Maritime Law – How Admiralty Jurisdiction Will Impact Virtually All Litigation
August, 2010
What Is Admiralty Jurisdiction And Why Does It Matter?
At the time of blowout, the DEEPWATER HORIZON was about 45 miles off the Louisiana coastline in water approximately 5,000 feet deep. Undoubtedly, most claims arising directly out of the Gulf Oil Spill will fall under admiralty jurisdiction. Admiralty jurisdiction exists if injury is caused by a vessel on navigable waters while she is engaged in traditional maritime activity. See, Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527 (1995). The DEEPWATER HORIZON was a movable rig. Therefore, it will be regarded as a vessel under maritime law. Offshore drilling has been held to be a traditional maritime activity. Additionally, the Extension of Admiralty Jurisdiction Act, 46 U.S.C. § 30101, provides that maritime jurisdiction extends to cases involving injuries suffered on land caused by a vessel on navigable waters. Admiralty jurisdiction also extends to contractual matters which directly affect maritime commerce.
The United States Constitution provides that federal "judicial power" extends to "all cases of admiralty and maritime jurisdiction." State courts have concurrent jurisdiction with federal courts over most maritime actions but, if a case is found to give rise to "maritime jurisdiction," state courts must apply federal law to resolve the case. Federal maritime law is made up of federal statutes and judicially created federal "common law." Federal maritime law and state law often conflict significantly on issues such as (1) the causes of action available to a plaintiff; (2) the defenses available to the defendant; (3) the elements of damage which the plaintiff is entitled to recover; and (4) the time limitation for filing suit. Maritime law may also permit enforcement of indemnity provisions in contracts entered into in the oil field setting which would be unenforceable under state law. See, Wagner v. McDermott, Inc., 79 F.3d 30 (5th Cir. 1996).
State and local laws, even those that effectuate police powers and environmental regulations, are preempted by federal maritime law to the extent that they conflict with it. However, state law may supplement admiralty law where it does not conflict and the state has a particular interest in governing the conduct complained of. It is anticipated that, particularly in state courts, efforts will be made to impose state pollution regulations, standards of care and damage recovery rules by arguing that they are not in conflict with maritime law.
Maritime Personal Injury, Death and Tort Law
Personal injury and death claims brought by those who have legal status as "seamen" will be resolved under the Jones Act, 46 U.S.C. § 30104, et seq. Seamen are entitled to sue their employers in tort and have a right to trial by jury. The financially dependent survivors of seamen and others killed as a result of the blowout are entitled to recover pecuniary loss only under the Death on the High Seas Act (DOHSA), 46 U.S.C. § 30301, et seq.
Admiralty law incorporates the general principles of tort law, including the doctrine of strict liability for defective products. East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986).
Marine Insurance
Marine insurance contracts will be interpreted under state law absent controlling federal maritime law. Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310 (1955); N. Amer. Specialty Ins. Co. v. Debis Fin. Servs. Inc., 513 F.3d 466 (5th Cir. 2007); One Beacon Ins. Co. v. Crowley Marine Serv., 2010 U.S. Dist. LEXIS 35960 (S.D. Texas 2010). For many years, the trend has been to favor the application of state law to the resolution of marine insurance coverage issues. See, e.g., Elevating Boats, Inc. v. Gulf Coast Marine, 766 F.2d 195 (5th Cir. 1985). Thus, federal maritime law is likely to be applied to interpret policy terms about which a well-established body of maritime case law has evolved, such as the warranty of seaworthiness in a hull policy and the rules of proximate cause relative to marine insurance claims, but most terms and conditions of marine insurance policies will be resolved under state law. For example, state law has been held to apply to the issue of whether punitive damages are recoverable from insurers in a bad faith action, Taylor v. Lloyd's Underwriters, 972 F.2d 666, rehearing denied, 978 F.2d 713 (5th Cir. 1982), the scope of an insurer's duty to defend, Underwriters at Lloyd's v. Denali Seafoods, Inc., 729 F. Supp. 721 (W.D. Wa. 1989), affirmed, 927 F.2d 459 (9th Cir. 1991), and whether the insurer is subrogated to the rights of its insured, Continental Casualty Co. v. Canadian Universal Ins. Co., 605 F.2d 1340 (5th Cir. 1979).
