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Jim Bercaw's legal practice fields include offshore and maritime casualty litigation, maritime lien enforcement and collection, insurance coverage and commercial litigation.

 

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!”

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.

In the wake of the revisited tests of vessel status by the Supreme Court in Stewart vs. Dutra Construction Company, 543 U.S. 481 (2005) and Lozman v. City of Riviera Beach, Fla., 133 S.Ct. 735 (2013), it remains to be seen whether floating oil and gas production structures, such as SPARS and tension leg platforms (“TLP”), retained their non-vessel status. In Mooney v. W&T Offshore, Inc., No. 2:12-cv-969 (E.D. La. Mar. 3, 2013), District Judge Lance M. Africk recently concluded that the MATTERHORN SEASTAR, a TLP secured to the Outer Continental Shelf off the coast of Louisiana, was not a vessel as a matter of law. The plaintiff had filed suit against W&T Offshore, Inc., the owner and operator of the MATTERHORN SEASTAR, under the Jones Act, the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), and general maritime law for alleged personal injuries he claimed to have received while working on the MATTERHORN SEASTAR. The plaintiff’s potential recovery against W&T under the foregoing statutes and general maritime law depended on whether the MATTERHORN SEASTAR is a vessel. 

The MATTERHORN SEASTAR is a floating oil and gas production structure that has been secured to the seabed since 2003 by six mooring tendons, seven casing production risers, and two export pipelines, and it will remain in that moored location until at least 2020. Its buoyant hull had been towed to the moored location, where it was secured to the seabed by the mooring tendons, which tendons in turn were affixed to suction pilings driven hundreds of feet below the seafloor. Subsequently, the oil and gas production and processing equipment that comprised the top-sides of the TLP was installed on top of the hull. Thereafter, the production risers and pipelines were connected to the top-sides equipment. It would take W&T several months of preparation and activities, including the removal of the topsides from the hull, before the hull could be ready for towage away from the moored location. Lastly, the MATTERHORN SEASTAR has no system of self-propulsion, no raked bow, and is not intended to be towed or moved except as part of the initial positioning and ultimate removal of the hull from its moored location. 

Under the Rules of Construction Act, 1 U.S.C. § 3, as expanded by the Stewart and Lozman decisions, the current tests for whether a structure qualifies as a vessel is whether the structure is practically capable of being used as a means of transportation on the water, including whether a reasonable observer would consider the structure to be designed to a practical degree for carrying people or things over water. Based on the undisputed evidence, Judge Africk concluded that no reasonable observer would consider the MATTERHORN SEASTAR to be designed to a practical degree for carrying people or things over water. Moreover, it was only theoretically possible, and thus not practically possible, for the TLP to participate in maritime transportation. As a result, the MATTERHORN SEASTAR was not a vessel, and the plaintiff’s claims against W&T under the Jones Act, the LHWCA, and general maritime law were dismissed with prejudice. King, Krebs & Jurgens, including the author, represented W&T in its successful motion for partial summary judgment.

Under Section 905(b) of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), a vessel owner owes three duties to longshore employees. In October 2012, the Fifth Circuit granted a summary judgment dismissing serious personal injury claims a cargo supervisor filed under LHWCA because the defendants had not breached any of these three duties. In doing so, the Court restated the law applicable to the claims of discharging stevedores based on conditions of the cargo stow, providing a legal primer on the recurring issues concerning the vessel owner’s duties under these circumstances.

In Sobrino-Barrera v. Anderson Shipping Co., No. 11-20826 (5th Cir. Oct. 23, 2012), a cargo supervisor employed by stevedore Gulf Stream Marine was injured during cargo discharge operations from the M/V GRETA. The injury was allegedly caused by the faulty stowage of the cargo of steel pipes. This raised the question of whether the vessel owner breached any of its duties to Sobrino-Barrera, the injured longshore worker.

It is settled that a vessel owner owes longshore employees three duties under LHWCA § 905(b): (1) a duty to turn over the vessel to the stevedore in a reasonably safe condition or to warn the stevedore of any hidden dangers of the vessel or its equipment; (2) a duty of reasonable care to prevent injuries to longshore employees in work areas under the active control of the vessel; and (3) a limited duty to intervene in the stevedore’s operations. The summary judgment evidence on each of the three duties is briefly discussed below.

