The USA Spill - The P&I Perspective


Published: 26 July 2010

The P&I Column in the last edition of Shipping Regulations and Guidance focused on the steady and consistent decline in oil pollution in recent decades, with figures that reached a record low in 2009. By an unhappy coincidence, just as it went to press, the Deepwater Horizon suffered an explosion in the Gulf of Mexico that has led to extensive and continuing pollution.

In the aftermath of this incident, which seems to have been caused by a well blowout, P&I Clubs have been working in conjunction with shipowners to emphasise the difference between offshore units and ships. The Deepwater Horizon incident arose in the course of exploration activity and not from the carriage of oil. This is a vital distinction. Production has increasingly turned to more challenging environments as the world supply of easy oil dwindles. However, once it has been extracted, the transport of oil is no more risky than it has been for the last decade. Once loaded on the ship, it makes no difference whether the cargo has been extracted from a depth of 100 metres or 1500 metres.

The continuing and seemingly endless flow of oil is making the aftermath particularly painful for both BP and the White House. This would not happen with a ship related accident, where the quantity of oil is finite. It is rare for a ship to lose its entire cargo but, if this should happen, it will be over fairly quickly and everyone will know how much has been spilled into the environment.

In spite of these clear differences between the two industries, shipowners and their P&I Clubs will inevitably get caught in the political fall out. The International Group of P&I Associations was given the opportunity to testify before the House Committee on Transportation and Infrastructure at the beginning of June. The Democratic Party leadership in both the House and the Senate have instructed their committee chairmen to have legislation ready to report out of committee by the 4 July recess. This leaves little time for sober reflection. The Clubs have put considerable effort into getting their case heard but’ at the end of the day’ the determining factors will be overwhelmingly political.

It is inevitable that OPA 90 will be amended and it is likely that existing limitation limits for ships will be increased. The fear from the perspective of shipowners and Clubs is that limits will be removed altogether. Club cover is dependent on being able to buy sufficient reinsurance. It is a myth that insurance capacity is unlimited and that higher levels of cover are available as long as the insured is willing to pay. At the upper levels required to meet a catastrophic claim in the US, cover may not be available at any price. Unlimited liability would therefore threaten a shipowners’ survival if exposed to claims that exceed insurable amounts. Shipowners have little chance of meeting claims once their insurance runs out, in contrast to oil companies with their far greater resources.

While it looks like OPA 90 amendments will not be finalised by 4 July, other legislation may be ready. The SPILL Act (“Securing Protections for the Injured from Limitations on Liability Act”) has already been passed by the House Judicial Committee. It seeks to mend and modernise the Limitation on Liability Act 1851, the Death on High Seas Act 1920, and the Jones Act 1920. The antiquity of these bills makes them a relatively easy target. The Act will apply “to pending and future cases”. We are far from being able to make any reliable prediction of what the legislative consequences of the Deepwater Horizon will be for Clubs and their members. However, the fact that the first Act is to be passed while oil is still leaking and that this Act is retrospective in effect clearly illustrate that the stakes are high.

This article was originally published in Witherby Seamanship International's periodical "Shipping Regulations and Guidance", Issue 3, July 2010.