CIn

Wednesday, March 2, 2016Houston, TX

3:30–4:30 p.m.

HURRICANE BREAKAWAYS—RIG OWNERS’ DUTIES, LIABILITIES, AND DEFENSES

Presented by

Julia M. PalmerMember

Gray Reed & McGraw, P.C.

There are significant liabilities and exposures arising out of hurricane rig breakaways. Thissession will discuss rig owners’ prehurricane duties to properly moor and prepare for hur-ricanes and their posthurricane duties to search for, mark, and remove wrecked rigs. Thepresentation will also address the act of God defense, application of the Wreck Act, andthe potential liability for damage to other rigs and vessels caused by free-floating rigs, an-chors dragging over pipelines, and navigating vessels striking submerged wrecked rigs, aswell as how insurance can be used to cover the exposures.

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www.IRMI.com

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Julia M. PalmerMember

Gray Reed & McGraw, P.C.

Ms. Palmer, formerly Julia Adams, is an active and respected member of the admiralty and ener-gy bar. Her practice focuses on marine, energy, and insurance issues.

For more than 30 years, Ms. Palmer has handled marine and energy litigation, including collisioncases, hurricane losses, onshore and offshore oil and gas claims, hydraulic fracturing cases, ma-rine and energy products liability litigation, the defense of personal injury and death actions,contract and lien claims, dock and stevedore liabilities, and subrogation litigation. Her expertiseis the handling of down hole losses, environmental claims, property damage, business interrup-tion, vessel and dock operations, and offshore and marine construction. Ms. Palmer is oftencalled upon to analyze insurance, indemnity, and defense provisions in marine and drilling con-tracts, as well as complex issues arising under the Outer Continental Shelf Lands Act.

Prior to joining Gray Reed & McGraw, Ms. Palmer was a partner in the Houston office of Sedg-wick LLP where she led the firm's Admiralty and Energy Group and the Hydraulic Fracturing TaskForce. She also served as the briefing attorney to the Honorable Hugh Gibson, Judge, US DistrictCourt, Southern District of Texas, Galveston Division, from 1982 to 1984. She is a member of theFifth Circuit Bar Association, College of the State Bar of Texas, and the Houston Mariners Club.Ms. Palmer has been appointed by Chief US District Court Judge Ricardo H. Hinojosa to serve onthe Magistrate Judge Judicial Selection Panel for the Southern District of Texas. She is a proctor inthe Maritime Law Association of the United States.

Ms. Palmer is a past president of the Houston Propeller Club and continues to serve on theboard. In 2010, she was named "Propeller Club Person of the Year." She also serves on the boardof International Seafarers Center and the Maritime Gala planning committee and chaired the2008 and 2009 Maritime Gala. Ms. Palmer is a member of the planning committee for the Uni-versity of Texas Admiralty and Maritime Law Conference, a trustee of the Houston Maritime Mu-seum, and a member of the board of directors of the Judith Liebenthal Robison Ovarian CancerFoundation. She is AV Preeminent Rated, the highest possible Martindale-Hubbell Peer ReviewRating designation.

Ms. Palmer frequently authors and lectures on insurance coverage and maritime law topics.

She earned her J.D., cum laude, from South Texas College of Law in 1982. While attending lawschool, she was the editor of the Special Maritime Edition of the South Texas Law Journal and amember of the Order of the Lytae. Ms. Palmer received her B.A. (1979) from the University ofDayton.

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Hurricane Breakaways – Rig Owner Duties, Liabilities, and Defenses

Presented by:Julia M. (Adams) Palmer

Gray Reed & McGraw, P.C.

#IRMI2016 1

© Gray Reed & McGraw, P.C.

Rigs on walkabout…should you be worried?

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Ensco v. M/V Satilla Ensco 74, offshore jack up rig, broke away during

hurricane in GOM Ensco conducted 2 week, primarily aerial and limited

underwater, search for rig Ensco ends search after government vessel with side

scan sonar no longer available Rig drifted 90 miles and sunk in lightering area 6 months later, M/V Satilla strikes sunken wreck of

Ensco 74, resulting in substantial damage, but no pollution Retraced vessel course with ROV and located wreck of

Ensco 743

Ensco 74

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M/V Satilla

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Liability Under The Wreck Act? Should the Wreck Act impose strict liability for failing

to locate, mark and remove the wrecked rig? Did Ensco conduct a full, good faith search for the rig? Should Ensco be excused from liability for the damage

to the M/V Satilla? Would the result have been different if the allision

resulted in pollution?