As an initial matter, the Court concluded that the GRETA’s cargo at the discharge port was an open and obvious condition based on the deposition testimony of Sobrino-Barrera and a fellow employee. Because the “turnover duty” only implicates hidden (non-obvious) defects in the ship and its equipment, no “turnover duty” was owed.

The Court also rejected Sobrino-Barrera’s argument that the ship’s participation in the cargo plan at the load port rendered the cargo within the vessel’s active control at the discharge port. “Involvement in the cargo plan does not constitute active control.”

Lastly, the Court concluded that the vessel interests had no duty to intervene in the cargo discharge operations. The duty to intervene is extremely limited and arises only after the vessel has both “actual knowledge” of a dangerous condition and “actual knowledge” that the stevedore in the exercise of “obviously improvident judgment has failed to correct that dangerous condition.” There was no evidence that the vessel interests knew that the cargo presented a danger to Sobrino-Barrera and his crew. Moreover, Sobrino-Barrera’s deposition testimony indicated that prior to his accident the stevedore had followed its normal and customary procedures in discharging the cargo. Accordingly, there was no duty to intervene on the part of the vessel.

In the unpublished opinion of  Adams Offshore, Ltd. v. Blake Marine Group, No. 11-12753 (11th Cir. Apr. 27, 2012), the Eleventh Circuit Court of Appeals adopted the Fifth Circuit’s suggestion in Beauregard, Inc. v. Sword Servs., L.L.C., 107 F.3d 351, 353 n. 8 (5th Cir. 1997), and affirmed the district court’s allocation of costs to each unsuccessful attaching party in proportion to the value that each party alleged was owed them by Oceanografia to the alleged value of all claims asserted against Oceanografia.  This decision addressed the infrequent scenario when significant expenses are incurred by a party in initially arresting/attaching the property, other creditors intervene in that suit, but the arrest/attachment of the property is subsequently vacated, resulting in there being no fund for which to pay the expenses of arrest/attachment and preservation of the property, more commonly referred to as custodia legis, literally expenses incurred “in the custody of the law.”

Oceanografia owned a modular diving system that had been installed on a vessel engaged in oil field work off the coast of Mexico.  Seizing on the opportunity to assert its claims against Oceanografia while the vessel and Oceanografia’s diving system were in Mobile, Alabama, Adams Offshore filed suit against Oceanografia and requested the attachment of the diving system under Rule B as security for its claims, alleged to be worth $7 million.  Thereafter, similarly situated creditors, Blake Marine and Cashman Equipment, intervened in Adams’ action, and asserted their respective claims of roughly $61 million and $1.7 million against Oceanografia.  Over one year after Adams had the diving system attached, the district court vacated the attachments of Adams, Blake and Cashman for equitable reasons.

During the time Oceanografia’s diving system was in the custody of the court, more than $200,000 in costs and expenses had accrued, including the Marshall’s fees, dockage, expenses to clear the diving system through customs, expenses to survey, oversee and remove the diving system from the vessel, storage and insurance, all of which had been initially borne by Adams as the first attaching creditor.  However, because the maritime attachments were vacated, there was no fund generated by the sale of Oceanografia’s property to pay the costs of attachment, much less the underlying claims of Adams, Blake and Cashman.

Local Admiralty Rule 6(c) for the Southern District of Alabama provided as follows:  “Intervenors under this rule shall be liable for costs together with the party originally effecting seizure on any reasonable basis determined by the court.”  S.D. Ala. Loc. Adm. R. 6(c).  The district court concluded that it was reasonable to assess the attachment costs against Adams, Blake and Cashman in proportion to the value that their respective claims bore towards the total of all claims asserted in the pleadings:  Adams – 10%, Blake – 87.5% and Cashman – 2.5%.  On appeal, the Eleventh Circuit affirmed the district court’s assessment of costs, concluding that allocating costs based on the respective value of the parties’ claims was reasonable.  Id. at 5 (citing Beauregard, supra.)

The Adams Offshore decision provides several lessons.  First, it is reasonable to share the costs of an unsuccessful attachment among all unsuccessful maritime claimants, not just the claimant that filed suit first.  Second, the days of a “costs free lunch” appear to be ending for creditors who subsequently intervene in another party’s action after the arrest/attachment of the property has been initially perfected.  Third, attorneys should avoid the temptation to “overstate” the value of their clients’ claims in cases of maritime arrest/attachment because the amount alleged is one basis a court could utilize in apportioning the costs of an unsuccessful maritime arrest or attachment.

Most contracts for the sale of goods and services contain a standard provision regarding the application of payments on overdue accounts, such as:  “When more than one invoice is past due at the same time, Seller shall be entitled, at its sole discretion, to specify the particular invoice to which any subsequent payment shall be applied.”  Additionally, those contracts also may contain a provision that payments on overdue invoices shall first be applied to any accrued interest, and thereafter to any amounts outstanding.

The U.S. Fifth Circuit recently concluded that a seller’s confirmation of payment of an invoice in full precluded “reallocation of that payment in a different manner at a different time.”   World Fuel Services, Inc. v. MAGDALENA GREEN M\V, No. 11 – 30722 (5th Cir. Mar. 14, 2012).  As a result, a bunkers supplier’s arrest of a vessel for alleged late payment of an invoice for fuel was properly vacated because the seller had acknowledged the underlying debt had been paid in full.

SESL executed a general bunkers contract with WFS, which contained the payment allocation provisions mentioned supra.  SESL subsequently time chartered the MAGDALENA GREEN and another vessel, the UTA, and thereafter purchased approximately $245,000 in bunkers from WFS for both vessels.  After WFS demanded payment in full for fuel supplied to both vessels, SESL forwarded an e-mail:  “Please find the attached remittance slips.  All payments are made.  Please re-confirm thanks.”  WFS replied, “Thanks – confirmed all paid.”

Six months later, WFS filed suit against the MAGDALENA GREEN for SELS’s untimely payment for fuel, and the vessel was arrested.  In response to the owners’ defense that the invoice for the bunkers provided to the vessel had been paid in full, WFS argued that the provisions of its contract allowed it to apply payments to accrued contractual interest and fees from older invoices, presumably from other vessels, leaving the invoice for the bunkers provided to the MAGDALENA GREEN outstanding after receipt of the $245,000 payment from SESL.  The Fifth Circuit affirmed the district court’s dismissal of WFS’s suit.

The court noted the payment allocation provisions of WFS’s contract.  However, the court concluded WFS’s unconditional acceptance of that payment as “all paid” nullified those payment allocation provisions.

By confirming “MAGDALENA GREEN paid today,” WFS exercised its discretion to specify the invoice to which SESL’s payment would be applied.  WFS has the contractual right to allocate payments when they are made, but it does not have the right to then allocate those payments in a different manner at a later time.

Id. at 4.  Once the MAGDALENA GREEN’s debt to WFS had been paid, its liability and WFS’s maritime lien were extinguished.

In order for ship suppliers to take advantage of the payment allocation provisions of their contracts, they need to first decide how they are going to allocate such payments.  If they allocate the payment first to older invoices and/or to interest, prudent practice suggests that they advise their purchasers within a reasonable time after payment is received as to how the payment has been applied to the overdue account.  As the Fifth Circuit concluded, much like Lady Macbeth’s lament, once the seller tells the purchaser that an invoice is “all paid,” it cannot undo what’s been done.

One of the recurring issues in handling maritime wrongful death and personal injury claims is determining what information is sufficient to start the vessel owner’s six-month deadline to file a complaint seeking exoneration or limitation of liability under the Shipowners’ Limitation of Liability Act, 46 U.S.C. § 30501 et seq. from that claim.  It is clear that a written demand for payment/settlement before suit is filed which exceeds the value of the vessel will start the running of the six-month period.  Additionally, when the petition alleges recovery of damages in excess of the value of the vessel, the vessel owner’s receipt of that petition will start the clock.  However, it is less certain when the written notice of the claim is via service of a state court petition in which the plaintiff has not alleged a specific damages amount, as is generally the case in Louisiana and Texas state courts, but thereafter makes an initial settlement demand that exceeds the vessel’s value.

