The Maritime Law Committee is pleased to provide this report to the IRIS Council on recent developments in Maritime Law. Since our last report, the Supreme Court has handed down a significant decision on choice of law issues in maritime contracts, unanimously determining that such provisions are facially valid. Several courts of appeal and district courts addressed issues relating to jurisdiction and to liability for maritime torts, and those discussions underscore the analysis of the Supreme Court and illustrate some problems that arise in determining admiralty or federal jurisdiction.
In addition to the legal determinations of cases, the maritime industry has been deeply affected in late 2023 and early 2024 by events that have restricted traffic through the Panama and Suez Canals, two waterways with significant impact on global trade.
In Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, 604 U.S.___ (Feb. 21,2024), the Supreme Court in a decision by Justice Kavanaugh unanimously reversed the Third Circuit, and upheld application of a choice of law clause in a maritime insurance contract. The Court emphasized the federal interest in the uniform application of maritime law, given the exclusive grant of federal jurisdiction over all cases involving maritime and admiralty law.
The case arose from damage to a vessel owned by Raiders Realty caused when it ran aground near Fort Lauderdale, FL. Raiders is a Pennsylvania corporation, though it regularly docked the vessel in Florida. It had insured the vessel under a maritime hull insurance policy issued by Great Lakes Insurance, a German company headquartered in London. The issue was joined on whether the policy had been voided by a breach of one provision of the insurance contract by Raiders. The policy included a variety of requirements that various equipment on the vessel be maintained. Raiders had failed to maintain the fire suppression system, and Great Lakes asserted that as a result the policy was void in its entirety. Raiders responded that the damage was caused by the vessel running aground, and that the fire suppression system was entirely unrelated to the events or the damage. Pennsylvania law (Raiders’ home jurisdiction) required that a policy could be voided only by a breach that was related to the insured event. But the contract contained an express choice of law clause making New York law applicable. New York law did not require that the breach be related to the insurable event but would void the whole policy as a result of Raiders’ breach of the requirement related to the fire suppression system.
In response to motions, the District Court applied the choice of law clause, and rejected Raiders’ claim. The Third Circuit reversed, holding that while choice of law provisions in maritime contracts are presumptively valid, here the clause must yield to the strong public policy in Pennsylvania law, seeking to protect insureds from losing protection as a result of actions that were unrelated to the insured’s underlying claim. There was a circuit split on the issue of whether state public policies could overcome choice of law contractual terms, and the Court granted certiorai to resolve the issue. Great Lakes, slip op at 2-3.
Justice Kavanaugh’s opinion emphasized the constitutional imperative that admiralty law operate uniformly throughout the country, where the federal courts apply federal decisional law. Id. at 3. Federal courts create uniform federal law, although in some cases a federal court may determine to apply state law rather than to create a new federal rule. See Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 US 310, 320-21 (1955).
The Court held that there was a longstanding established federal rule that choice of law clauses are presumptively valid. Great Lakes, slip. op at 4. That rule has a “salutary effect” of assuring the parties’ freedom of contract and dispelling confusion as to applicable law. The presumptive validity facilitates maritime commerce and allows parties to focus their attention on relevant precautions under applicable law, thus lowering the cost of maritime insurance. Id. at 6. The Court then held that while Wilburn had declined to impose a uniform rule on warranty provisions in maritime contracts, choice of law provisions were different, and a uniform rule was already in place. Id. at 8. Indeed the Court noted that Wilburn’s holding had led to the inclusion of choice of law provisions in maritime contracts, precisely to assure that the parties would avoid the risk of which state law would apply. Id. at 9.
The Court then held that any exceptions to the validity of choice of law provisions were narrow – only a contrary federal law or contrary federal maritime policy, or where there was no “reasonable basis” for the selected law, would void a choice of law clause. Id. at 11. A contrary state law was not a basis on which to void the choice of law, especially because that would create confusion as to the uniformity of maritime law.
Justice Thomas issued a concurrence, noting that he joined the Court’s decision in full, while expressing doubt that Wilburn had been properly decided.
In Cox Operating, the Lloyds underwriters sought to recover maintenance and cure benefits they had paid to a seaman employed by contractor to Cox. The injured seaman, was actually the captain of a lift boat chartered to support Cox’s oil and gas production platform offshore in the state waters of Louisiana. The lift boat’s owner had obtained a policy from Lloyd’s to cover certain risks and Cox was an additional insured under the policy. The injuries actually occurred when the captain slipped while on board the production platform, and having paid the maintenance and cure, Lloyds sought to recover the costs from Cox as the party at fault for the injury. Lloyds claimed that because the injury occurred on the platform, which was not itself the insured vessel, the waiver of subrogation in the policy was not applicable because the platform was not engaged in "intended operations” of the insured vessel.