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Rig Owner Liability for Breakaways and Wrecks Outline

Liability to Objects that the Breakaway Vessel Damages Vessel Owner may be Negligent if it Fails to Properly

Moor/Secure a Vessel Negligence is Presumed When a Drifting Vessel Hits a

Fixed Object The Act of God Defense The Wreck Act The Duty to Search for, Mark and Remove Wreck The Oil Pollution Act of 1990 The Nairobi Convention Conclusion

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Liability to Objects that the Breakaway Vessel Damages

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Liability Under General Maritime Law

1. Duty to properly moor in anticipation of hurricane

2. Strong presumption of fault against drifting vessel

3. Burden of proof and persuasion is on owner of drifting vessel

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Liability of a Drifting Vessel

Drifting vessel may rebut presumption of fault if:1. Allision was the fault of the stationary object2. The moving vessel acted with reasonable care3. The allision was an unavoidable accident,

e.g., Act of God

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Failure to Properly Moor/Secure a Vessel in Anticipation of a Hurricane

“[W]here, as here, the damages resulted from the same physical forces whose existence required the exercise of greater care than was displayed and were of the same general sort that was expectable, unforeseeability of exact developments [we]will not limit liability.” In Re Signal Intern. 579 F.3d 478 (5th Cir. 2009)quoting Kinsman Transit, 338 F.2d 708 at 726.(2nd Cir. 1964)

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“[T]he allision was a harm of the general sort to an entity of the general class that might have been anticipated by a reasonably thoughtful person as a probable consequence of the negligent mooring of the barges on the Pascagoula River in light of the interplay of the expected storm surge and the surrounding topology (sic).” In Re Signal Intern. 579 F.3d 478. 496 (5th Cir.2009)

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Failure to Properly Moor/Secure a Vessel in Anticipation of a Hurricane

Negligence is Presumed When a Drifting Vessel Hits a Fixed Object

1. Presumption of fault shifts burden of proof and persuasion to drifting the vessel

2. Vessel must demonstrate accident could not have been prevented by “human skill and precaution and proper display of nautical skills”

3. Vessel must show it “exhausted every reasonable possibility” and “did all that reasonable care required”

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The Act of God Defense

“[A]n act of God is defined as any accident due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains, or care, reasonably to have been expected, could have been prevented.” Union Pac. R. Co. v. Heartland Barge Mgmt., LLC, 2006 WL 2850064 at 13 (S.D. Tex. Oct. 3, 2006)

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The Act of God Defense

1. Extreme weather2. Demonstrate the vessel “took reasonable

precautions under the circumstances as known or reasonably anticipated” Petition of U.S., 425 F.2d 991, 995 (5th Cir. 1970)

3. “Human negligence as a contributory cause defeats any claim to the ‘Act of God’ immunity” Crescent Towing and Salvage Co. Inc. v. M/V Chios Beauty, 2008 WL 38504581 at 14 (E.D. La. Aug. 14, 2008)

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The Wreck Act

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The Wreck Act 33 U.S.C. \ 409

The Wreck Act, makes it “unlawful…to sink…vessels or other craft in navigable channels…in such a manner as to obstruct, impede or endanger navigation” and imposes a duty on the owner of vessel or other craft that is wrecked and sunk in a navigable channel to mark the location of the vessel and commence the immediate removal of the vessel.

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Purpose of The Wreck Act

1. “To ensure that navigable waterways remained free from obstructions, including sunken vessel.” Univ. of Texas Med. Branch v. United States, 557 F.2d 438, 444 (5th Cir. 1977)

2. To protect “other vessels plying the same waters.” United States v. Raven, 500 F.2d 728, 732 (5th Cir. 1974)

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Obstructions and Hazards to Navigation33 CFR \ 64.06

Obstruction to Navigation is “anything that restricts, endangers or interferes with navigation.” Hazard to Navigation is “an obstruction, usually sunken, that presents sufficient danger to navigation so as to require expeditious, affirmative action such as marking, removal or redefinition of a designated waterway to provide for navigational safety.”