The U.S. Fifth Circuit, in In re Eckstein Marine Service L.L.C., No. 10 – 20600 (Feb. 22, 2012), recently examined this issue.  Jackson, a Jones Act seaman employed by Eckstein, filed suit in Texas state court.  Eight months after it was served with Jackson’s state court suit, Eckstein filed a limitation proceeding in Texas federal court.  The Fifth Circuit affirmed the federal court’s judgment dismissing Eckstein’s limitation proceeding for lack of subject matter jurisdiction, concluding that the limitation proceeding had been filed too late.  Although Jackson’s state court petition was silent on the quantum of damages, the Fifth Circuit concluded that pleading revealed a reasonable possibility that Jackson’s claim would exceed the value of Eckstein’s vessel, and therefore the clock started running for Eckstein to file a limitation suit upon its receipt of service of the state court petition.

Jackson’s state court petition had alleged that on February 28, 2009, Jackson had sustained serious and debilitating injuries on Eckstein’s M/V ST. ANDREW when his left leg became entangled in a line and was thereafter pulled into a mooring bit, causing him to suffer serious and debilitating injuries of a permanent nature.  The petition also alleged the standard laundry list of damages categories:  past loss of earnings, future loss of earnings capacity, past and future disability, past and future disfigurement, past and future medical and hospital expenses, past and future pain and mental anguish and maintenance and cure.  Moreover, as part of Eckstein’s cure obligation, it monitored Jackson’s medical treatment, which revealed multiple surgeries during Jackson’s initial two-week hospitalization to insert hardware to treat his bone fractures, as well as to perform debridement and skin graft procedures.  Based on the foregoing information, the Fifth Circuit concluded that the service of Jackson’s petition on April 28, 2009 started the six-month period for Eckstein to file its limitation complaint.

Eckstein, who filed the limitation complaint on January 18, 2010, argued that the six-month period should have started on December 2, 2009, when Jackson made his initial settlement demand for $3 million.  Under that theory, Eckstein’s limitation complaint clearly would have been timely.

The Fifth Circuit affirmed the federal district court, concluding that service of the Texas state court complaint on April 28, 2009, coupled with Eckstein’s knowledge of Jackson’s initial two – week medical treatment, raised a “reasonable possibility” that Jackson’s damages would exceed the value of the M/V ST. ANDREW.  As the Fifth Circuit explained:

Once a reasonable possibility has been raised, it becomes the vessel owner’s responsibility to initiate a prompt investigation and determine whether to file a limitation action.  The Limitation Act provides generous statutory protections to the vessel owners who reap all of its benefits.  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.  In other words, if doubt exists as to the total amount of the claims or as to whether they will exceed the value of the ship the owner will not be excused from satisfying the statutory time bar since he may institute a limitation proceeding even when the total amount claimed is uncertain.

Id. at p. 9.  Accordingly, the Fifth Circuit concluded Eckstein’s limitation complaint should have been filed by October 28, 2009 and not on January 18, 2010.

Vessel owners – as the title suggests, when in doubt, file the limitation complaint.

Transactions to procure supplies for vessels engaged in international trade typically involve numerous international and local brokers, agents and contractors.  The vessel operator or charterer will place an order for supplies with a broker.  The broker locates a seller with the best price and reputation in the vicinity of the vessel.  The seller makes arrangements with one or more contractors to deliver the supplies to the vessel.  At the agreed time and place, the vessel thereafter pays the broker, who ensures that the seller is paid in full less any broker’s commission.  The seller then compensates the delivery contractor at their agreed rate.  (Of course, failure to timely pay by the vessel interests potentially gives rise to maritime liens against the vessel in favor of the suppliers.)

