Wednesday, March 2, 2016 Houston, TX. 3:30 4:30 p.m. HURRICANE BREAKAWAYS RIG OWNERS DUTIES, LIABILITIES, AND DEFENSES

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1 Wednesday, March 2, 2016 Houston, TX 3:30 4:30 p.m. HURRICANE BREAKAWAYS RIG OWNERS DUTIES, LIABILITIES, AND DEFENSES Presented by Julia M. Palmer Member Gray Reed & McGraw, P.C. There are significant liabilities and exposures arising out of hurricane rig breakaways. This session will discuss rig owners prehurricane duties to properly moor and prepare for hurricanes and their posthurricane duties to search for, mark, and remove wrecked rigs. The presentation will also address the act of God defense, application of the Wreck Act, and the potential liability for damage to other rigs and vessels caused by free-floating rigs, anchors dragging over pipelines, and navigating vessels striking submerged wrecked rigs, as well as how insurance can be used to cover the exposures. Copyright 2016 International Risk Management Institute, Inc. 1

2 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2

3 Julia M. Palmer Member Gray Reed & McGraw, P.C. Ms. Palmer, formerly Julia Adams, is an active and respected member of the admiralty and energy bar. Her practice focuses on marine, energy, and insurance issues. For more than 30 years, Ms. Palmer has handled marine and energy litigation, including collision cases, hurricane losses, onshore and offshore oil and gas claims, hydraulic fracturing cases, marine 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 expertise is the handling of down hole losses, environmental claims, property damage, business interruption, vessel and dock operations, and offshore and marine construction. Ms. Palmer is often called upon to analyze insurance, indemnity, and defense provisions in marine and drilling contracts, 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 Sedgwick LLP where she led the firm's Admiralty and Energy Group and the Hydraulic Fracturing Task Force. She also served as the briefing attorney to the Honorable Hugh Gibson, Judge, US District Court, Southern District of Texas, Galveston Division, from 1982 to She is a member of the Fifth 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 on the Magistrate Judge Judicial Selection Panel for the Southern District of Texas. She is a proctor in the Maritime Law Association of the United States. Ms. Palmer is a past president of the Houston Propeller Club and continues to serve on the board. In 2010, she was named "Propeller Club Person of the Year." She also serves on the board of International Seafarers Center and the Maritime Gala planning committee and chaired the 2008 and 2009 Maritime Gala. Ms. Palmer is a member of the planning committee for the University of Texas Admiralty and Maritime Law Conference, a trustee of the Houston Maritime Museum, and a member of the board of directors of the Judith Liebenthal Robison Ovarian Cancer Foundation. She is AV Preeminent Rated, the highest possible Martindale-Hubbell Peer Review Rating 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 While attending law school, she was the editor of the Special Maritime Edition of the South Texas Law Journal and a member of the Order of the Lytae. Ms. Palmer received her B.A. (1979) from the University of Dayton. 3

4 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 4

5 Hurricane Breakaways Rig Owner Duties, Liabilities, and Defenses Presented by: Julia M. (Adams) Palmer Gray Reed & McGraw, P.C. #IRMI Rigs on walkabout should you be worried? 2 Gray Reed & McGraw, P.C. 5

6 Ensco v. M/V Satilla 3 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 74 Ensco

7 M/V Satilla 5 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? 6 7

8 7 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 8

9 Liability to Objects that the Breakaway Vessel Damages 8 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 9 9

10 Liability of a Drifting Vessel Drifting vessel may rebut presumption of fault if: 1. Allision was the fault of the stationary object 2. The moving vessel acted with reasonable care 3. The allision was an unavoidable accident, e.g., Act of God 10 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 (5 th Cir. 2009) quoting Kinsman Transit, 338 F.2d 708 at 726. (2 nd Cir. 1964) 11 10

11 Failure to Properly Moor/Secure a Vessel in Anticipation of a Hurricane [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 (5 th Cir. 2009) 12 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 13 11

12 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 at 13 (S.D. Tex. Oct. 3, 2006) 14 The Act of God Defense 1. Extreme weather 2. Demonstrate the vessel took reasonable precautions under the circumstances as known or reasonably anticipated Petition of U.S., 425 F.2d 991, 995 (5 th 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 at 14 (E.D. La. Aug. 14, 2008) 15 12

13 The Wreck Act 16 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

14 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 (5 th Cir. 1977) 2. To protect other vessels plying the same waters. United States v. Raven, 500 F.2d 728, 732 (5 th Cir. 1974) 18 Obstructions and Hazards to Navigation 33 CFR \ 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

15 Duty to Mark and Remove 20 Duties Under The Wreck Act 21 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 15

16 Applicable Regulations 33 CFR 64.11(a) Immediately mark 46 CFR File Notice of Marine Casualty 33 CFR 64.11(b) Provide required information to USCG 33 CFR Maintain marking until wreck is removed or abandoned to Corp of Engineers 33 U.S.C. 414(b) and 33 CFR Vessel must pay cost to mark, maintain and remove 22 16

17 Wreck Removal 23 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 24 17

18 Full, Good Faith Search 25 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 26 18

19 Search Model 27 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. sunk Available search equipment Available technology 28 19

20 Advances in Technology and the Duty to Search Advanced Sonar Computer Driven Search Planning Successes and Failures El Faro and Malaysian Flight Sidescan Sonar 30 20

21 Key Cases Nunley v. M/V Dauntless Colocotronis, 863 F. 2d 1190 (5 th 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 (5 th Cir. 1981) 31 Economic Realities Value of a floating rig Value of sunk rig Cost to search Cost to remove wreck, if located Cost if wreck results in pollution 32 21

22 OPA 33 USC 2702 [E]ach responsible party for a vessel of a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages...that result from such incident. 33 Lightering of M/V Satilla 34 22

23 OPA Mandated Double Hull It Worked! 35 Wreck Removal Under The Nairobi Convention 36 23

24 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 37 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 38 24

25 Hurricane Breakaways Rig Owner Duties, Liabilities and Defenses IRMI Energy Risk & Insurance Conference Houston, Texas March 1-3, 2016 Julia M. (Adams) Palmer Gray Reed & McGraw, P.C Post Oak Blvd., Suite 2000 Houston, Texas P: F: Gray Reed & McGraw, P.C. 25

26 To enter the drawing for a cash prize, affix your personal bar code label here or complete this evaluation online. 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? Julia Palmer Preparation and quality of information Energy and enthusiasm of delivery Educational focus (not a sales pitch) Comments: