Shippers’ Law: Oil terminal ordered to pay for spill

   In 2004 the hull of the tanker Athos I was punctured by an abandoned ship anchor as it approached an asphalt refinery terminal in Paulsboro, N.J., on the Delaware River.
   The puncture resulted in the spill of 264,000 gallons of crude oil, affecting 280 miles of shoreline, 70 miles of which were heavily to moderately oiled. Cleanup costs, natural resources, and third party claims totaled about $300 million.
   A senior U.S. Coast Guard official said in 2015 that as of that date it was the largest vessel-related spill since Exxon Valdez went aground in Prince William Sound and released 11 million gallons of oil.
   The Athos I spill was also a big test of the 1990 Oil Pollution Act’s provisions which were put in place after the Exxon Valdez spill. The law was designed to ensure victims are quickly compensated, environmental damage is minimized, and the cost of oil spills are internalized by the oil industry.
   With OPA, U.S. District Court Judge Joel H. Slomsky noted, Congress established a liability scheme in which the entity that spilled the oil must pay initially for removal costs. But after doing so, the company may be entitled to statutorily limit its liability through review by and reimbursement from the federal government once cleanup efforts are underway.
   This, he noted, “encourages rapid private party responses to environmental disasters…In fact, OPA places a monetary cap on the liability of cooperative responsible parties.”
   The Athos I accident led to years of litigation between three parties: tanker owner Frescati Shipping Co. Ltd., along with manager Tsakos Shipping & Trading; the U.S. government; and the terminal operator CITGO Asphalt Refining Co. and other CITGO companies, collectively known as CARCO.
   Frescati initially incurred over $143 million in cleanup costs and damages, and the U.S. government reimbursed Frescati nearly $88 million for expenses associated with the spill under the OPA provisions.
   In a lawsuit that resulted in a decision this summer (re Petition of Frescati Shipping Company, Ltd.  et al. E.D. Penn. No. 5-cv-305. July 25), they both sought reimbursement from the CARCO companies.
   “Frescati brought a contract action against CARCO for breaching the safe berth warranty included in the contract that CARCO made with Star Tankers Inc., the intermediary that chartered to CARCO the Athos I for delivery of oil to its Paulsboro berth. Frescati is covered by the safe berth warranty as a third party beneficiary,” Slomsky explained.
   “The safe berth warranty was an express assurance that the Athos I would reach the Paulsboro berth safely, provided that it maintained a draft of 37 feet or less,” he said, adding the record demonstrated the ship was drawing less than 37 feet at the time of the accident.
   The judge found CARCO breached the safe berth warranty and “Frescati did not negate the safe berth warranty through poor navigation or seamanship.”
   As a result, Slomsky said CARCO was liable to Frescati on the breach of contract claim for about $55.5 million in cleanup costs and damages, plus prejudgment interest.
   As a statutory subrogee, the federal government had entered into a partial settlement agreement with CARCO, limiting its claim for reimbursement from CARCO to Frescati’s contractual claim under the safe berth warranty. The government did not have a negligence claim against CARCO.
   “As a statutory subrogee, the government stands in the shoes of Frescati on the breach of contract claim,” Slomsky said, but he added the evidence warranted an equitable finding that CARCO was not fully liable to the government on the nearly $88 million subrogation claim. He limited the government’s recovery to 50 percent, or $43,994,578.66 plus prejudgment interest. It was not clear if the government will seek more money through an appeal.
   In addition to the breach of contract claim, Frescati brought a negligence claim against CARCO.
   During an appeal of an earlier District Court decision in this case, the Third Circuit Court of Appeals (see August 2013 issue’s Shippers’ Law) held that CARCO had a duty to exercise reasonable diligence in maintaining a safe approach to its Paulsboro berth for the Athos I.
   To fulfill that duty, Slomsky said the standard of care required CARCO to periodically scan the approach to its dock to search for hazards to navigation and either remove, mark, or warn incoming ships of the hazards.
   The judge found “CARCO breached this duty by failing to conduct side-scan sonar surveys of the approach. This failure to search for underwater hazards within the approach proximately caused the casualty. Had CARCO searched for underwater obstructions within the approach, the anchor would have been discovered and the oil spill would not have occurred. Therefore, CARCO was negligent and is liable to Frescati on this claim in the amount of $55,497,375.95 for cleanup costs and damages, plus prejudgment interest compounded annually.”
   While CARCO contended the Athos I crew negligently navigated the vessel and the vessel was unseaworthy, Slomsky said “No credible evidence shows that any poor navigation or seamanship proximately caused or contributed to the casualty, or that the Athos I was unseaworthy.”
   Slomsky ended his decision by noting the Athos I was scrapped and “Its only remnant, a cut-out section of the hull displaying two unique holes with jagged edges, remains in a shed in Baltimore, Md., near a rusted anchor with a fluke that has an evenly curled bent tip. The story of the final voyage of the Athos I and the reasons why it came to rest prematurely may be in the minds of the maritime community for years to come. But in this court, for now, its legal journey will conclude here.”