Under the foregoing arrangements, it is clear that there is no direct contract between the vessel interests and the delivery contractor.  However, for purposes of the Oil Pollution Act, the U.S. Fifth Circuit has concluded that the typical arrangements for the sale and delivery of bunker fuel to ships can qualify as a “contractual relationship”, with the result that the vessel could not avoid strict liability for clean-up costs under OPA for a fuel spill resulting from the collision the vessel and a barge, hired by the fuel seller to deliver the fuel to that vessel. Buffalo Marine Servs. Inc. v. United States, No. 10-41108 (5th Cir. Nov. 22, 2011). In so holding, the Court approved the government’s broad definition of “contractual relationship,” which correspondingly resulted in a very limited scope of one of OPA’s affirmative defenses.

The operators/charterers of the TORM MARY had purchased fuel from Bominflot through LQM, a fuel broker.  Bominflot hired Buffalo Marine, the owner/operator of a tug and barge, to deliver the fuel to the TORM MARY.  As Buffalo Marine’s tug was maneuvering the barge alongside the TORM MARY, the barge collided with the TORM MARY, holing the her hull and fuel tank and resulting in a spill of 27,000 gallons of heavy fuel oil into the Neches River.  The fuel was never transferred from the barge to the TORM MARY.

Under OPA, the TORM MARY, as the responsible party, was strictly liable for the removal costs and damages resulting from the spill unless it established, by a preponderance of the evidence, that the spill was caused solely by an act or omission of a third party, other than a third party whose act or omission occurs in connection with any contractual relationship with the responsible party.  33 U.S.C. § 2703(a)(3).  The National Pollution Funds Center (“NPFC”) denied the claim of the vessel owners and insurers for reimbursement of certain clean – up expenses, concluding that they had failed to establish as part of their affirmative defense that Buffalo Marine’s acts were not in connection with any contractual relationship with the TORM MARY interests.  The NPFC had interpreted the phrase “any contractual relationship” in OPA as not being limited to contractual relationships where there is direct privity of contract.  Instead, “any contractual relationship” also included indirect contractual relationships in connection with the commercial sale and delivery of fuel via a chain of agents and contracts between the TORM MARY interests – the fuel purchasers, and Buffalo Marine – the seller’s delivery agent.  According to the NPFC, the mere fact that the bunkers were not ultimately delivered did not affect the contractual nature of the relationship between the TORM MARY interests and Buffalo Marine.

Accordingly, Buffalo Marine’s acts or omissions in causing the collision were by a third party who had a contractual relationship with the TORM MARY interests.  As a result, the NPFC rejected the TORM MARY’s affirmative defense under OPA that the spill was solely caused by Buffalo Marine.

The district court denied via summary judgment Buffalo Marine’s suit for agency review under the Administrative Procedure Act.  On appeal, the Fifth Circuit concluded that the NPFC’s interpretation of OPA, more particularly, the phrase “any contractual relationship with the responsible party” was entitled to substantial deference, and was a permissible construction of the statute.  Additionally, the NPFC’s interpretation was consistent with a similar affirmative defense appearing in the Comprehensive Environmental Response, Compensation and Liability Act.  Lastly, the Fifth Court concluded that there was substantial evidence to support the NPFC’s denial of the claim.  Accordingly, the Fifth Circuit affirmed the district court’s summary judgment in favor of the NPFC.

The United States Supreme Court, in Pacific Operators Offshore, LLP v. Valladolid, concluded that the widow of an employee who suffered fatal injuries on shore may still recover LHWCA benefits pursuant to OCSLA if her husband’s death had a “substantial nexus” to his employer’s oil and gas operations on the OCS.  This is an unexpected decision based upon loose Congressional language in 43 U.S.C. § 1333(b), which adopts the LHWCA as the workers’ compensation scheme for the “disability or death of an employee resulting from any injury occurring as the result of operations conducted on the outer Continental Shelf” for the purpose of extracting its natural resources.

The Court disagreed with the Third Circuit’s test which was based on a “but for” standard.  The Court also rejected the Solicitor General’s proposal to adopt a Chandris-esque test that the employee have a substantial relation in duration and nature to OCS operations in order to qualify for LHWCA benefits under OCSLA.

