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Monday,
July 17, 2006
 This is the final installment in a three-part series addressing selected issues arising from the 2005 hurricane season or that should be considered in preparation for future storms and potential lawsuits as the height of the 2006 hurricane season approaches. This newsletter is not intended to provide a comprehensive discussion of the non-litigation/pre-litigation issues facing the Gulf Coast business community, but rather to highlight three of the most significant. The first two installments of this three-part newsletter discussed force majeure and selected insurance issues. In this final installment, we will discuss certain aspects of oil spill cleanup cost recovery under the Oil Pollution Act of 1990, including the act of God affirmative defense to liability under the statute.
The Oil Pollution Act of 1990 (“OPA 90” or the “Act”) was enacted in response to the 1989 Exxon Valdez oil spill. It was intended to streamline federal law so as to provide quick and efficient cleanup of oil spills, compensate victims of such spills, and internalize the costs of spills within the petroleum industry. OPA 90 imposes strict liability on responsible parties for the damages and removal costs that result from a discharge, or a substantial threat of discharge, of oil from a vessel or facility into navigable waters or adjoining shorelines. The Act created the Oil Spill Liability Trust Fund (the “Fund”), which is funded by the petroleum industry. The Fund is available to compensate victims of spills as well as reimburse costs incurred cleaning up spills. Access to the Fund for reimbursement of removal costs incurred by oil companies as a result of the 2005 (as well as 2004) hurricane season has recently generated a great deal of interest, as the last two years have been the costliest in history with regard to damage to the oil and gas industry’s infrastructure in the Gulf of Mexico and along the Gulf Coast.
Under OPA 90, a “responsible party” is liable for the removal costs and damages that result from an oil spill. The OPA 90 definition of a responsible party includes owners and operators of vessels, onshore facilities, lessees or permittees of the area in which an offshore facility is located, licensees of deepwater ports, and owners or operators of pipelines. Liability is joint and several when there are multiple discharges from different sources. Hundreds of millions of dollars in response and removal costs have been incurred by oil companies as a result of spills caused by Hurricanes Ivan (2004), Katrina, and Rita. These costs, however, may be reimbursable from the Fund if the responsible parties can establish a statutory defense to liability. To establish a complete defense to liability, a responsible party must show, by a preponderance of the evidence, that the incident or threat was caused solely by an act of God, an act of war, or the act or omission of a third party.
Should a responsible party successfully establish a complete defense to liability under OPA 90, it may submit a claim for removal costs, and possibly damages caused by the spill. The Act defines “removal costs” in broad terms: the costs of removal of spilled oil, or, in the case of a threatened spill, the costs to prevent, minimize or mitigate the oil pollution resulting from such an incident. “Damages” includes natural resources damages, subsistence use of natural resources, revenues for loss of taxes, royalties, rents, fees, net profits, profits and earning capacity, and public services, as well as the costs of assessing those damages. There is a six-year statute of limitations for presenting removal costs to the Fund for payment, and a three-year limitation on presenting damage claims to the Fund for payment. Attorneys fees incurred in the course of preparing a claim for removal costs and damages may not be recovered from the Fund.
Whether a hurricane constitutes an “act of God,” thus creating a defense to liability under OPA 90 and possibly allowing for recovery of removal costs, has not surprisingly prompted a great deal of analysis and scrutiny over the past year. However, because there is little case law to illuminate the statutory boundaries, much of the discussion has been speculative. OPA 90 defines an act of God as:
an unanticipated grave natural disaster or other natural phenomenon of an exceptional, inevitable, and irresistible character the effects of which could not have been prevented or avoided by the exercise of due care or foresight.
33 U.S.C. § 2702(1). The statutory language makes clear that to claim the right to reimbursement from the Fund, the responsible party must prove, by a preponderance of the evidence, that (1) the act of God was the sole cause of the spill, devoid of any human intervention or responsibility, (2) the responsible party could not have reasonably anticipated the event, and (3) the effects of the natural phenomenon could not have been prevented by the exercise of due diligence and foresight.
The small body of pertinent case law demonstrates the stringency of the statutory requirements and emphasizes that an act of God defense under OPA 90 can be difficult to prove. Though the act of God defense has not been extensively litigated in the context of OPA 90 cost recovery, analysis of Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and Clean Water Act (“CWA”) cases is instructive as the act of God definitions under those Acts and the application thereof are substantially similar to OPA 90.
The principal case addressing the act of God defense under OPA 90 indicates that the defense will be construed narrowly. Indeed, the court in Apex Oil Co. v. United States, 208 F. Supp. 2d 642 (E.D. La. 2002), suggested that even a hurricane is not sufficient to trigger the OPA 90 act of God defense. Noting the similarities between the OPA 90 and CERCLA act of God definitions, the Apex court reached this conclusion by drawing on discussions of legislative intent in enacting CERCLA. The court first pointed out that a claimant must prove that the natural phenomenon was exceptional, inevitable, and irresistible. All three of these elements are required for a successful assertion of the defense. The court further distinguished the OPA 90 act of God defense from the common law defense, observing that the OPA 90 defense is narrower than the “more nebulous” common law defense, which encompasses a broader range of occurrences than would qualify under OPA 90. Most significantly, drawing directly from the Congressional hearings, the court observed that while a hurricane may be considered an act of God under the common law, Congress, in enacting CERCLA (and by analogy OPA 90), deliberately excluded even major hurricanes from characterization as act of God events.
The legislative history reflects Congress’s reasoning that a major hurricane, “occurring in an area and at a time where a hurricane should not be unexpected,” would not in itself meet the three-part requirement that the natural phenomenon be exceptional, inevitable, and irresistible. The Congressional Record does not, however, indicate what Congress considers to be a “major hurricane,” nor does it address whether some “major hurricanes” are exceptionally strong and irresistible. Prior to Hurricanes Ivan, Katrina, and Rita, one might have concluded that any such discussion was a matter of splitting hairs. However, considering that recent storms have been some of the worst “major hurricanes” on record (according to the National Oceanographic and Atmospheric Administration standards), the unprecedented force of and damage caused by these hurricanes could meet the “exceptional natural phenomenon” requirement. After all, these storms caused substantial damage to structures designed to withstand prior conceptions of the damage a “major hurricane” could inflict.
It remains to be seen whether events such as Hurricanes Ivan, Katrina, and Rita are recognized as sufficiently extraordinary to exceed OPA 90’s strict requirements. OPA 90 claims relying on the act of God defense will have to balance the strict application of the statutory requirements with the devastating nature of the recent storms. At a minimum, the OPA 90, CERCLA, and CWA act of God cases confirm that any reviewing court will focus intense scrutiny on the foreseeability and inevitability factors emphasized by the Apex court. Thus, facts and data showing the force of the storms and the damage they inflicted must be marshaled to demonstrate the specific ways in which the storms were unexpectedly severe, the exceptional forces were unanticipated, and the damage could not have been prevented. While seemingly difficult to prove, many oil companies are beginning to test the waters of OPA 90, seeking entitlement to recovery of cleanup costs under the statute, and particularly under the act of God defense. It is uncertain how the National Pollution Funds Center will respond and whether the exceptional hurricanes recently experienced will qualify as acts of God. Finally, before the next storm thunders ashore, it is imperative to have a strategic plan for the documentation of every detail of the recovery efforts. Knowing ahead of time what information will be needed and how it should be collected will assist in making an effective OPA 90 claim.
For more information, please contact Michael Golemi at magolemi@liskow.com or Anna Knull at atknull@liskow.com or go to www.liskow.com.
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