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Offshore Winds

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Land-Based Jones Act Seaman Status, Emotional Damages, and the “Zone of Danger”

Posted in Jones Act

Fifth Circuit Affirms Jury Finding for Land-Based Worker to be Covered by Jones Act but Reverses Award of Emotional Damages in Naquin v. Elevating Boats LLC, No. 12-31258 (5th Cir., 3/10/14)

Plaintiff, Larry Naquin, Sr., a vessel repair supervisor employed by Elevating Boats, LLC, was injured on November 17, 2009, when a shipyard crane he was operating suddenly failed, causing the boom and crane housing to separate from the crane pedestal. In addition to Mr Naquin’s injury, a relative of his was killed when the crane boom landed on a structure in which the relative was working.

Although Mr. Naquin was not assigned to any particular vessel but oversaw the repair of a number of vessels manufactured and/or owned by his employer, he was found, by a jury, to be a Jones Act seaman and was awarded significant damages, including $1,000,000 for past and future physical pain and suffering, $1,000,000 for past and future metal pain and suffering, and $400,000 for future lost wages.

The employer appealed the jury’s finding to the Fifth Circuit, asserting that Mr. Naquin had failed to establish that he was a Jones Act seaman, that the evidence was insufficient to establish the employer’s negligence, and that the District Court erred by admitting evidence of Mr. Naquin’s relative’s death in regard to his claim for damages.

A split Fifth Circuit decision on the issue of status authored by Judge W. Eugene Davis affirmed the jury’s determination. The majority indicated that in accord with established precedent, Mr. Naquin could be considered to be assigned to and in the service of an identifiable fleet of vessels owned by his employer to which he spent approximately 70% of his time in the maintenance thereof. In dissent Judge Jones questioned how a land-based employee whose work was primarily on vessels docked for repair or maintenance could be exposed to the perils of the sea and be said to be in the service of a vessel in navigation. She suggested that under the majority’s rationale any land-based worker, even one hired to fuel the boats at the employer’s dock, could qualify as a seaman.

The employer also complained that the jury finding of negligence was one that was solely built upon circumstantial evidence and that there was no direct evidence indicating that the employer caused or could have foreseen the accident. The panel pointed out that the crane in question was manufactured, maintained and owned by the employer, and although Mr. Naquin could not prove precisely why a weld had failed, it was undisputable that the employer was the party who was responsible for the design of the crane and the integrity of the weld.

The panel however reversed the jury finding on damages on the basis that emotional damages are not recoverable under the Jones Act unless the plaintiff is considered to be within the “zone of danger.” While Mr. Naquin was within the “zone of danger” insofar as his own injuries were concerned, the Court questioned whether he could assert a claim for emotional harm arising from the injury to and death of his relative. In determining that this was not a recoverable element of damages under the Jones Act, the Court felt that the presentation of evidence with regard to the death of the relative so pervaded the other elements of damages that it reversed the complete damage award, remanding the matter for a trial on the sole issue of damages.

 

Validity and Enforceability of Seaman’s Release

Posted in Maritime Accidents

The recent ruling in Double J. Marine, LLC v. Matthew Nuber, No. 13-5825 (E.D. La. Dec. 11, 2013) serves as a key reminder that employers need to be mindful that courts scrutinize release agreements as seamen are the wards of the admiralty court, whose rights federal courts are duty-bound to jealously protect.

Double J. Marine, LLC employee Matthew Nuber, a seaman, injured his back on March 8, 2013, while working, and was brought to the emergency room. The emergency room physician diagnosed Nuber with a pulled muscle, and told him not to work, and to follow-up in a week. Nuber returned to the emergency room approximately a week later, where a different emergency room physician re-examined him, determined he was able to return to work, and discharged him. Importantly, neither physician was a specialist, such as an orthopedist or a neurologist, nor did the physicians perform or order any diagnostic testing.

