In 1851 the Limitation of Liability Act was enacted. This statue stated that vessel owners were liable for incident-related costs up to the post-incident value of their vessel. So according to this rule the owners of the Torrey Canyon were liable for only $50, which was the value of the only remaining lifeboat. The cost of clean-up however was $8 million.
The Oil Pollution Act of 1924 only limited liability for deliberate discharge of oil into marine waters.
In 1970, the oil pollution was placed under the authority of the Federal Water Pollution Act (FWPA) of 1965, which later became the Clean Water Act of 1972. The FWPA set specific liability limitations. Which were very small & rarely covered the cost of removal and cleanup, let alone damages.
The Ports and Waterways Safety Act of 1972, the Trans-Alaska Pipeline Authorization Act of 1973, Alaska Oil Spill Commission of 1990, etc. were some rules enacted. However, these provided only limited safeguards against the hazards of oils spills.
On March 24, 1989, Exxon Valdez, an oil tanker, hit a reef in Prince William Sound and spilled nearly 11 million gallons (41,000 tonnes) of crude oil into the adjoining Alaskan waters. It is probably the most catastrophic oil spills caused from the accident of a ship so far. Under one Mr Parker, a commission was setup post Exxon Valdez. This commission issued 52 recommendations for improvements to industry, state and federal regulations. Most of these recommendations were worked into the Oil Pollution Act. Core principle of the Act is the ‘polluter pays’. OPA is also instrumental in creating a phase-out of existing tankers; that began in 1995.
OPA was created to penalize the companies responsible for oil spills, by assigning liability for the cost of cleanup and damages. OPA caused to establish more detailed guidelines on what needs to be done if a spill occurs. These actions are supposed to eventually reduce the number of oil spills. It is desired that if spill occurs, companies have clear rules to follow to help minimize the impact of the spill.
‘‘Act of God’’ means an unanticipated grave natural disaster or other natural phenomenon of an exceptional, inevitable, and irresistible character the effects of which could not have been prevented or avoided by the exercise of due care or foresight.
‘‘Damages’’ includes the cost of assessing these damages and refers to the following;
Removal costs and damages include the following:
(1) Removal Costs.
- Natural Resources.
- Real or Personal Property.
- Subsistence Use.
- Profits and Earning Capacity.
- Public Services.
‘‘Incident’’ means any occurrence or series of occurrences having the same origin, involving one or more vessels, facilities, or any combination thereof, resulting in the discharge or substantial threat of discharge of oil.
‘‘Oil’’ means oil of any kind or in any form, including petroleum, fuel oil, sludge, oil refuse, and oil mixed with wastes other than dredged spoil, but does not include any substance which is specifically listed or designated as a hazardous substance.
‘‘Remove’’ or ‘‘removal’’ means containment and removal of oil or a hazardous substance from water and shorelines or the taking of other actions as may be necessary to minimize or mitigate damage to the public health or welfare, including, but not limited to, fish, shellfish, wildlife, and public and private property, shorelines, and beaches.
‘‘Removal Costs’’ means the costs of removal that are incurred after a discharge of oil has occurred or, in any case in which there is a substantial threat of a discharge of oil, the costs to prevent, minimize, or mitigate oil pollution from such an incident.
‘‘Responsible party’’ means the following:
- Onshore Facilities.
- Offshore Facilities
- Deepwater Ports
Since our focus is on the vessels so in the case of a vessel, it is any person owning, operating, or demise chartering the vessel that has created a significant threat of oil discharge.
The Oil Spill Liability Trust Fund
It is a trust fund managed by the federal government. It is financed by a crude oil tax on oil produced within or imported to the U.S. and can distribute up to one billion dollars per incident. The use of the fund was not authorized until the Oil Pollution Act’s passage in 1990. The funds may be called upon to cover the cost of federal, tribal, state, and claimant oil spill removal actions and damage assessments as well as unpaid liability and damages claims. No more than one billion dollars may be withdrawn from the fund per spill incident.
