Protection & Indemnity

1. Protection & Indemnity Understand the various international/national legal regimes governing ship owners’ liability for pollution Marcus Lindfors Claims Manager, Team Norway The Nordic Association of Marine Insurers The Nordic Association of Marine Insurers

2. Public awareness, uproar and (emotive?) media coverage The Nordic Association of Marine Insurers

3. ’Everybody has a plan until you get punched in the mouth’ /Mike Tyson Macondo Prospect blowout – 20 April, 2010 - evaluation of pollution risks, after the Macondo blowout, is basically useless; USDB 60-70, USDB 25-30 could be punischment alone. Frade field well, Campos Basin – 7 November, 2011 - Chevron (and Transocean). Becomes the BP of Brazil. 370 km off Rio. 3,600 bbls. No damages to nature. Claim at USDB 2 x 11. Bohai Bay oil spill – 4 June, 2011 - ConocoPhillips and CNOOC. 700 bbls. Exxon Valdez 250,000 bbls. USDM 351 settlement. Equivalen to USD 500,000/bbl. Per law YUAN 200,000 (USD 31,000). Threat of the punch in the mouth - H&S at the top of the agenda. The Nordic Association of Marine Insurers

4. Tony Hayward BP CEO GOM Macondo Prospect blowout, 20 April 2010 (semi-sub drill unit ”Deepwater Horizon”). British Petroleum (Operator) Transocean (Owner) Halliburton (Contractor) The Nordic Association of Marine Insurers

5. Panic vs. controlled panic! The Secretary of States Representative for Maritime Salvage and Intervention – SOSREP - empowered to make crucial and often time-critical decisions, without delay and without recourse to higher authority, where such decisions are in the overriding UK public interest. MSC NAPOLI, 2007 MSC NIKITA, 2009 MT PRESTIGE, 2002

6. Take ”two steps back” and think about crude What is it? What are the damages? Who shouts the loudest, who is under pressure? In terms of pollution, if a spill should occur, what do you for sure not want around your charming family summer cabin in the archipelago? The Nordic Association of Marine Insurers The Nordic Association of Marine Insurers • The Nordic Association of Marine Insurers

7. What about this baby max? What kind of ship is this? What kind of cargo does she normally carry? The Nordic Association of Marine Insurers

8. Would you go for a swim? The Nordic Association of Marine Insurers

9. Colorless odorless chemicals Acetone cyanohydrin

10. P&I: claims analysis Frequency Cost

11. P&I Rules of various liability underwriters The Member is covered in respect of liabilities, costs or expenses incurred by him in his capacity as owner, operator or charterer of the entered ship and arising out of an event during the period of insurance as a direct consequence of the operation of that ship. -------------------------- The standard insurance shall cover the member in respect of: 1. liability, other than fines or other penalties, arising out of the actual or threatened escape or discharge of oil or other polluting substance, 2. costs of measures reasonably taken for the purpose of preventing or minimisingpollution or any resulting damage together with any liability for loss or damage caused by the taking of such measures, 3. costs incurred in order to comply with an order of any government or authority for the purpose of preventing or minimisingactual or threatened pollution, 4. liability and costs incurred by the member as a result of his participation in the Small Tanker Oil Pollution Indemnification Agreement (STOPIA) or the Tanker Oil Pollution Indemnification Agreement (TOPIA) or any other agreement approved by the Association for the purpose of this Rule. -------------------------- The Association shall cover: a) liabilities, costs and expenses (excluding fines) arising in consequence of the discharge or escape from the Ship of oil or any other substance or the threat of such discharge or escape; b) liabilities, costs and expenses incurred by the Member pursuant to any agreement approved by the Association for the purpose of this Rule.

12. P&I Rules – Example on excepetions However the standard insurance shall not cover (…) costs which are required as part of the normal operation, salvage or repair of the vessel... Liabilities, costs or expenses incurred as a result of the discharge or escape from the entered ship of oil or any other substance or the threat of such discharge or escape unless such liabilities, costs or expenses form part or could form part of General Average under the York/Antwerp Rules 1994. No cover in respect of any (...) hazardous waste previously carried on the vessel from any landbased dump, storage or disposal facility. The Association's liability under an Owner's Entry for any and all claims in respect of oil pollution (including claims resulting from attempts to reduce or prevent oil pollution) shall be limited to such sum or sums and be subject to such terms and conditions as are set out in Appendix ...