The court applied Louisiana law, because there is no federal policy regarding whether the benefits were covered by the policy. The court determined Louisiana law applied because the lift boat owner was a Louisiana company and the events occurred in Louisiana waters. Holding that the Lift boat owner owed Maintenace and Cure as a result of the captain’s suffering injuries while in service to the lift boat, the court found that the Lloyd’s policy provided coverage to the lift boat owner. While the lift boat owner had agreed separately with Cox to obtain insurance and to include a waiver of subrogation, the issue of whether Lloyd’s had waived subrogation as to Cox was governed by the policy, not the separate agreement between the lift boat owner and Cox. Slip op at 8 and fn. 6.
Because the lift boat was engaged in covered, intended operations at the time of the injuries, the waiver of subrogation covered Cox, even if the lift boat was not itself involved in the events leading to the injury. Id. at 9-10.
The issues in this case arose from the explosion of three chemical tanks, on board the MV Flaminia, a vessel owned by Conti but chartered to MSC. The explosion caused substantial damage to the vessel, and killed three crew.
The tanks had been loaded on the vessel at the port of New Orleans, but the explosion occurred on the high seas, during a transit of the Atlantic. As typical in maritime matters, the liability and damages were determined by an arbitration, this one sited in London. The tribunal awarded damages to Conti, which then sought to enforce the award against MSC in Louisiana.
Conti is a German Company, and MSC is a Swiss company. The particular voyage at issue had been booked by MSC’s US subsidiary, to transport tanks on behalf of a consignor from New Orleans. The Flamina had been under charter at that point for some 12 years, and MSC’s parent entity approved the carriage. The arbitration tribunal held that MSC had failed to meet the required international code requirements on transporting hazardous materials and awarded damages to Conti. MSC argued that it was not subject to jurisdiction in Louisiana under the New York Convention on Recognition and Enforcement of Arbitral awards, because the only jurisdictional event alleged was the loading of the cargo at New Orleans. Because the tanks had been loaded in New Orleans, the district court held it had personal jurisdiction over MSC and enforced the award.
MSC’s insurer had issued an undertaking promising to pay Conti any final judgment issued in Louisiana, but that undertaking was conditioned as being without prejudice to MSC’s defenses. While MSC argued that the only relevant conduct was not the shipment, but its refusal to pay the arbitration award, the Fifth Circuit rejected that argument, agreeing with other circuits that the relevant jurisdictional inquiry is whether the award beneficiary was injured by defendant’s actions in the form in connection with the claim that led to the arbitration. Slip op at 7-9. The court then held that the insurer’s undertaking, while done with MSC’s consent, did not waive any MSC defenses, and thus did not serve as a basis for jurisdiction. Finally, the court held that MSC itself was not subject to personal jurisdiction, because the actions in New Orleans arose from the actions of its US subsidiary, not the parent. Because the parent is distinct from its US subsidiary, and the action of causing the loading to occur in New Orleans was the subsidiary’s action, not the choice of the parent, that event was not sufficient to create personal jurisdiction. Slip op. at 12-19.
Steven Nelson was injured when, seeking to disembark a vessel owned and managed by the National Oceanic and Atmospheric Administration, he crossed a gangway which collapsed underneath him. While Nelson alleged that NOAA had been negligent in failing to test the gangway, the district court held that the obligation rested on the manufacturer of the gangway, not NOAA. The Circuit Court affirmed. While the Safety of Life at Sea Convention imposes certain duties, as a government vessel, the Oscar Dyson was not subject to SOLAS, and NOAA had acquired the gangway from another vessel and was not the initial user. In any event, the evidence had shown that NOAA had conducted reasonable inspections of the gangway at prior ports.
This case arises on claims related to the death of a crewmember on a Carnival Vessel. The decedent was an Italian national, who died of mesothelioma, after exposure to asbestos, allegedly as a result of serving as a crew member for some 40 years. His widow and daughter brought claims in Texas courts, and the action was transferred to multidistrict litigation, and then removed to federal court. The issue before the court was whether an arbitration clause in the decedent’s last several employment contracts barred a court action, specifically an action in federal court.