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Duty to Mark and Remove

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Duties Under The Wreck Act

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Duty to locate, mark, maintain mark and remove wrecks that are obstructions and hazards to navigation Duty not dependent on fault Duty cannot be delegated Duty continues until wreck removed or abandoned to

Corp of Engineers Criminal penalties for failure to mark, maintain and

remove wreck Liability for damages to vessels damaged by wreck Burden on owner of wreck to prove it conducted a full,

good faith search

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Applicable Regulations

33 CFR § 64.11(a) Immediately mark

46 CFR § 4.05-1 File Notice of Marine Casualty

33 CFR § 64.11(b) Provide required information to USCG

33 CFR § 64.16 Maintain marking until wreck is removed or abandoned to Corp of Engineers

33 U.S.C. § 414(b) and 33 CFR § 64.33

Vessel must pay cost to mark, maintain and remove

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Wreck Removal

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Factors

1) Navigational difficulty in the vicinity of the obstruction

2) Type and amount of vessel traffic or other marine activity in the vicinity of the obstruction

3) Depth of water over the obstruction

4) Physical characteristics of the obstruction

5) Possible movement of the obstruction

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“Full, Good Faith Search”

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What is a Full, Good Faith Search?

Must be directed to determine if wrecked vessel is an obstruction or hazard to navigation (i.e., Does the Wreck Act apply?) Concentrated on navigable channels and navigational

pattern areas Goal to locate vessel or confirm it is not located in

sensitive navigational areas where it would be an obstruction or hazard to navigation Owner must do everything that can reasonably be done

under the circumstances to locate wreck or confirm it is not an obstruction or hazard to navigation

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Search Model

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Full, Good Faith Search Issues

Can you rely on the government to search?How long to you need to search?Modeling of search area Floating vs. sunkAvailable search equipmentAvailable technology

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Advances in Technology and the Duty to Search

Advanced Sonar Computer Driven Search Planning Successes and Failures – El Faro and

Malaysian Flight 370

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Sidescan Sonar

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Key Cases

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Nunley v. M/V Dauntless Colocotronis, 863 F. 2d 1190 (5th Cir. 1989)Miss Janel Inc. v. Elevating Boats Inc., 725 F.

Supp. (S.D. Ala. 1989) Allied Chemical Corp. v. Hess Tankship Co.,

661 F. 2d 1044 (5th Cir. 1981)

Economic Realities

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Value of a floating rigValue of sunk rigCost to searchCost to remove wreck, if locatedCost if wreck results in pollution

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OPA 33 USC 2702

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“[E]ach responsible party for a vessel of a facilityfrom which oil is discharged, or which poses thesubstantial threat of a discharge of oil, into orupon the navigable waters or adjoining shorelinesor the exclusive economic zone is liable for theremoval costs and damages...that result fromsuch incident.”

Lightering of M/V Satilla

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OPA Mandated Double Hull – It Worked!

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Wreck Removal Under The Nairobi Convention

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The Nairobi Convention

Similar to US Wreck Act Imposes costs on registered owner for locating,

marking and removing Exempts wreck resulting from act of war and “natural

phenomenon of an exceptional, inevitable or irresistible character” “Affected state” controls search and determines if

wreck is a hazard and requires removal Vessel is required to obtain insurance

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Conclusion

Breakaway rigs represent significant liability risk for owners Owners can minimize the risk with detailed hurricane

plans and preparation Owner should prepare for worst with a well planned,

detailed search protocol, identifying all needed resources and experts, and utilizing new technology Owner should understand their obligations and

defenses under the General Maritime Law, the Wreck Act, USCG regulations, OPA and international treaties

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© Gray Reed & McGraw, P.C.

Hurricane Breakaways – Rig Owner Duties, Liabilities and Defenses

IRMI Energy Risk & Insurance Conference – Houston, TexasMarch 1-3, 2016

Julia M. (Adams) PalmerGray Reed & McGraw, P.C.1300 Post Oak Blvd., Suite 2000Houston, Texas 77056P: 713-986-7240F: 713-986-7100jpalmer@grayreed.comhttp://www.grayreed.com

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W8. HURRICANE BREAKAWAYS— RIGS OWNERS’ DUTIES, LIABILITIES, AND DEFENSES

Rating scale for all questions:

4 = Excellent 3 = Very Good 2 = Average 1 = Somewhat Disappointing 0 = Very Disappointing

Overall rating for this workshop? 4 3 2 1 0 Julia Palmer Preparation and quality of information 4 3 2 1 0

Energy and enthusiasm of delivery 4 3 2 1 0

Educational focus (not a sales pitch) 4 3 2 1 0

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