STARR v. WQIS – Legal Update: Decision of Interest

On April 25, 2018, the U.S. District Court for the Southern District of New York issued a notable opinion in Starr Indemnity & Liability Co. a/s/o and as assignee of all rights of Genesis Marine, LLC v. Water Quality Insurance Syndicate, No. 15 Civ. 2365 (S.D.N.Y. Apr. 25, 2018). In extensive fashion, the court considered all of the facts of the incident and concluded that WQIS is not liable for salvage costs incurred.

FACTS:

This case arose out of the April 6, 2014 grounding of two tank barges, GM-5001 and GM-5002, carrying approximately 300,000 barrels of decant oil on the Upper Mississippi River, while they were being pushed by the M/V KAREN PAPE.  Genesis Marine was, at all relevant times, the owner of the barges and the M/V KAREN PAPE. As a result of the grounding, which occurred at a time when the river level was falling rapidly, Genesis Marine incurred substantial costs for the lightering and re-floating of the barges, which was done by T&T Salvage.  No oil was discharged from the barges as a result of the grounding, or during the lightering and re-floating operations. Genesis Marine thereafter filed claims with its Hull/Protection & Indemnity insurer, Starr Indemnity & Liability Co., and its primary pollution liability insurer, Water Quality Insurance Syndicate (“WQIS”).  Specifically, Genesis Marine presented a claim to its hull insurer for the entire invoiced amount of the salvage costs incurred by Genesis Marine to re-float the barges, in the amount of $2,892,670.37.  The Hull insurer ultimately paid $2,864,756.26 of the costs charged by the salvor.  WQIS paid pollution control costs incurred and claimed by Genesis Marine in excess of $280,000.  Starr, as assignee of Genesis Marine, filed suit against WQIS seeking reimbursement of the salvage costs paid by Starr.

Decision:

In the litigation Starr claimed that WQIS was responsible for covering salvage costs under several provisions of the WQIS Policy on the basis that the measures taken by Genesis Marine in response to the grounding were, in whole or in part, to respond to a substantial threat of a discharge of oil from the stranded barges.  It was undisputed that the WQIS Policy does not provide coverage for the costs of salvage unless such costs are incurred to mitigate or prevent a “substantial threat of discharge” under the Oil Pollution Act of 1990 (“OPA ’90”).  WQIS denied that the grounded barges posed a substantial threat of discharge under OPA ’90, and declined to reimburse Starr for the subject payments made to Genesis Marine.

Following a three day bench trial, during which the parties’ presented fact and expert testimony, and documentary evidence, the Hon. Paul A. Engelmayer issued a 46 page decision finding, inter alia, that the barges did not pose a substantial threat of discharge, and holding that none of the provisions of the WQIS Policy were triggered and therefore WQIS is not liable to Starr for any of the salvage costs incurred by Genesis Marine.  In so holding, the Court expressly credited the contemporaneous documentary evidence and testimony over the testimony of Plaintiffs’ witnesses, stating that “[t]he evidence does not reflect – and the participants in real time did not conclude – that there was a substantial risk of discharge.  Rather, the evidence overwhelmingly showed that the barges – by their nature and in the circumstances at hand – were never at risk (or anywhere close) of the type of failure that might have resulted in an oil discharge.

Amongst several other meaningful determinations, the court comments on “Substantial Threat of Discharge”, a term found in the Act:

“ the word “substantial qualifies the word “threat” …These adjectives do not modify the words “discharge” or “oil”. Thus, the risk or threat must be substantial or significant; the definition is not met by a trifling threat or risk of a discharge of a body of oil, even if, in quantity, the body of such oil is large. To count as “substantial threat of discharge” under the WQIS policy, there must have been a substantial—that is, a considerable, significantly great, noticeably or measurably large—threat of discharge. It is that threat (or risk) that must be significant.

For additional information or to request a copy of the Opinion & Order, please contact our claims department:

Harry J. Diamond

Chief Claims Officer

(212) 292-8710

hdiamond@wqis.com

Ryan A. Puttick

AVP, Clains

(212) 292-9709

rputtick@wqis.com