The court determined that the claims related to employment under prior contracts that did not contain an arbitration clause. Because the plaintiffs disclaimed any recovery for exposure to asbestos during the voyages covered by the later employment agreements, there was no basis for jurisdiction under the Federal Arbitration Act. While Carnival argued that the later employment agreements included integration clauses that pulled in the earlier employment agreements, that issue could only be determined based on a choice of law question regarding interpretation of the agreements. While the parties differed as to which state law would be applicable, the contracts included a choice of law clause – referring to the flag state of the vessel on which the decedent had been employed, and that last vessel was registered in the Bahamas. But Plaintiffs argued that the cause of action arose after the decedent had left employment, when the mesothelioma was diagnosed; and that in any event Carnival’s argument would mean that the court needed to investigate and consider the law of each country where a vessel on which the decedent had been employed had been flagged.
Holding that Carnival as defendant had the burden to establish removal jurisdiction, and that it had failed to provide a proper and complete analysis of the choice of law, the court determined that Carnival had failed to meet its burden to establish federal jurisdiction and remanded the case to Texas courts.
Tuite, a passenger on the Carnival vessel, Sunshine, was injured when he tripped over a raised metal threshold on his way to the buffet. He brought an action for his injuries alleging that Carnival had notice of a dangerous condition which it failed to correct, and therefore the vessel was not seaworthy. Tuite rested his contention on evidence that there were multiple falls in similar areas on other ships in the Carnival fleet, and that others had tripped on that specific location, though there was no identification of specific falls at the location.
The court held that while Carnival had created the condition- a lip between a carpeted area and a tiled area, under applicable maritime case law, to be liable the carrier must have actual or constructive notice of the risk created by the condition. Tuite argued that Carnival should have had constructive notice because of tripping that had occurred, but could not point to any injuries or any event of substantial similarity. Finding that applicable case law did not allow imputing notice based only on the existence of the condition, but required actual or constructive notice of risk, the court granted summary judgment to Carnival.
Defendant Jerry Boylan was convicted of misconduct or neglect by a ship officer, in a trial related to the death of 34 people killed in a fire on a dive boat off the coast of California. The action was one of only a few brought under 18 USC §1115, the Seaman’s Manslaughter Statute, which allows for criminal conviction on the basis of gross negligence, with no showing of mens rea. The statute dates from the mid—1800s and was passed to address the safety of passengers and crew on Steamboats.
This case arises from the damages caused by the sinking of the Lone Star, a vessel that had been acquired for scrapping and recycling in Puerto Rico. Marine Environmental Remediation purchased the vessel, but during the work, the vessel sank and discharged 1800 gallons of oil. MER had, at the time of its acquisition of the vessel, purchased both a Protection & Indemnity Policy (P&I) and a “bumbershoot” policy from Travelers. When MER submitted a claim to Travelers for the damages related to the vessel’s loss, Travelers denied coverage.
The issues here relate to some issues of maritime claims under specific policies. P&I policies are common in maritime commerce and are designed to provide indemnity against third party claims related to maritime activities. They do not provide coverage to the vessel or cargo (those risks are covered under “Hull & Machinery” policies as to the vessel, and cargo insurance as to the cargo). “Bumbershoot” policies are essentially “excess” or (“umbrella” policies) for the maritime business. Travelers argued that MER had breached its obligation of ubberrimae fidei (utmost good faith), and that the vessel, because it was intended to be scrapped and such work had already begun, was not seaworthy and therefore was excluded from the policies. While it was true that the vessel was intended to be scrapped, the policies had been acquired to cover maritime risks. Because Travelers was aware of the vessel’s status and the intended scrapping, the court held it could not argue that MER had breached the duty of good faith in describing the vessel’s condition. And while the vessel had been removed from navigation, that by itself was not a determination that the vessel was not seaworthy. So long as the hull had not been holed below the water line and it could continue to float, it was not facially unseaworthy. Indeed, investigation had indicated that the vessel sank because the seacocks were opened, indicating that it had been capable of floating except for the sabotage or criminal mischief related to the seacocks. As a result, the court denied summary judgment to Travelers.
In this case, the court held that there was admiralty jurisdiction over the explosion of a vessel on land. The boat’s owner, having been unable to start the boat’s engine, had it towed to a marina and lifted from the water. The marina repair person sought to remove the fuel tank from the vessel while it was on land, some 80 yards from the water. But his use of a power tool apparently ignited fumes remaining in the tank, causing the tank to explode, destroying the vessel and damaging the shipyard. The boat owner filed an action in limitation, which is only available in admiralty.
While the Supreme Court has held that the Limitations Act applies to damage on land caused by a vessel located on navigable waters, here the vessel itself was located on land when the explosion occurred. But because the claims asserted that the vessel had been unseaworthy, and had not been maintained in a seaworthy condition, which necessitated the projected repairs, those claims sounded in admiralty, and admiralty jurisdiction existed, permitting the application of the Act. The court also held that in any event, the repair of a vessel is generally deemed to have a substantial relationship to traditional maritime activity.