The same day Nuber was discharged, he met the claims adjuster retained by Double J at a nearby gas station, who presented Nuber with a Receipt, Release, and Hold Harmless Agreement. The adjuster read and explained the terms of the Release to Nuber, who had only a 10th grade education. Nuber said he understood and agreed with the terms, and executed the Release without consulting an attorney or another physician.

Nuber returned to full duty work the next day, but a month later he started experiencing back pain again. Double J placed him on light duty and offered for him to be examined by an orthopedic surgeon. That surgeon diagnosed Nuber with herniated discs related to the March 8 incident and recommended surgery. Soon after, Nuber made demand on Double J for maintenance and cure benefits.

Double J filed a declaratory judgment to determine the enforceability of the Release, and later filed a summary judgment seeking an order to enforce the Release. However, Judge Martin Feldman denied the motion. Nuber was able to raise issues of material fact indicating he did not execute the Release freely with a full understanding of his rights. Judge Feldman pointed out that Nuber did not undergo any diagnostic testing at the hospital, and the emergency room physicians did not refer him to a specialist. Accordingly, Judge Feldman determined that Nuber may not have been informed or understood his rights in the nature of the legal and medical advice available to him. See also Garrett v. Moore-McCormack Co.; Borne v. A&P Boat Rentals No. 4 Inc.

This point is one that is important for employers to take into account when trying to settle claims — has the seaman received adequate medical advice for the type of injury sustained so that he is informed and understands the consequences of signing a Release?

Designated Entity Clauses — No Substitute for Knowing Who You Are Dealing With

Posted in Maritime Contracts

With increasing frequency, parties to charters and other maritime contracts are including so-called Designated Entity Clauses or “OFAC” provisions. These clauses have the aim of complying with sanction programs such those administered by the U.S. Office of Foreign Assets Control (“OFAC”) or multi-national organizations such as the European Union or United Nations. But, do the provisions truly offer any protection?

Designated Entity Clauses typically include:

  • representations and warranties that the parties are not subject to sanctions and are not Designated Entities;
  • covenants not to subcharter the vessel to Designated Entities or otherwise involve the vessel in sanctioned activities;
  • covenants to comply with applicable law and orders or directives of competent authorities in the event that one party becomes aware that the other party (or a subcharterer or other person doing business with the vessel) is a Designated Entity or otherwise acting in violation of a sanctions program; and
  • the right of a non-breaching party to terminate the contract and direct the vessel to a safe port for offloading of cargo, equipment or personnel.

Earlier this year, BIMCO issued standard wording for this type of clause. Similar provisions now also routinely appear in marine financing documents. In some cases, including the BIMCO clause, they require indemnification of the non-breaching party for any fines, penalties, losses or damages suffered as a result of the breaching party’s violation. Despite their increasing use, however, these types of clauses have some inherent issues.

One clear difficulty of the indemnity provision is that if a party proves to be a Designated Entity, recovery of an indemnity claim from that entity likely would itself be precluded by the sanctions program. Also, irrespective of the terms of the contract, if a party deals with a Designated Entity, they are liable for penalties if they knew or should have known of that party’s status as a Designated Entity. For example, under OFAC regulations, when a person or entity is designated, then no person in the United States can deal with that Designated Entity without a license from OFAC. Prohibitions on dealing with Designated Entities encompass not only situations in which a person has direct knowledge that he is acting in violation of a sanction program, but also situations in which he has “reason to know” that is the case. [See e.g., Office of Foreign Assets Control, Iranian Transactions Regulation, Guidance on Transshipments to Iran] Whether one has a “reason to know” is determined from circumstantial evidence that may consist of the course of dealing, general knowledge of the industry or customer preferences, working relationships between the parties or other criteria. In this context, incorporating a designated entity clause may be viewed as a mitigating factor, but it does not shield the innocent party from liability.

Including Designated Entity provisions in maritime contracts is good practice insofar as it heightens the contracting parties’ awareness of their obligations to comply with sanctions programs. However, one should not believe that doing so will insulate them from liability to governmental authorities or from loss or damage. There is no substitute for conducting proper due diligence on the other contracting party. This includes searching sanction program databases as well as other online resources, and consulting with references and/or other persons who have or may have done business with the party. The bottom line remains the same: Know who you are dealing with before you sign the contract.

Maritime Attachment and Arrest . . . What Are They and Why Should I Care?

Posted in Maritime Law

There are important differences between maritime arrest and attachment.

“A ship may be here today and gone tomorrow, not to return for an indefinite period, perhaps never. Assets of its owner . . . within the jurisdiction today, may be transferred elsewhere or paid off tomorrow.”[1] This problem, aptly described by the Ninth Circuit and all too familiar to those transacting business in the maritime industry, constitutes one of the primary justifications for the centuries-old doctrines of maritime attachment and arrest. Both maritime attachment and arrest provide a claimant, who might otherwise be left without a remedy, with the important ability to obtain pre-judgment security and, practically speaking, force the defendant to respond to a suit.[2] However, the doctrines are distinct, and the distinction is often lost on the unfamiliar.

To utilize maritime arrest, the claimant must have a maritime lien on the property to be seized.[3] A maritime lien can arise in a number of situations, including the provision of necessaries to a vessel (such as bunkers, supplies, repairs, or any other goods and services that benefit the vessel), wages of the master and crew, damages arising from maritime torts and contract maritime liens.[4] “Although the property to be arrested usually is a vessel, any property that is subject to a maritime lien can be arrested, including intangible property . . .”[5] Once a claimant can establish that property subject to a maritime lien can be found within the territorial district of a federal court, the claimant can have that property seized by the United States Marshal.[6] Further, the owner of the seized property is only entitled to its release upon posting adequate security with respect to the lien amount. Alternatively, the seized property can be sold to satisfy the lien; however, if the amount received is insufficient to satisfy the lien, the owner of the property is not liable for the balance because the action is solely against the seized property, not the owner.[7]

Like maritime arrest, maritime attachment can also be utilized for the pre-judgment seizure and potential sale of the debtor’s property to satisfy a judgment.[8] Beyond this basic similarity, however, maritime attachment and arrest differ significantly. Maritime attachment is, on the one hand, broader than maritime arrest. It is ostensibly available to anyone with a maritime-based claim. Further, any property belonging to the debtor, which is found within the territorial district of a federal court, is subject to attachment.[9] Thus, unlike with maritime arrest, the property need not have any relationship with the claim itself.[10] Further, maritime attachment allows a claimant to obtain a personal judgment for the full sum due against the owner of seized property, and the owner remains liable for the balance of the judgment if the property seized is insufficient to satisfy it.[11] On the other hand, maritime attachment is more limited than maritime arrest because it is only available to a claimant who can establish that the debtor is not subject to personal jurisdiction within the applicable judicial district.[12]

While the distinctions between maritime attachment and arrest are important, and the use of these powerful tools must be analyzed carefully, both remain vital resources for anyone transacting business in the maritime industry. This is especially true given the ease with which assets, especially vessels, can be tracked and located in today’s marketplace.

________________________________________

[1] George A. Rutherglen, The Contemporary Justification for Maritime Arrest and Attachment, 30 Wm. & Mary L. Rev. 541 (1989) (quoting Polar Shipping Ltd. v. Oriental Shipping Corp., 680 F.2d 627, 637 (9th Cir. 1982)).

[2] See William Tetley, Arrest, Attachment , and Related Maritime Law Procedures, 73 Tul. L. Rev. 1895, 1928-29 (1999).

[3] Ravenna Tankers Pte., SRL v. Omni Ships Pte. Ltd., Nos. 13–127, 13–221, 2013 WL 2153544, *4 (E.D. La. May 15, 2013).

[4] See Tetley, supra note 2, at 1929-30.

[5] Ravenna Tankers, 2013 WL 2153544, at *4.

[6] See Tetley, supra note 2, at 1933.

[7] Id.

[8] Belcher Co. of Alabama, Inc. v. M/V Maratha Mariner, 724 F.2d 1161, 1165 (5th Cir. 1984).