Moreover, the Court discarded the en banc Fifth Circuit’s test for coverage that had focused solely on whether the incident occurred on an OCS situs.  The Court consigned to dicta inferences or statements to the contrary in its earlier decisions of Herb’s Welding, Inc. v. Gray and Offshore Logistics, Inc. v. Tallentire that had been interpreted to focus on the situs of the underlying accident as determining whether the employee was entitled to LWHCA benefits pursuant to OCSLA.

Rather, the Court agreed with the Ninth Circuit’s “substantial nexus” test in determining LHWCA coverage for OCSLA purposes.  Although the accident giving rise to this claim occurred on shore, 98% of Valladolid’s work activities were based on platforms and other oil and gas production structures affixed to the OCS.  Accordingly, Valladolid’s widow could recover LHWCA death benefits, pursuant to OCSLA.

Unlike the 30% test set forth in by the Court in Chandris, Inc. v. Latsis, the Supreme Court in Vallalodid left it to the lower courts to develop the boundaries of the “substantial nexus” criteria.  As Justice Scalia pointed out in his concurrence that agreed a “causation-like” standard was appropriate, but disagreed with the “substantial nexus” standard adopted by the Court – “What a tangled web we weave.”

A recurring issue in personal injury litigation is the amount of medical expenses a plaintiff is entitled to recover from the defendant.  The health care providers charge or bill the plaintiff for the treatment provided, but typically accept as payment in full significantly less from health insurers or the government.  The health insurers or government typically are protected via liens against the plaintiff’s recovery up to the amount they paid on behalf of the plaintiff.  Moreover, except for a potential deductible or co-payment, the plaintiff is not “out of pocket” any significant sum.  Yet, defendants often confront what is the proper recovery for the plaintiff’s medical expenses:  (1) the amount billed by the health care provider or (2) the amount accepted by the health care provider from third parties plus any deductible or co-pay by the plaintiff.  It does not strain the imagination to realize that awards based on the invoiced amount will result in a windfall to the plaintiff based on the spread between the amount billed and the amount accepted by the health care provider.

In Manderson v. Chet Morrison Contractors Inc., No. 10 – 31063 (5th Cir. Jan. 3, 2012), the U.S. Fifth Circuit reiterated that an injured seaman may recover cure (medical care) only for those medical expenses actually incurred.  In determining the seaman’s recovery for unpaid cure, the recoverable quantum is the amount “needed to satisfy the seaman’s medical charges.  This applies whether the charges are incurred by a seaman’s insurer on his behalf and then paid at a written-down rate, or incurred and then paid by the seaman himself, including at a non-discounted rate.”

The Fifth Circuit observed that the collateral source rule appeared incompatible with the obligation of Chet Morrison Contractors (“CMC”), the vessel owner, to provide cure to Manderson, an engineer, who was allegedly injured or became ill on CMC’s vessel.  Note:  In the same opinion, the Fifth Circuit had affirmed the district court’s denial of Manderson’s claims against CMC for negligence under the Jones Act or for unseaworthiness of the vessel under the general maritime law.

Generally speaking, the vessel owner’s obligations to pay maintenance (food and lodging during recuperation) and cure were implied in the contract of employment with the seaman, and did not depend on any determination of fault on the part of the vessel owner.  In contrast, the collateral source rule barred a tort defendant from reducing the quantum of damages owed to a personal injury / wrongful death plaintiff by the amount of recovery the plaintiff received from sources collateral to, or independent of, the defendant.  Under the general maritime law the collateral source rule has not been strictly applied to a seaman’s claims for maintenance and cure, which are owed irrespective of the vessel owner’s fault.  However, the Fifth Circuit previously recognized that “[W]here a seaman has alone purchased medical insurance, the ship owner is not entitled to a set-off from the maintenance and cure obligation moneys the seaman receives from his insurer.”

The Fifth Circuit recognized that a different result would have occurred had Manderson been pursuing a tort claim against CMC for which CMC would have been liable for compensatory damages.  Nevertheless, because CMC was liable to Manderson only for maintenance and cure, the bar of the collateral source rule was inapplicable.  As a result, Manderson’s recovery from CMC for breach of its cure obligation was reduced to the amount Manderson’s insurers actually paid his health care providers.  He was not entitled to recover the full amount billed by his health care providers.