At least since Executive Jet Aviation v. Cleveland, 409 US 249 (1972), air crashes occurring over navigable waters fall within admiralty jurisdiction so long as there is a significant relation to traditional maritime activity. In this case, the plaintiff beneficiaries of the decedents from a crash of an Sriwijaya Air flight into the Java Sea sought to have the court remand the litigation to state courts, alleging that the underlying cause the design, manufacture and sale of an autothrottle on the aircraft, which activities they alleged all occurred on land. The court held instead that the while the initial events may have occurred on land, the effects continued over water, and therefore it was foreseeable that there could be disruptive impact on maritime commerce. Because the intra-Indonesia flights carried passengers that would otherwise have travelled between the Indonesian islands by boat, there was a significant nexus to traditional maritime commerce, and thus admiralty jurisdiction attached, and remand was denied.
In 2022, Congress passed the Safer Seas Act, codified at 46 U.S.Code §§3106, 4901 and 11101. Generally, the Act requires owners, masters or managing operators of US flagged vessels, and employers of seafarers on those vessels, to meet high standards of surveillance, training and reporting. The Coast Guard has now issued several policy letters describing how affected operators and owners should comply.
Policy Letter 23-04 (Nov. 13, 2023) requires merchant vessels over 100 tons to post information regarding prohibitions on sexual assault and sexual harassment.
Policy Letter 23-05 (Nov. 13, 2023) requires vessels with overnight accommodations for 10 or more persons on seagoing voyages of 600 miles or more, to install and maintain video and audio surveillance systems, with sufficient and uninterrupted coverage, with sufficient quality to assure identification of persons.
Policy letter 23-06 (Nov. 13, 2023) requires vessels to maintain logs of which crew members or officers have access to master keys, and other controls on master keys.
These all seek to implement measures to enforce the obligations in Marine Safety Bulletin 1-23, that vessels report all incidents of sexual harassment and assault.
While not related to legal obligations or liabilities, maritime commerce since our last report has been significantly affected by events that limit transits through the Panama and Suez Canals.
From last fall, Panama has been badly affected by drought, which has substantially lowered the level of Gatun Lake, whose waters are essential to the operation of the locks on the Panama Canal. In October rainfall was 43% below average levels. As a result, on January 1, 2024, water levels in Gatun Lake were at the lowest level on record, 6 feet below the level of January 1, 2023. In response to the lower water levels, the Canal Authority limited ship transits to 24 per day, with those restrictions to remain in place at least until April, when the start of the rainy season may permit re-evaluation. The restrictions also affect the size of the vessels permitted to transit, because larger, more heavily laden vessels sit lower in the water, and require more volume of water through the locks.
Transits through the Panama Canal are some 5% of global shipping, and the reduction from approximately 40 transits per day to 24 has had significant economic impact, with the US loss estimated at $1.5billion and similar losses to other countries in the region. UNCTAD figures suggest that shipping through the Panama Canal was down 36% from comparable 2023 periods, and 62% down from comparable 2022 periods.
Following the Hamas attack on Israel on October 7, 2023 and the Israeli invasion of Gaza, the Houthi militants in control of parts of Yemen have launched drone and missile attacks on shipping moving through the Red Sea to the Suez Canal. While US and other allied forces have sought to reduce the Houthi’s supply of drones and missiles, the attacks continue intermittently. As a result, as of January, shipping traffic through the Suez Canal has dropped 45%.
Because of its location, the Suez Canal generally handles more traffic than the Panama Canal, accounting for 12-15% of global trade and 25-30% of container traffic. Container vessel transits through the Suez Canal were down 82% in early January. The result has been an increase in container shipping costs, and substantial economic impacts on Egyptian revenue from transit fees.
Shortly after the submission of the Committee’s report to the Section Council spring meeting, the Dali, a large container ship, struck the Francis Scott Key Bridge in Baltimore, MD. Because that event was not covered in our regular committee report, but the Committee believes it would be of substantial interest to the Section Council, we have prepared this supplement.
On March 26, shortly before 130 AM local time, a large container ship, the MV Dali, lost propulsion and electric power, and struck the Francis Scott Bridge, which crosses the Patapsco River at the entry to the Baltimore Harbor. The force of the collision with a pier supporting the major truss caused the bridge to fail catastrophically. Because the on-board pilot was able to issue a distress call prior to the allision, bridge traffic was stopped. Six construction workers doing pothole repairs on the bridge were not able to be notified and are presumed to have died, although two others survived.