[9] Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 268 (2d Cir. 2002) (overruled on other grounds by Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte. Ltd., 585 F.3d 58 (2d Cir. 2009)).

[10] Id.

[11] Belcher Co. of Alabama, 724 F.2d at 1165.

[12] Rule B of the Supplemental Rules for Admiralty and Maritime Claims.

The Further Adventures of the Fifth Circuit and the LHWCA Jurisdiction Test

Posted in LHWCA

On Tuesday, October 8, 2013, the United States Court of Appeals for the Fifth Circuit in BPU Management, Inc. v DOWCP (Donald Morgan) again addressed jurisdictional coverage under The Longshore and Harbor Workers’ Compensation Act (LHWCA). Following on the heels of New Orleans Depot Services, Inc., (NODSI) v. DOWCP, 718 Fed. 3rd 384, 387 (5th Cir. 2013) (en banc), which as discussed in a previous Offshore Winds blog post specifically addressed the confines of geographic situs, this panel of the Court addressed the functional component of the situs test.

In what appears to be a very common sensical approach to the “point of rest” concept as it was further defined by the Supreme Court in Northeast Marine Terminal, Co., Inc. v. Caputo, 432 U.S. 249, 267 (1977), the Fifth Circuit, based upon the particular factual setting of the claimant’s employment, posed the appropriate question. The determinative question as seen by the Court is whether the situs where the claimant was injured was customarily used for unloading a vessel.

The claimant, David Martin, had been employed with his employer between 1997 and 2006. The employer maintained a facility on the Texas Gulf Coast used for the production of industrial alumina from raw bauxite. The facility was situated along a navigable waterway so that vessels could easily unload feed stock materials and load finished products.

Bauxite would be unloaded from vessels at the employer’s dock using an overhead conveyer system which then carried the bauxite over a street and fence separating the dock area from the alumina processing facility. There the bauxite would be deposited into one of several bins located in a large covered storage area. The bauxite would remain in the storage area until needed later in the refining process. When required, the bauxite would be transferred by opening a trap door at the bottom of the bin. The bauxite would then drain into a screw feeder which broke down the bauxite into smaller pieces and deposited it onto a conveyor belt located in the cross tunnel.

Mr. Martin’s usual employment was as a dockworker to ensure that ships were properly docked and loaded or unloaded, but at other infrequent times he participated in the cleaning of bauxite debris in a cross tunnel. The back injury for which he sought compensation occurred while he was shoveling displaced bauxite back to the conveyor system located in the cross tunnel.

The courts below, finding situs had been established, reasoned that the cross tunnel where Martin was injured had a substantial nexus with the bulk site unloading process, indicating that it had a functional relationship with navigable waters. Because the storage buildings were used in unloading bauxite and did not house manufacturing facilities, the Court below deduced by elimination that the cross tunnel beneath the buildings was necessarily involved in the unloading process. The Fifth Circuit felt the focus of this inquiry to be misdirected and indicated that rather than determine if the site was used for manufacturing, the appropriate question was whether it was customarily used for unloading a vessel. If not, situs was not established.

In answering this question, the Fifth Circuit noted that once the bauxite was delivered to the storage area, the employer’s engineering employees managed and controlled the bauxite’s further movement. It also noted that when the bauxite was placed into the bins, it was placed on top of previously discharged bauxite and would sit in the long term storage stockpile until it migrated to the bottom to be selected by the employer’s process engineers for production and movement for crushing in the screw feeder and finally transported toward the metal extraction facility by the conveyer located on the situs of Mr. Martin’s injury.

Once the facts of this case are understood, one can clearly see a demarcation between the unloading process and further activity involved with the bauxite, thus the Fifth Circuit ruled Mr. Martin was not covered under the LHWCA. Whether this decision will significantly affect other situs cases, as will the NODSI case, supra, it remains to be seen. The decision does, however, seem to answer the question that a Longshore Act employee, under certain circumstances, can walk in and out of coverage during his daily activities.

