Does Responder Immunity Only Benefit Responders? What No One Has Explained To You About Insurance

by Blank Rome LLP

There is a bit of weariness (and disappointment) in our industry with regard to the initiative to enact an enhanced responder immunity regime. Indeed, it has been over four years since the fire and incurred loss of life related to the Deepwater Horizon incident. But this issue remains important because all of the spill response organizations, the spill management team, and the dispersant spraying companies were sued after the incident, and remain in litigation even though BP was able to settle its claims with the plaintiffs. In addition to the following summary of the status, for the first time I will explain why enactment of the proposed legislation will not only benefit responders, but also the marine industry in general, and responsible parties in particular.

As way of review, following the lessons learned from the Deepwater Horizon incident, specifically the extensive lawsuits filed against all segments of the response industry involved in the response, a Responder Immunity Coalition (the “Coalition”) was formed. The Coalition is comprised of all response interests, including the salvage industry, oil clean-up industry, spill management industry, the offshore vessel support industry, and the well containment industry, to work with Congress to enact enhancements to the current responder immunity provisions enacted by the Oil Pollution Act of 1990 (“OPA 90”).

The two main concerns following the incident were that (1) the plaintiffs sued the responders under general maritime law, alleging personal injury caused by the exposure to the spilled oil and the dispersants that were approved for use on a daily basis by the Federal On-Scene Coordinator (“FOSC”) pursuant to the National Contingency Plan (“NCP”); and (2) the plaintiffs made bare allegations of gross negligence and willful misconduct related to the response actions without having to detail any underlying facts to support such allegations.

To address these concerns, the proposed legislation would:

• extend the immunity under the law to a full range of response activities by explicitly defining the response activities covered under the immunity;

• provide immunity to a responder with regard to exposure claims related to the oil and dispersants, but otherwise maintain the current regime of responder employer liability for slips, trips, and fall type injuries (seaman Jones Act remedies) that commonly occur in marine operations; and

• establish a presumption that response actions do not constitute gross negligence and require claimants to pay attorneys’ fees and court costs for meritless claims to disincentivize frivolous lawsuits.

As the Coalition heard from various factions of the industry, it became clear that there were deficiencies in the initial proposal that needed to be addressed. As a result, the current version reflects necessary changes to address concerns that the immunity was not unnecessarily broad and would not have unintended consequences.

Thus, the current proposal includes new language to make clear that no new liability is transferred to a Responsible Party (“RP”). Under the law today, a RP is strictly liable for damages and removal costs and would be liable for an exposure claim as discussed above if found negligent under general maritime law. This proposal would not change that liability. And in all cases, an injured party will always have a remedy that will be backed up by the Oil Spill Liability Trust Fund even if a RP is unable or unwilling to pay compensation.

In addition, concerns have been raised that “opening up OPA 90 to amendments” would result in numerous OPA 90 amendments that could be attached to the Coalition’s proposal, which potentially would have negative effects on the marine industry, such as increased limits to liability that were proposed shortly after the Deepwater Horizon incident. However, it has been over four years since the incident, and the constant barrage of OPA 90 amendments related to the proposed legislation has died down completely. There is simply no longer a valid reason not to move forward with this proposal. OPA 90 has been amended numerous times since the initial enactment.

 Moreover, the industry in general, and a RP in particular, will substantially benefit if this legislation is enacted as currently drafted. In short, this is because it is the RP and others requiring the services of responders who pay the cost of any frivolous litigation against a responder. Indeed, if a robust responder immunity protection is not available through statute, then the RP will still have to bear this liability and cost. Moreover, if a responder is afraid to aggressively respond to a spill incident, then the oil will spread quicker and damages will continue to mount, resulting in significant increased costs to a RP and greater damages to our environment.

Specifically, with regard to insurance, under the routine response contract between a RP and responders, the RP will have agreed to provide enhanced contractual indemnity provisions to their contracted responders. And, as a result of this indemnification, the RP will have to pay in the future the increased time and material services costs as their contracted responders are forced to pay for increased insurance premiums to insure against these risks because the current regime of responder immunity is not providing the protection from lawsuits that was envisioned.

 In addition, once a responder is sued, the RP will not only have to pay for its own defense costs as the RP, but it will also have to pay the defense costs of the responder as a result of its indemnification provision. Thus, the RP is paying double defense costs if adequate responder immunity is not available, and will ultimately pay for the responder’s increased insurance rates through higher costs for response services that will be passed along to the RP. This is exactly what happened as a result of the Deepwater Horizon incident due to the claims against responders that are still pending in court. Accordingly, the Coalition proposal benefits potential RPs by avoiding unnecessary additional defense costs and increased rates for services.

The only reason this legislation was not enacted earlier was because there were objections raised by a key industry organization. These objections carried great weight despite the fact that key congressional offices supported enactment of this proposal. As a result of the Coalition effort to better educate the industry, we have recently seen a turn within the industry to support this effort as more stakeholders begin to fully understand how this enhanced responder immunity will not only help the response industry, but also provide tangible benefits to a RP and our industry as a whole in a future incident. Added to that, a faster response will better protect our environment and best mitigate damages.

However, this turnaround has to happen quickly so that objections from these interests are at least changed to neutral if not in support of the proposal. This is because the House passed its version of the Coast Guard Authorization bill earlier this year and action is expected in the Senate in the next few weeks to initially introduce its version of the Coast Guard Authorization bill. Following introduction, the bill will next proceed to a full Senate Commerce Committee mark-up (the committee with jurisdiction over this matter). Following that action, it will next be brought to the full Senate floor for consideration. This will likely be in the form of an amendment folded into a Managers’ Substitute package or as an amendment offered by a specific member (with co-sponsors and other member support) during floor debate on the bill.

If the proposal is not added during Senate action, it is possible to add it during formal or informal conference negations between the House and Senate (to work out any differences between the two bills), provided that there is a provision, or provisions, in either the House or Senate final bills, that are close enough in subject matter to make the proposal “germane,” and therefore within the scope of the two bills. As to timing, it is likely that the bill will not be wrapped up until much later in the year (in the November-December timeframe), which should provide ample time to work the issue based on these new developments.

In conclusion, it is clear that if the Coalition’s proposal is enacted, it will provide noteworthy benefits in terms of reducing the RP’s defense costs because plaintiffs will be discouraged from suing responders unnecessarily (i.e., the RP will only have to pay defense costs for lawsuits against the RP and not have to reimburse responders through indemnification provisions in their response contracts). As a result of this outcome, there will be no increase in the amount of insurance premiums, and thus no additional costs passed on to a RP due to any increased premiums. And an effective response immunity regime will provide responders with the necessary confidence to respond expeditiously without the fear of unfounded lawsuits. This has the overall public benefit of minimizing the damages to the greatest extent possible, which will have the added benefit to lower the RP’s liability for additional damages that would result from a slow response effort.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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