Videos of the event and early reporting show that the vessel lost all power, including propulsion and electricity before the event, when she was under her own power, the tugs that assisted departure from the quay having been dismissed. Apparently the emergency generators were started, which resulted in a short term restoration of electric power (the ship’s lights came back on for a very brief time, but then went dark again), but the main engine could not be restarted. The pilot took reasonable response measures – including dropping the anchor and ordering the rudder to moved hard left, but without propulsion the vessel was carried by current and momentum into the pier.
The root cause for the loss of power has not been determined at this time. The event is being investigated by the National Transportation Safety Board under an MOU with the Coast Guard, and (as noted below) we understand counsel for the owner/operator are also investigating. Some reports have identified a potential cause of contaminated fuel, but the NTSB will also review engine maintenance, controls and related issues.
Contaminated fuel is a larger issue in marine transport. Most large vessels today operate on marine diesel engines designed to burn marine fuel oil or heavy fuel oil, also known as Bunker C or Bunker fuel oil. Bunker C is literally the bottom of the oil barrel – it is tarlike in consistency, must be heated and maintained at a warm temperature in order to flow. There have been reports of unscrupulous suppliers “extending” the amount of Bunker C by adding waste lubricating or other oils, water and other materials. While marine engines are generally equipped with filters, and generally test fuel when it is being loaded, the presence of contaminants, waxes and other materials can clog the engine and prevent operation. Reports indicate that the Dali was last bunkered in Shanghai and Korea before transiting the Panama Canal on the inbound voyage. She also called at New York and Norfolk prior to Baltimore. It is unclear whether additional bunkering occurred in New York or Norfolk. Reports say no fuel was lifted in Baltimore.
While there is some basis to investigate the quality of the bunker fuel, there are also reasons to doubt that it was the root cause. Generally, large vessels do not burn bunker C when in US waters and in particular in US ports because of environmental regulations. Bunker C tends to contain significant amounts of sulfur and other pollutants, and to cause significant emissions. To avoid those environmental issues, vessels will typically burn ordinary diesel fuel (No. 2 oil) while in port. If that were the circumstance here, the quality of the Bunker C would not be the root cause. It is possible for diesel fuel to also be contaminated, and it is not unusual for Bunker C and diesel fuel to be loaded at the same time. Reports do indicate that the NTSB investigation is reviewing fuel records, and it would be typical for fuel samples to be analyzed.
However, there are also reports that an inspection in Singapore identified issues with engine controls in 2023. Those were not significant enough to cause the vessel to be held, and reports are that the issues were repaired and resolved. Nonetheless, NTSB will examine the issues.
As the Committee has noted in other reports, under US law (consistent with international conventions), a vessel owner/operator is entitled to limit liability to the value of the ship post event, and the revenue to be received from cargo. On April 1, Grace and Synergy have brought a limitation of liability action in federal court in Baltimore, alleging that the value of the vessel would not exceed $90MM, but that is reduced by expected salvage costs of $19.5MM and repair costs of $28MM. To that is added pending freight of $1.170MM. Thus, the owner and operator propose that the stipulated value under the Limitation of Liability Act would be $43.670MM. The cost to replace the bridge, liability for the lost workers and other damage is likely to total into the billions of dollars. The Dali has insurance, but its liability will be controlled under the Limitation of Liability Act. Reports indicate that the state of Maryland has insurance coverage on the bridge for some $300MM, and the President has indicated his intent to request federal funding to rebuild the bridge.
The effect of the Limitation of Liability Act filing is that any claimants must intervene in order to have a role in determining whether the vessel or its owner/operator were at fault (limitation of liability is contingent on finding that the vessel and its owner/operator were not negligent or otherwise at fault). A vessel striking a fixed facility is presumed to be at fault, but that presumption is rebuttable. The petition filed by Grace and Synergy alleges that the allision was without fault or negligence by the vessel or the owner/operator, or in the alternative, if there was fault or negligence, the owner/operator had no knowledge of the underlying fault.
The action is likely to take significant time to resolve – there will be interventions, motion practice, discovery related to any investigation and determination of cause, before any substantive decision. Technically, the court will determine only whether the owner/operator can limit liability. Any determination of damages would be tried separately.
In a prior report, addressing the partial closure of the port of Brunswick, Georgia, in 2019 caused by the capsizing of a car carrier, the MV Golden Ray, the Committee noted that the increasing size of commercial vessels raised significant issues about port navigation and the impact of accidents or events.
The Committee will continue to track the issues and may make further reports.