But I’m Not Dead Yet! Punitive Damages for Unseaworthiness Claims Live On

Posted in Jones Act, Maritime Accidents

The U.S. Fifth Circuit Court of Appeals recently concluded that Jones Act seamen can recover punitive damages for their employer’s willful and wanton breach of the general maritime duty to provide a seaworthy vessel, in McBride v. Estis Well Serv., L.L.C., No. 12 – 30714 (5th Cir. Oct. 2, 2013). The jurisprudential history behind this result resembles a slowly rebounding yo – yo that oscillates over a period of decades.

In 1981, the Fifth Circuit concluded that punitive damages may be recovered under the general maritime law upon a showing of willful and wanton misconduct by the ship owner in the creation or maintenance of unseaworthy conditions. In re Merry Shipping, Inc., 650 F.2d 622, 623 (5th Cir. Unit B 1981). However, the health of the Merry Shipping decision took a turn for the worse, starting with the Supreme Court’s 1990 decision of Miles v. Apex Marine Corp., 498 U.S. 19, 27 (1990), in which the Supreme Court concluded that the pecuniary damages limitations under both the Jones Act, 46 U.S.C. § 30104, and the Death on the High Seas Act (DOHSA), 46 U.S.C. § 30301 et seq., likewise limited the damages recoverable by the seaman’s estate for wrongful death caused by the unseaworthiness of the vessel under the general maritime law. Although the recoverability of punitive damages was not before the Supreme Court, a plethora of intermediate appellate court decisions seized on the pecuniary damages limitation of the Miles decision for general maritime law claims involving seamen to conclude that punitive damages, which were clearly non – pecuniary, were likewise not recoverable under the general maritime law for vessel unseaworthiness.

The death of Merry Shipping was initially reported by the en banc Fifth Circuit in Guevara v. Maritime Overseas Corp., 59 F.3d 1496 (5th Cir. 1995) (en banc), which concluded that Miles effectively had overruled Merry Shipping and that punitive damages were not available under the general maritime law for willful nonpayment of maintenance and cure. Id. at 1513. In light of the Guevara decision, those few remaining doubtful jurists ultimately concluded that punitive damages were not available to a Jones Act seaman in an action for unseaworthiness under the general maritime law.

Fourteen years after Guevara, the Supreme Court, in Atlantic Sounding Co., Inc. v. Townsend, 557 U.S. 404 (2009), restored the availability of punitive damages for maintenance and cure claims under the general maritime law. The Townsend Court reached this conclusion for two reasons:  (1) the general maritime cause of action for maintenance and cure preceded the enactment of the Jones Act and (2) punitive damages were an available remedy under the general maritime law when the Jones Act was enacted. Because the Jones Act did not expressly address either maintenance and cure or punitive damages, both remained available after its passage in 1920. Id. at 414 – 15. In so holding the Townsend court abrogated the Guevara decision.

Following the precedent of Townsend, the Fifth Circuit in McBride has completed this particular cycle of the punitive damages yo – yo and reinstated the holding of the 1981 Merry Shipping decision. Punitive damages are once again available to seamen who are injured or killed by the ship owner’s willful and wanton misconduct in creating an unseaworthy condition. McBride at 2 & 20. Or as the hapless villager tried to explain in Monty Python and the Holy Grail:  “But I’m not dead yet!”

Greek Tonnage Tax Imposed on Foreign-Flagged Vessels

Posted in Ports & Cargo Shipping

Greece has finally imposed a tonnage tax on foreign-flagged vessels operated by shipping companies in Greece. It already had been taxing Greek-flagged ships, and the nation’s debt crisis left the government with no other choice than to tax foreign-flagged ships in an attempt to help raise its revenues. The government is hoping it will raise at least $106 million from the levy.

The Greek state is targeting an estimated 762 managers with the new laws, which went into effect as of January 2013. Fortunately, ship owners and management companies’ ship earnings are excluded from the tax, as it only applies to the tonnage of their ships.