13. Hostorical reflextion - why are we here today? The ”Torrey Canyon” 18 March 1967, Seven Stones Reef, Scilly Isles – final voyage The Torrey Canyon oil spill on the southwest coast of the UK in the spring of 1967 is one of the world's most serious oil spills which left an international legal and environmental legacy that lasted decades. At the time the world's most serious oil spill, as of 2014 it remains the UK's worst, with an estimated 120,000 m/t of crude oil spilled.The wreck of the super tanker Torrey Canyon affected hundreds of miles of coastline in the UK, France, Guernsey, and Spain and mitigation efforts involved bombing raids by aircraft from the Royal Air Force and Royal Navy.

14. TORREY CANYONSpillt 120,000 tons crude oil

15. Legal short comings – 1969, 1971 • The absence of an international agreement on liability and compensation in the event of such a spill. • It led the international community to establish, under the auspices of the International Maritime Organization (IMO), a regime for compensation for victims of oil pollution. • The framework for the regime was the 1969 International Convention on Civil Liability for Oil Pollution Damage (1969 Civil Liability Convention, came into force in 1975) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution (1971 Fund Convention, came into force in 1978).

16. IOPC - The International Oil Pollution Compensation Fund The International Oil Pollution Compensation Funds are three intergovernmental organizations (the 1971 Fund, the 1992 Fund and the 2003 Supplementary Fund) which provide compensation for oil pollution damage resulting from spills of persistent oil from tankers. The International Oil Pollution Compensation Funds (IOPC Funds) provide financial compensation for oil pollution damage that occurs in its Member States. Spills of persistent oil from tankers.

17. Legal Short comings cont. CLC 1969 Under the 1969 CLC, the limit of the ship owner's liability is limited to up to Maximum 14 million SDR. N.B. as at 31 December 2011, 23 States were Parties to the 1969 CLC and also Parties to the 1992 CLC. In such cases, States should denounce the 1969 CLC as it can lead to confusion in national law. 1971 Fund (the money) The 1971 Fund Convention ceased to be in force on 24 May 2002 and thus does not apply to incidents occurring after that date. The maximum amount of compensation payable by the 1971 Fund per incident was 60 million SDR, including the amount paid under the 1969 CLC.

18. CLC 1969 + 1971 Fund The Nordic Association of Marine Insurers

19. ”Amoco Cadiz” 16 March 1978 – excess 200,000 m/t The Amoco Cadiz ran aground on Portsall Rocks, 5 km from the coast of Brittany, France, on 16 March 1978, and ultimately split in three and sank, all together resulting in the largest oil spill of its kind in history to that date.

20. Coast of Brittany

21. ”Atlantic Empress” and ”Aegean Captain” 4th largest spill in history – 19 July, 1979 The two oil tankers collided off the coast of Trinidad and Tobago. Spilled 287,000 tons of crude oil

22. ”Castillo de Bellver” – 7th largest spill in history Caught fire about 70 miles off the coast of South Africa on August 6, 1983. The ship was drifting off the coast and broke in two, generating a spill of 50-60,000 m/t of light crude. The stern section of the Castillo de Bellver capsized and sank on 7 August in deep waters 36 km off the coast, with 100,000 m/t of oil remaining in its tanks.

23. Too low.. forces against an increase? Over time, it became clear that the amount of compensation available for major incidents needed to be increased, and the scope of the regime widened.

24. Legal short comings cont. - 1992 CLC 1992 (came into force in 1996) Under this Convention, the registered ship owner has strict liability for pollution damage caused by the escape or discharge of persistent oil from his ship. This means that he is liable even in the absence of fault on his part. He is exempted from liability only if he proves that: - the damage resulted from an act of war, hostilities, civil war, insurrection or - a natural phenomenon of an exceptional, inevitable and irresistible character, or - the damage was wholly caused by an act or omission done with the intent to cause damage by a third party, or - the damage was wholly caused by the negligence or other wrongful act of any Government or other authority responsible for the maintenance of lights or other navigational aids, in the exercise of that function. The ship owner is normally entitled to limit his liability to an amount determined by the size of the ship.

