Hull Insurance and General Average -- Some Current Issues

This Article visits some current topics of interest in the area of hull and machinery insurance and general average. It examines the imperfect indemnity that can arise when the owner of a laden cargo vessel incurs expenditure in an unsuccessful attempt to salvage it after the operation of a maritime peril; recent developments in the evolution of the York-Antwerp Rules where, for the first time, we have two versions, the 1994 Rules and the 2004 Rules, existing in parallel with each other; the emerging phenomenon of pirates hijacking vessels for ransom; and the increasing trend towards absorbing general average up to a certain, previously agreed threshold under hull and machinery insurance policies.

Choice of Law and U.S. Maritime Liens

In an economic climate like the present, with plummeting markets and corporate failure an increasingly common phenomenon, creditors understandably give paramount importance to the search for security and priority of their claims. In the maritime context, the ancient device of the maritime lien has acquired fresh practical significance as a result. Access to a maritime lien does not guarantee recovery, but it puts a creditor in a far better position than rival claimants whose claims are unsecured. When a lien claimant proceeds in rem against a ship, other claimants often feel forced to bring their claims in the same court for fear of losing their rightful security and priority. As a result, disputes between claimants about security, priority, and the right to a maritime lien are often fought in forums that have little connection with the parties or the dispute, except that the ship happened to be in a particular port when it was arrested pursuant to the first in rem claim. Because of the international nature of the shipping business, it is often the case that U.S. courts are required in consequence to consider in rem actions brought by foreign claimants seeking recovery in claims governed by foreign law. The attractiveness of U.S. courts as a forum for in rem claims is enhanced by the fact that far more claims are secured by a maritime lien under U.S. maritime law than under the law of other countries. As a result, it is often the case that a plaintiff in a U.S. court seeks an in rem remedy that would not be available to it under the foreign law governing the underlying claim. The law governing such cases is complex and often confusing because it calls for an understanding of both admiralty procedure and choice-of-law principles. This Article is an attempt to explain the conceptual framework in which such claims should be understood.
At the outset, it is important to distinguish three choice-of-law questions. First, there is the question of what law governs the plaintiff's underlying claim, the cause of action that is the basis for its claim to redress. Second, there is the question of what law governs access to a maritime lien, the right to bring suit in rem on that claim against a ship or other property. Third, there is the question of what law should govern priority between competing maritime liens, the order in which the claims should be paid if the fund available in court is insufficient to satisfy them all in full.
These are different questions that demand different choice-of-law analyses. In many cases, perhaps most, the answer to the first two questions will be the same, with the result that the law governing the underlying claim also governs the availability of a maritime lien. Nevertheless, it is a mistake to think this must necessarily be so. Thus, for example, it is wrong to assume that a claim governed by a foreign law must necessarily be denied a U.S. maritime lien if the foreign law in question would not confer a maritime lien on that kind of claim. The second choice-of-law question (what law governs the maritime lien) may indicate that a foreign law claim has sufficient connection to the United States to be allowed access to a U.S. maritime lien. Conversely, it is wrong to assume that a claim governed by U.S. law must necessarily be secured by a U.S. maritime lien. The second choice-of-law question may indicate that a claim governed by U.S. law nevertheless has insufficient connection with the United States to warrant conferral of the security afforded by a U.S. maritime lien.
Whether or not the same law governs the first two issues (the underlying claim and the availability of a maritime lien), the answer to the third question (what law governs priorities) must always be U.S. law, the law of the forum (lex fori).
Some of these propositions may seem controversial (or just plain wrong, depending on your point of view), but they flow from the conceptual analysis undertaken in Part II, which deals with the ostensibly straightforward case where the underlying claim is governed by a foreign law that would confer a maritime lien on the claim in question. Part III deals with the consequences of recognizing that the first two choice-of-law questions (what law governs the claim and what law governs the maritime lien) are separate and independent. It focuses mainly, but not exclusively, on the first of the two situations described above, where the underlying claim is governed by a foreign law that would not confer a maritime lien on the claim in question, arguing that it should not follow necessarily that no U.S. maritime lien is available in such a situation. Part IV argues the converse proposition, namely that availability of a U.S. maritime lien should not flow automatically from the fact that the underlying claim is governed by U.S. maritime law. It deals with the second situation described above, where the underlying claim is governed by U.S. law but there is some foreign element to the case. Part V shows why the third question, that of priority, must always be governed by the lex fori.

