treated criminally– Statutory Basis for LiabilityStatutory Basis for Liability–OPA 90OPA 90–Migratory Bird Treaty Act Migratory Bird Treaty Act –Refuse ActRefuse Act–UnseaworthynessUnseaworthyness

Ballast Water…continuedBallast Water…continued

Issue – non-indigenous aquatic speciesIssue – non-indigenous aquatic species– Federal act ineffectiveFederal act ineffective– States have enacted mandatory ballast States have enacted mandatory ballast

water management programswater management programs– Problematic statutory solutions Problematic statutory solutions – Greywater regulations in AlaskaGreywater regulations in Alaska

Incident ResponseIncident Response

–Coverage conflicts among pollution, hull Coverage conflicts among pollution, hull and P & I and underwritersand P & I and underwriters–Salvage/wreck removalSalvage/wreck removal–FirefightingFirefighting–PollutionPollution

Ballast WaterBallast Water

Should invasive species events be considered Should invasive species events be considered “pollution?”“pollution?”

Will industry react?Will industry react?

Criminal LiabilityCriminal Liability

One Example: Eklof Towing (1998)One Example: Eklof Towing (1998)– $9.5 million fine $9.5 million fine – Fine and Probation for company president Fine and Probation for company president

and tug captainand tug captain– Collateral ConsequencesCollateral Consequences–Lose Gov’t ContractsLose Gov’t Contracts–Onerous terms of ProbationOnerous terms of Probation

Criminal Liability Criminal Liability

Other ExamplesOther Examples– Canadian Prosecution for Migratory Bird Canadian Prosecution for Migratory Bird

Convention Act (2001)Convention Act (2001)– Other U.S. Prosecutions for Deliberate Other U.S. Prosecutions for Deliberate

Discharges or falsification of Log BooksDischarges or falsification of Log Books

Criminal Liability Criminal Liability

Miscellaneous issuesMiscellaneous issues– No more insurance for fines?No more insurance for fines?– Financial guarantee systemFinancial guarantee system– Effect of criminal investigation on Effect of criminal investigation on

spill response effortsspill response efforts

Criminal Liability Criminal Liability

SolutionsSolutions– Legislative Legislative – Educate EmployeesEducate Employees– Identify Criminal Defense CounselIdentify Criminal Defense Counsel– EPA / DOJ want compliance programsEPA / DOJ want compliance programs– Choose Location of a Violation Carefully Choose Location of a Violation Carefully

Defense Fines and Penalties Defense Fines and Penalties EndorsementEndorsement

Covers Certain fines under FWPCA, Refuse act Covers Certain fines under FWPCA, Refuse act and MBTA.and MBTA.

Legal DefenseLegal Defense Public policyPublic policy

Foreign Asset Control ActForeign Asset Control Act

The Cuban Assets Control Regulations, 15 CFR Part The Cuban Assets Control Regulations, 15 CFR Part 515515– issued by the U.S.Government on 8 July 1963 under issued by the U.S.Government on 8 July 1963 under

the Trading With the Enemy Act in response to the Trading With the Enemy Act in response to certain hostile actions by the Cuban government.certain hostile actions by the Cuban government.

– Administered by the U.S.Treasury Department's Administered by the U.S.Treasury Department's Office of Foreign Assets Control.Office of Foreign Assets Control.–www.ustreas.gov/ofacwww.ustreas.gov/ofac

– Goal of the sanctions is to isolate the Cuban Goal of the sanctions is to isolate the Cuban government economically and deprive it of U.S. government economically and deprive it of U.S. dollars.dollars.

Foreign Asset Control Act …ContinuedForeign Asset Control Act …Continued

– Criminal penalties for violating the sanctions Criminal penalties for violating the sanctions range up to 10 years in prison,$1,000,000 in range up to 10 years in prison,$1,000,000 in corporate fines,and $250,000 in individual corporate fines,and $250,000 in individual fines.Civil penalties up to $55,000 per violation fines.Civil penalties up to $55,000 per violation may also be imposed. may also be imposed.

– ......No products,technology,or services may be No products,technology,or services may be exported from the united states to Cuba, either exported from the united states to Cuba, either directly or through third countries,such as directly or through third countries,such as Canada or Mexico.…Provision of consulting Canada or Mexico.…Provision of consulting services is also prohibited.services is also prohibited.

Cargo OwnersCargo Owners

AlaskaAlaska CaliforniaCalifornia Florida(contingent)Florida(contingent) MarylandMaryland New Jersey (contingent)New Jersey (contingent) North CarolinaNorth Carolina OregonOregon WashingtonWashington

Additional EndorsementsAdditional Endorsements

OffloadingOffloading Public vesselsPublic vessels Derelict substanceDerelict substance Marina coverageMarina coverage Storage ashoreStorage ashore

Further InformationFurther Information

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