SHIPPING AND INSURANCE | ICS and P&I clubs slam US plan to scrap liability cap

Steve Matthews — LLOYD’S LIST

SHIPPING industry fears of a knee-jerk reaction in the US to the oil pollution caused by the Deepwater Horizon have been realised with a proposal before the US Congress to scrap liability limits in the Oil Pollution Act 1990 for clean-up costs from oil spills.

As it stands this change would apply to shipping as well as offshore exploration and production. The proposal is included in an amendment to US budget proposals for 2011. It would amend OPA 90 by removing the current specific liability limit. Instead, it sets liability at “the total of all removal costs plus $x”. This implies unlimited liability for clean-up costs and a new but unspecified limit for other claims.

Such a draconian move would have severe implications for ships and their owners trading to the US. Talks are taking place involving several international shipping and insurance organisations as to how to respond to this proposal.

International Chamber of Shipping legal manager Kiran Khosla told Lloyd’s List that although a reaction to the Deepwater Horizon spill was expected, the ICS was surprised that the US had adopted a blanket approach that included shipping.

It is also unusual that such a suggestion is being made using a budgetary measure. It would normally expect that any proposals to amend OPA90 would be subject to full industry consultation but “it is not clear how any consultation would happen under this proposal”.

One possibility is that the plan represents a signal of intent and that more detailed proposals will be submitted in the usual way through the House of Representatives and then be subject to formal industry consultation.

She said that the measure did not take into account wider implications for shipping such as insurance and, in particular, the provision of certificates of financial responsibility that are required under OPA 90. “There is a lack of detail as to how it would operate,” Ms Khosla said.

International Group of P&I Clubs executive officer Andrew Bardot said: “These proposals are not workable and do not reflect the distinctions of operations and attendant exposures between shipping and offshore industries.” He said that the proposals were so widely drafted they would apply to everything.

Scrapping the liability limit for clean-up costs would create a major problem for shipping companies and P&I insurers. At present there is a $1bn cap on P&I cover.

“What clubs can offer depends on the availability of reinsurance. A departure from limited to unlimited liability would leave most shipowners facing unlimited exposure. You cannot insure for unlimited liability,” he said.

“An effective liability and response regime must be both predictable and insurable, and imposing unlimited liability undermines these objectives. The absence of financial limits, or limits set at levels which are not practicably insurable, will exclude all but a few very large corporate entities which are willing to take the associated risk through self-insurance.”

Another pressing problem would be that under OPA90 owners are required to have a CoFR, but Mr Bardot said it would be impossible for owners to obtain such certificates if liability was unlimited. This contradiction would have to be resolved. “The proposed amendment to impose unlimited liability will, if implemented, pose a very significant, if not insurmountable, hurdle for CoFR providers.”

He said that the International Group was monitoring developments and liaising with other industry associations in relation to the plans and would be engaging with relevant agencies and departments. He said that there was likely to be a common position in response among insurers and shipping industry interests.

“There is always scope to look at the liability limits for shipping. The current system in place for shipping works. This is a knee-jerk reaction focused on the offshore deepwater exploration industry.”

The proposals would effectively prevent ships from trading to the US as they would not be able to obtain insurance to cover potential liability. Shipping organisations hope that their inclusion in measures aimed primarily at the offshore sector was not intended. US legislators might therefore at least amend the proposals as they affect shipping into a more practical form and undertake a consultation process.

@safeseas comment

The attempt to have shipping and offshore drilling into unlimited liability regarding clean-up costs is yet another move on the ‘blame game’ board. If the US government pushes it forward, it will surely pitch politicians against insurers — a ‘clash of titans’ with potentially dear implications for the future of America’s energy and shipping industries.

It seems evident to me that no good would come of such a conflict.

What is required is not only more responsibility, but better risk management. Unfortunately, most governments around the world are not exactly good at it. Maybe the Obama administration can change this dismal record.


3 Comments

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3 responses to “SHIPPING AND INSURANCE | ICS and P&I clubs slam US plan to scrap liability cap

  1. Pingback: Tweets that mention SHIPPING AND INSURANCE | ICS and P&I clubs slam US plan to scrap liability cap « Safe Seas -- Topsy.com

  2. Jordan

    Don’t ever count on the Obama administration to do anything right. They’re 0 for everything so far.

    And their handling of the BP debacle is just more assurance that they are in way over their head.

  3. A reasonably good read, at any rate up to where I read too. I’m fairly confident your CSS file is messed up. I had the identical problem on my blog a while back. Try playing around with the CSS. Your columns look wrong in Mozilla (for me at least).

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