The Greek Ministry of Finance has issued the following guidelines as to who is liable for this new tax and how to calculate it:

  • The tax is levied on ships managed by companies in Greece which own foreign-flagged vessels.
  • The tax will be calculated using the gross tonnage of the vessel and the age of the vessel.
  • The tax will be calculated in U.S. Dollars and converted into and paid in Euros.
  • The foreign ship owner and the ship management office will be jointly liable for payment of the tax.
  • The responsibility for filing the tax return lies with the ship owner, the ship manager and their representatives or their attorneys-in-fact.
  • The annual return must be filed by the end of February for the previous calendar year; 25% of the tonnage tax assessed must be paid at the time the return is filed (February) with the remaining 75% paid in three equal installments due in June, September, and December.

The first year the tax was implemented was for 2012, meaning to be in compliance with the new law, 2012 taxes should have been filed by the end of this past February, with additional payments made in June, this month and in December 2013. Ship owners or ship managers that have not yet filed their 2012 tonnage tax will accrue a 1.5% monthly penalty fee (interest) which will be added to their outstanding taxes for filing untimely. If Greek authorities feel that an owner cannot pay his taxes, they could revert to arresting the vessel, but this extreme measure is unlikely to be implemented. Those needing further guidance should contact their attorney and accountant.

The Union of Greek Ship Owners (EEE) informed its members that it had reached an agreement with the government to implement an extraordinary additional voluntary contribution to the tonnage tax, in addition to the mandatory amount owed, for the next three years. This voluntary tax applies to Greek-owned shipping companies, whether they have Greek- or foreign-flagged ships. This contribution is voluntary, but the Union hopes that many ship owners will participate to help increase the government’s revenues.

New Orleans Attorney Joanne Mantis

Guest blogger Joanne Mantis is an attorney in the New Orleans office of King, Krebs & Jurgens. She is a member of both the Louisiana and Greek Bar, and represents a variety of maritime clients both domestically and internationally.

 

 

Don’t You Forget About Me . . . Include Insurers in List of Indemnified Groups

Posted in Maritime Contracts

Don’t forget to include insurers when negotiating members of indemnified groups in master service agreements.

How many insureds entering into a master service agreement (“MSA”) go to bat for their insurers when negotiating who will compromise the members of their respective indemnified “Groups?” Given a recent decision of the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”), Duval v. Northern Assurance Company of America, __ F.3d __, 2013 WL 3367483 (5th Cir. July 5, 2013) (“Duval”), parties to an MSA should add their insurers to the long list of third parties that make up the indemnified “Groups.” In Duval, the Fifth Circuit ruled that the insurers of a party to an MSA were not entitled to enforce their insured’s defense, indemnification, and/or insurance rights under indemnity provisions of the MSA at issue.

Duval arose from injuries sustained by Glenn Duval, an employee of Wood Group/Deepwater Specialists (“Wood Group”), during an offshore personnel basket transfer from a vessel owned by Deep Marine Technologies, Inc. (“Deep Marine”) to a tension-leg platform. Wood Group was a contractor of BHP Billiton Petroleum Deepwater, Inc. (“BHP”). The MSA between BHP and Deep Marine contained reciprocal indemnity obligations and required each party to support their respective indemnity obligations with liability insurance, self-insurance, or a combination thereof. Under the MSA at issue, BHP was the “Company” and Deep Marine was the “Contractor.” Plaintiff Duval filed suit against Deep Marine and others, but not BHP, in the U.S. District Court for the Western District of Louisiana (“District Court”).