The Aftermath of Norfolk Southern Railway v. James N. Kirby, Pty Ltd.: Jurisdiction and Choice of Law Issues

Contemporary transport contracts are often mixed contracts, as in the case of a through bill of lading or a combined transport document, in that they encompass transport both by sea and by land. From a maritime perspective, jurisdiction over mixed contracts is not a model of clarity. Before Norfolk Southern Railway v. James N. Kirby, Pty Ltd., the rule was rather simply stated but not so easily applied. A mixed contract did not fall within admiralty jurisdiction, except in two instances: (1) where the dominant subject matter of the contract was maritime in nature and the land-based element was relatively minor or incidental to the transaction or (2) where the maritime segment and land-based segment were severable. Under the latter approach, a court could exercise jurisdiction over the maritime dispute, but it could not exercise jurisdiction over a dispute involving the land-based segment.
First, this Article summarizes the United States Supreme Court's decision in Kirby. Second, the Article examines the question of whether the Court's decision expanding the scope of admiralty jurisdiction in “mixed contracts” cases has broadened the scope of  admiralty contract jurisdiction generally and specifically addresses “preliminary contracts.” Third, the Article examines the Court's approach to choice of law in regard to the applicability of federal versus state law. Finally, the Article will examine the impact of the decision in multimodal cases. Inasmuch as the last topic has been addressed elsewhere, this discussion will be brief so as not to be overly duplicative.

Dagger, Shield, or Double-Edged Sword?: The Reciprocal Nature of the Doctrine of Uberrimae Fidei

The doctrine of uberrimae fidei is generally recognized as one of the most firmly entrenched principles in maritime law. Almost every circuit court has recognized the continuing vitality of this doctrine in modern marine insurance cases, and it is experiencing a recent trend toward consistent use. The utility of the doctrine as applied by insurers cannot be understated, because it is a recognized and common method for voidance of the insurance policy. The doctrine is a mutual one, requiring both parties to an insurance contract to act in good faith. However, reliance upon the doctrine is almost exclusively by insurance companies against their insureds, as a method for voiding the policy, rather than the other way around. Insureds have just begun to press for the application of this doctrine against insurers, which requires a certain level of conduct in the underwriting process.
What are the ramifications of the reciprocal duty of good faith as applied to the marine insurer? As will be discussed below, the doctrine originally grew out of the nature of marine insurance at the time. In previous centuries, underwriters did not have the resources to obtain all material information relative to the risk insured; thus, it was imperative that the insured provide full disclosure of all such information that was solely in its possession. However, with the advent of modern technology, skilled marine surveyors, and worldwide agents, modern underwriters are at less of a disadvantage with respect to investigating a risk. The Internet, modern communications, and transportation now provide more options than ever for an underwriter to obtain significant information about a vessel, cargo, or other marine risk prior to binding coverage. Therefore, may an underwriter rest on its laurels and require that the insured provide any and all information that might be relative to the risk, without any reciprocal obligation to conduct its own investigation, or at least to ask questions designed to obtain the information he needs? What about once the contract is entered into: Does the insurer have a reciprocal duty of good faith in adjusting and investigating a claim? While the reciprocal duty is only beginning to be explored and relied upon by insureds as a way to respond to the potentially harsh consequences of the doctrine, it is likely that such arguments will increase.
This Article will explore the historical context of uberrimae fidei and its use and application in marine insurance law. It will also provide an analysis of the current state of the acceptance of the doctrine in the various federal circuits which have addressed its application in maritime law. The Article will then address the reciprocal nature of the doctrine by examining both U.S. and English case law in which the doctrine has been applied, or was sought to be applied, against insurers. The Article will further address bad faith in maritime cases and how and whether an overlap exists between the reciprocal duty of uberrimae fidei and state law regarding bad faith. Finally, the Article will conclude with some thoughts regarding the nature of the reciprocal duty and what ramifications it may hold for legal practitioners representing underwriters and claims handlers.

Offshore Energy Insurance

In the United States, offshore energy coverage is most often manifest in the ubiquitous Energy Package Policy. That policy appears in many forms and is very much a product tailored to the needs of the individual assured involved. A great deal of work goes into the underwriting of these policies, which frequently afford hundreds of millions of dollars in coverage to their assureds. Each broker and underwriter tends to approach the various coverages differently, so it is essential that every policy's wording be considered to determine when there are variations from the norm (if indeed there is a norm). Notwithstanding, this Article attempts to review the typical risks that are insured under an Energy Package Policy and some of the common ways in which policy wording addresses those risks. It also discusses recurrent issues more recently presented under these policies and how the underwriters, their assureds, and the brokers have addressed those issues. This discussion is limited to practice in the United States and focuses primarily on situations encountered in the Gulf of Mexico.
Please note that the writer is a lawyer and has no experience in brokering or underwriting energy claims. There are many instances in which these policies work quite well to afford coverage for the risks encountered in the offshore oil and gas business, and in almost all of those instances, counsel are not involved.