Liability and Limitation
There is a very low probability of complete escape from liability. Thus, a responsible party is not liable for removal costs or damages, if the responsible party establishes, by a preponderance of the evidence, that the discharge or substantial threat of a discharge of oil and the resulting damages or removal costs were caused solely by:
- an act of God;
- an act of war;
- an act or omission of a third party, other than an employee or agent of the responsible party or a third party whose act or omission occurs in connection with any contractual relationship with the responsible party.
The responsible party establishes, by a preponderance of the evidence, that the responsible party—
> exercised due care with respect to the oil concerned, taking into consideration the characteristics of the oil and in light of all relevant facts and circumstances; and
> took precautions against foreseeable acts or omissions of any such third party and the foreseeable consequences of those acts or omissions; or
- any combination of paragraphs (1), (2), and (3).
A responsible party is not liable to a claimant, to the extent that the incident is caused by the gross negligence or willful misconduct of the claimant.
There is however, limitation on complete defense. Thus, the complete escape from liability does not apply with respect to a responsible party who fails or refuses:
- to report the incident as required by law if the responsible party knows or has reason to know of the incident;
- to provide all reasonable cooperation and assistance requested by a responsible official in connection with removal activities.
Legal Implications of OPA 90
- More restrictions were posed on companies that shipped oil in the United States. A ship or facility carrying oil must provide documentation showing how they plan on preventing an oil spill.
- Vessel owners need to show the evidence of financial liability that covers complete responsibility of a disaster if their vessel weighs more than 300 gross tons. Vessel owners are required to acquire a “Certificate of Financial Responsibility” from USCG that serves as proof of their ability to financially responsible for cleanup and damages of an oil spill. Earlier, the vessel owners had to acquire such certificates under the FWPCA 74 and Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA).
- The responsible parties are mandated to provide evidence declaring financial responsibility of $150 million for potential liability. If a party is unable to provide evidence declaring financial responsibility of $150 million, they will be subject to pay a penalty of $25,000 per day in violation of OPA and may also be subject to judicial decision of terminating all operations.
- Responsible parties are strictly, jointly, and severally liable for the cost of removing the oil in addition to any damages linked to the discharge. Unlike the liability for removal costs which are uncapped, liability for damages is limited. The Oil Pollution Act allows for additional liability enacted by other relevant State laws.
- Under the OPA, federal, tribal, state, and any other person can recover removal costs from a responsible party so long as such entity has incurred costs from carrying out oil removal activities in accordance with the Clean Water Act National Contingency Plan. Reimbursement claims must first be made to the responsible party. If the potentially responsible party refutes liability or fails to distribute the reimbursement within 90 days of the claim, the claimant may file suit in court or bring the claim to the Oil Spill Liability Trust Fund.
- In some instances, claims for removal cost reimbursement can be initially brought to the Oil Spill Liability Trust Fund thus bypassing the responsible party. For example, claimants advised by the Environmental Protection Agency, governors of affected States, and American claimants for incidents involving foreign vessels or facilities may initially present their claims to the Oil Spill Liability Trust Fund.
- When claims for removal cost reimbursement are brought to the fund, the claimant must prove that removal costs were sustained from activities required to avoid or alleviate effects of the incident and that such actions were approved or directed by the Federal On-Scene Coordinator.
- The Oil Pollution Act proscribes limits to liability for damages based on the responsible party, the particular incident, and the type of vessel or facility from which the discharge occurred.
- The party must have a comprehensive emergency response plan on board or on site, that details how a spill will be cleaned up if it does occur.
- The U.S. Coast Guard became the group responsible for enforcing the act. The Coast Guard is supposed to consistently enforce the law, encourage related businesses and communities to comply with OPA. Coastguard to train their personnel on the best ways to handle all OPA-related queries and situations.
Effect of OPA in the long run
- After OPA was implemented, the federal government’s efficiency in cleaning up oil spills drastically improved. Since the Oil Pollution Act holds the vessel owners fully liable, it has created a discouraging situation for oil companies to transport crude oil in their vessels and for charterers to transport their oil on their vessels.
- The Oil Pollution Act imposes long term impacts due to the potential for unlimited liability and the statute’s that hold insurers to serve as guarantors, which has ultimately resulted in the refusal of insurance companies to issue agreements of financial liability to vessel operators and owners. Thus, the inability to acquire proof of financial liability results in vessels not being able to legally enter waters of the United States.
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