After being served with the Complaint, Deep Marine sought defense, indemnity, and an additional insured status from BHP under the MSA. BHP accepted Deep Marine’s tender, as the Wood Group was a member of the “Company Group.” While the suit was pending, and more than one year after BHP accepted Deep Marine’s tender, Deep Marine filed a Chapter 11 Bankruptcy proceeding in the U.S. District Court for the Southern District of Texas. The plaintiff, Duval, moved to lift the automatic stay to proceed with his case against Deep Marine’s insurers, which was granted.  Plaintiff Duval amended the Complaint and named Deep Marine’s insurers as defendants under Louisiana’s Direct Action Statute. Deep Marine’s insurers then filed a Third-Party Complaint against BHP seeking defense, indemnity, and insurance coverage in accordance with the MSA. Cross-Motions for Summary Judgment were filed between Deep Marine’s insurers and BHP, and the District Court granted BHP’s Motion for Summary Judgment, and denied Deep Marine’s insurers’ Motion for Summary Judgment. The District Court ruled that BHP was not obligated under the MSA at issue to provide Deep Marine’s insurers with defense, indemnity, and insurance coverage because, among other reasons, Deep Marine’s insurers were not among the long list of parties compromising who was part of the “Contractor Group,” an indemnitee under the MSA at issue.

On appeal, Deep Marine’s insurers put forth several arguments in favor of their interpretation of the MSA at issue. The Fifth Circuit, however, did not find any of the insurers’ arguments compelling. The Fifth Circuit rejected each of the arguments advanced by Deep Marine’s insurers, and affirmed the judgment of the District Court, as follows:

  1. BHP did not waive defenses to Deep Marine insurers’ claims under the MSA by initially accepting Deep Marine’s tender prior to Deep Marine’s bankruptcy filing.
  2. Deep Marine’s insurers could not recover under the indemnity provisions of the MSA at issue because the Contractor Group did not include insurers. The Fifth Circuit reasoned that if the parties to the MSA at issue intended to include their insurers as beneficiaries of the indemnity provision of the MSA at issue, they could have expressly done so as other parties have done in other MSAs.
  3. Deep Marine insurers argued that they stepped into the shoes of the subrogor, Deep Marine, once payment is made. The Fifth Circuit disagreed because the insurers could not recover from BHP absent a loss by Deep Marine in Duval, and Plaintiff Duval’s claims against Deep Marine were stayed indefinitely due to the bankruptcy proceeding.
  4. Relying on Texas law, the Fifth Circuit also found that BHP’s primary million dollar “self-insurance” did not confer additional insured status to the insurers as “the term ‘self-insurance’ is a misnomer” because “in effect, a self-insurer does not provide insurance at all.”
  5. Although Deep Marine’s insurers were correct that Deep Marine’s bankruptcy does not discharge the debt of any third party, including BHP, as the Fifth Circuit noted, the Plaintiff Duval did not assert any liability against BHP.

The Fifth Circuit’s decision was based heavily on the language of the MSA at issue, and the posture of Duval. In order to attempt to avoid the same outcome, and to protect insurers, parties to an MSA need to include their insurers as members of the respective indemnified “Groups.” Parties drafting contracts should be familiar with Duval, so, during the negotiating phase, parties can support their rationale when drafting indemnity and insurance provisions of MSAs to include their insurers as members of the indemnified “Groups.”

Fifth Circuit Narrows “Adjoining Area” Definition in LHWCA Jurisdiction Test

Posted in LHWCA

On April 29, 2013, the Fifth Circuit issued an opinion for the en banc Court in New Orleans Depot Services, Inc. v. Director OWCP, 718 F.3d 384 (5th Cir. 2013) that effectively reformulated the 1972 situs jurisdictional requirement under the Longshore and Harbor Workers’ Compensation Act (LHWCA), 33 U.S.C. sec. 901 et.seq. The Court now will require that the situs upon which an employee is injured must border upon navigable waters for the employee to satisfy this prong of the dual jurisdiction test of the Act.