The Sky Has Not Fallen Yet on Punitive Damages in Admiralty Cases

As surely everyone knows, the United States Supreme Court has recently brought the Due Process Clause to bear on awards of punitive damages made pursuant to state law. The law of the land now  includes a judicially manageable standard that protects a defendant otherwise liable for punitive damages from awards that are so excessive as to be unfair, that is, arbitrary and capricious. Punitive damages are usually assessed by juries, subject to review by trial and appellate courts. This initiative has sparked considerable controversy, and the exact parameters of the constitutional standard are still far from certain.
Into this situation came the case of Exxon Shipping Co. v. Baker. The case was one within admiralty jurisdiction, although by a tortuous path it ended up in federal court based on federal questions. Applying federal maritime law, a jury assessed damages, both compensatory and punitive. Trial by jury is not unheard of in cases in which maritime law governs, but it is not the norm. Having already sketched out a constitutional limit to the size of punitive damages, the Supreme Court was presented in this case with an opportunity for something humbler, that is, an opportunity to either find in federal maritime law the same limit or else to set a different one within the constitutional outer boundary. The Court chose to take a step, and no more, along the latter course. The length of that step and where the next might carry federal maritime law remain to be seen. The better view of what has been decided in this case is a modest one.

Going on Twenty Years: The Pollution Act of 1990 and Claims Against the Oil Spill Liability Trust Fund

It is now well known that in the wake of the catastrophic EXXON VALDEZ oil spill off the coast of Alaska on March 24, 1989, Congress passed the Oil Pollution Act of 1990 (OPA or OPA 90). How far have we come since the passage of OPA? What issues remain outstanding? Although many issues raised by OPA have been resolved, or at least are subject to general agreement, a surprising number of issues remain unresolved or are evolving and in flux. Several of these issues relate to defenses under OPA, claims made to recover oil spill response or removal costs, and damages paid by the owners and operators of vessels from which there has been an oil spill or a substantial threat of an oil spill. This Article examines these issues, including the burden of proof to be applied in respect of such claims and the deference to be accorded to the agency operating under the United States Coast Guard that adjudicates and pays these claims.

Interaction Between Admiralty and Bankruptcy Law: Effects of Globalization and Recurrent Tensions

Bankruptcy cases increasingly have international connections. In the realm of commercial bankruptcy cases, it is the rare case in which a commercial debtor's business does not have some international aspect. In some cases, the debtor has business operations in both the United States and abroad. In other cases, the debtor has manufacturing facilities located overseas and operations headquartered in the United States. In still other cases, the debtor may acquire raw materials or finished goods from suppliers located abroad. Cross-border lending has also become common.
In light of the trend toward globalization in commerce and finance, it is not surprising that maritime issues are increasingly implicated in bankruptcy cases. Unlike bankruptcy law, which can vary dramatically from nation to nation based upon the unique domestic social values attached to financial matters, given its origins  and purpose, maritime law is inherently international in nature. In addition to the obvious tension between admiralty and bankruptcy law, when a debtor in the maritime industry seeks bankruptcy protection, there are increasingly frequent tensions in the nonmaritime bankruptcies, when maritime creditors seek to exercise their admiralty law rights in bankruptcy court. For example: a retail debtor may have goods in containers aboard ships at sea at the time the case is filed; a construction debtor may utilize the services of a crane mounted on a barge or stevedoring services to offload its equipment in a foreign port; or an oil and gas service debtor may use the services of a marine contractor or ship architect to convert a trawler to a seismic research vessel or may use barges to transport oil, gas, and other petrochemi-cals.
The impact of bankruptcy law on the maritime industry, and the special admiralty doctrines by which that industry has historically dealt with debtors and creditors, has led to recurrent tensions. This Article will examine manifestations of some of these tensions since the 1985 publication of The Tulane Admiralty Law Institute Symposium on Admiralty Interface: Bankruptcy v. Maritime Rights. As shown below, while there have been some key developments, many of the questions from 1985 remain unanswered today.