The Limitation of Liability Act
The owners of the DEEPWATER HORIZON have already filed a complaint pursuant to the Limitation of Liability Act, 46 U.S.C. App. § 30505 et. seq. (the "Act") The Act permits a vessel owner to limit its liability to the value of the vessel after the event giving rise to claims, subject to certain minimum limits for personal injury and death. Therefore, if the owners of the DEEPWATER HORIZON are successful, their liability for claims unrelated to personal injury and death will be limited to the value of the sunken wreck-likely nothing. Typically, a vessel's liability insurer is entitled to take advantage of the limitation as well. In order to prevail, however, the owner must show that the incident giving rise to the claims occurred without the privity or knowledge of the owner. For obvious reasons, the courts have been increasingly reluctant to grant limitation and have broadly interpreted "privity or knowledge."
The Act requires all damage claims against the owners be resolved in one concursus proceeding. The DEEPWATER HORIZON limitation action is now pending on the docket of the United States District Court for the Southern District of Texas in Houston (Case No. 4:10-cv-01721). If customary procedure is followed, the court will order all those seeking recovery against the vessel owners to file their claims in the limitation action by a specific date. Those who anticipate that they have or will have a claim for damages against the owners of the DEEPWATER HORIZON, including subrogation claims, should follow that litigation and keep apprised of the deadline for filing claims. (The owners will also have a duty to notify all known and reasonably likely claimants of the deadline for filing claims. The deadline will also be published in newspapers to be determined by the court.)
Recoverable Damages in Admiralty
Under admiralty law, claims for economic loss unaccompanied by physical damage to a proprietary interest are not recoverable. Robins Dry Dock & Repair v. Flint, 275 U.S. 303, 309 (1927); State of Louisiana ex. rel. Guste v. Testbank, 752 F.2d 1019 (5th Cir. 1985). In Testbank, restaurateurs, sport fisher-men, bait and tackle shops and seafood enterprises were denied recovery for monetary damages to their businesses arising from a chemical spill that required closing a Mississippi River Gulf outlet. There are few exceptions to the Robins Dry Dock rule but one was recognized in Domar v. M/V ANDREW MARTIN, 754 F. 2d 616 (5th Cir. 1985). In that case, the court held that if two pieces of property are an "integrated unit," physical damage to one part of the integrated unit may allow recovery of economic loss sustained on account of inability to use the undamaged part.
Litigation over the EXXON VALDEZ oil spill lasted for over two decades and brought the availability of punitive damages in admiralty to the forefront. Punitive damages have been allowed in admiralty since the Supreme Court's decision in THE AMIABLE NANCY, 16 U.S. 546 (1818), upon a showing of "gross negligence, or actual malice or criminal indifference which is the equivalent of reckless and wanton misconduct." In re Marine Sulfur Queen, 460 F.2d 89, 105 (2d Cir.), cert. denied, 409 U.S. 982 (1972). In Exxon Shipping Co. v. Baker, 128 S.Ct. 2605 (2008), the Supreme Court reduced the $2.5 billion punitive damage award approved by the Ninth Circuit to $507.5 million after determining that a 1:1 ratio between compensatory damages and punitive damages is the "constitutional upper limit."
While admiralty has a well developed body of law on punitive damages, the courts have not been entirely consistent in their approach to such awards. In Szollosy v. Hyatt Corp., 396 F. Supp. 2d 159 (D. Conn. 2006), the court, sitting in admiralty, held that maritime law would apply the standard of conduct for imposing punitive damages but it allowed the amount of damages recoverable against the seller of a defective product to be governed by state law. In In re Aircrash at Belle Harbor, New York, 2006 AMC 1340 (2006), the court held that New York law applied to a punitive damages claim against a product manufacturer in certain maritime wrongful death cases.
Learning Point
Most claims arising directly out of the DEEPWATER HORIZON blowout will be subject to admiralty jurisdiction and maritime law. The goal of the framers of the Constitution was to have one uniform body of law applied to all claims falling under admiralty jurisdiction so that the outcome of cases will be the same no matter where they are tried. Despite the goal, many state and federal courts have carved out exceptions to well established admiralty rules. Choice of law issues must be carefully considered based on the unique facts of each case and the jurisdiction in which the case is pending.
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