The reader will remember that prior to the amendments to the LHWCA in 1972, the Act’s jurisdiction applied over navigable water and ended at the water’s edge. In order to attune the coverage of the LHWCA to the changes in the shipping industry that increasingly drew stevedoring activities onto land, Congress in 1972 provided the following amendment to the act:

SEC. 3.(a) Except as otherwise provided in this section, compensation shall be payable under this Act in respect of disability or death of an employee, but only if the disability or death results from an injury occurring upon the navigable waters of the United States (including any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel). (emphasis added)

In its latest restatement of the situs requirement, the majority of the court rejected its previous definition of “other adjoining area” provided in Textports Stevedore Co. v. Winchester, 632 F.2d 504 (5th Cir. 1980). In that case, Mr. Winchester was injured in a gear room located more than five city blocks from the water’s edge. After 30 years of a broader test of what “adjoining” meant, the Court has now adopted the more objectively reasoned and restrictive “bordering upon navigable waters” definition of the Fourth Circuit in Sidwell v. Express Container Services, Inc., 71 F.3d 1134 (4th Cir. 1995).

Status Prong of LHWCA Test Also Addressed

In addition to this holding, seven judges provided a concurring decision concerning the status of the plaintiff, Mr. Zepeda, as a maritime employee, thereby addressing the second prong of the dual test for LHWCA jurisdiction. Noting that Mr. Zepeda was not involved in the actual process of moving cargo between ship and land transportation and was solely tasked with repairing empty containers, the concurring judges would find that he was not engaged in the type of duties that longshoremen traditionally perform in transferring goods between ship and land transportation. Mr. Zepeda therefore would not have met the criteria for maritime status. Only in the instance where the repair of a container was immediately necessary to prevent a stoppage in the loading or discharge of a vessel would the concurring judges find that container repairer had sufficient maritime nexus to suffice for the test of maritime status.

It is interesting to note that the author of the concurring opinion declared it to be an alternative ground to vacate the decision below and not to be considered as dictum. Practitioners may be hard pressed, however, to assert the concurring opinion as controlling precedent as it was adopted by less than a mathematical majority of the en banc Court. The concurring opinion is, however, noteworthy, as seven of the judges adopted its reasoning and these judges will be sitting on future panels of the Fifth Circuit.

File the Complaint for Limitation of Liability Part 2: Electric Boogaloo

Posted in Maritime Law

The scenario may be all too familiar. A vessel owner is involved in a commercial relationship with a valuable customer, when a marine casualty involving the vessel occurs. The customer makes a written demand on the vessel owner to pay the costs of repair plus consequential damages. Liability on the part of the vessel owner is not a lock, but fairly clear. The quantum of damages is substantial, but the potential consequential damages are uncertain. Settlement negotiations are ongoing, and partial payments are made. Moreover, there is always the commercial relationship to consider. At what point should the vessel owner file a complaint for limitation of its liability, pursuant to the Shipowners’ Limitation of Liability Act, or risk it being found untimely for failure to file within six months of receipt of a written claim?

In In re: Marquette Transportation Company, L.L.C., No. 12 – 31182 (5th Cir. May 31, 2013), the Fifth Circuit concluded that if the customer’s initial demand letter revealed a “reasonable probability” that the claim will exceed the value of the vessel, then the vessel owner must file the limitation complaint within six months of receipt of that letter. “When there is uncertainty as to whether a claim will exceed the vessel’s value, the reasonable possibility standard places the risk and the burdens associated with that risk on the owner.”  Id. at 4. As I have previously cautioned, “If in doubt, file the Complaint for Limitation of Liability.”

Under the particular facts of this case, Great Lakes’ dredge ran aground while under the tow of Marquette’s tug, requiring repairs that were not completed until 17 days later. On February 24, 2011, Great Lakes made a written demand on Marquette, stating Marquette was negligent and that Great Lakes would hold Marquette responsible for repairs in excess of $600,000, as well as consequential damages. The parties engaged in settlement negotiations, and reimbursement for certain repairs were made, but it was not until December 7, 2011, that Great Lakes finalized its calculations of its consequential damages, and made written demand on Marquette in excess of $4.5 million. Within six months of receipt of the December letter, Marquette filed its limitation complaint and posted a bond for the limitation fund in the amount of $2.1 million.

The district court and Fifth Circuit concluded that Marquette should have filed the limitation complaint within six months of receipt of the initial demand letter, even though the quantum of consequential damages was uncertain. As a result, Marquette’s limitation complaint was dismissed as untimely.