25. CLC 1992 The Nordic Association of Marine Insurers

26. Legal short comings cont. CLC 1992 The 1992 CLC prohibits claims against the servants or agents of the ship owner, the members of the crew, the pilot, the charterer (including a bareboat charterer), manager or operator of the ship, or any person carrying out salvage operations or taking preventive measures, unlessthe pollution damage resulted from the personal act or omission of the person concerned, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result– more or less impossible to prove.

27. 1992 CLC • Persistent oil includes crude oils, heavy fuel oils and lubricating oils; • Tanker owners required to maintain oil pollution insurance and to carry certificate; • Enables direct action against insurer; • Ensures approximately US$ 6,9 million for tankers of less than 5,000 gross tons; • Up to approximately US$ 137.9 million for tankers >140,000 gross tons;

28. Advantages of 1992 CLC • Tanker owner and P&I Club insurer ‘strictly liable’ to pay compensation:- up to high levels- whether or not at fault (with a few exceptions.)- regardless of flag/ownership • Provides reasonable protection for responders and high level of certainty of reimbursement for technically-justified clean-up measures and damage, which facilitates quicker response; • Prompt payment of compensation without litigation; • Government, citizens and local industry financially ‘protected’ in the event of an oil spill within EEZ (the exclusive economic zone);

29. Limitations of 1992 CLC • Spill must be attributed to a specific tanker; • The tanker must have at least residues of persistent cargo onboard for CLC to apply; • Amount of compensation determined by size of tanker regardless of amount of oil spilled; • Spill in sensitive area from a small tanker can easily exceed available compensation; • In rare instances tanker owner may be exempt under CLC (e.g. acts of war or sabotage);

30. Legal short comings cont. – More money needed The 1992 Fund (came into force in 1996) The 1992 Fund Convention, which is supplementary to the 1992 CLC, establishes a regime for compensating victims when compensation under the 1992 CLC is not available or is inadequate. The International Oil Pollution Compensation Fund, 1992 (1992 Fund) was set up under the 1992 Fund Convention. The 1992 Fund pays compensation when: - the damage exceeds the limit of the ship owner’s liability under the 1992 CLC, or - the ship owner is exempt from liability under the 1992 CLC, or - the ship owner is financially incapable of meeting his obligations in full under the 1992 CLC and the insurance is insufficient to pay valid compensation claims.

31. 1992 Fund • Provides up to 203 million SDR (approximately US$ 303 million); including amount paid by tanker owner/insurer per the 1992 CLC); • Funds provided by levies/fees on oil companies and other entities in Fund-Member States receiving >150,000 tons per annum of crude and/or heavy fuel oil (‘contributing oil’) after sea transport; • No direct cost to governments; • Covering same type of damages as 1992 CLC (“mirrors it”);

32. Legal short comings cont. 1992 Fund The maximum compensation payable by the 1992 Fund is “only” 203 million SDRfor incidents occurring on or after 1 November 2003, irrespective of the size of the ship. For incidents occurring before that date, the maximum amount payable is 135 million SDR. These maximum amounts include the sums actually paid by the ship owner under the 1992 CLC.

33. Advantages of 1992 Fund • Amount of compensation not dependent on size of tanker • Compensation is available even if tanker owner exempt or not insured; only exceptions are acts of war and spills from warships; • Covers bunker spills from laden and unladen oil tankers, and (N.B.) cargo spills proven to be from a tanker, even if specific tanker cannot be identified; • Government, citizens and local industry financially ‘protected’ in the event of an oil spill within EEZ (the exclusive economic zone);

34. 1992 Fund

35. Bang again! More money needed!- The ”Erika” spill of 12 December, 1999

36. ERIKA On December 8, 1999, she sailed out of Dunkerque, bound for Livorno and with a heavy cargo of around 31,000 tons of fuel oil (About 20,000 tonnes of oil were spilled). As she entered the Bay of Biscay, the Erika ran into a heavy storm. On December 12, 1999, she broke in two and sank, releasing thousands of tons of oil into the sea, killing marine life and polluting shores around Brittany, France. Total SA (the Charterer), Giuseppe Savarese (the shipowner), Antonio Pollara(the handler) and Rina (the expert classification company) were sentenced in solidumto pay indemnities of EURM 192 (280 MUSD), plus individual penalties. The judgement, while recognizing the risks inherent to oceangoing vessels, reckons Total SA was "guilty of imprudence", from the fact that Total SA did not take into account "the age of the ship", (nearly 25 years), and "the discontinuity of its technical handling and maintenance

38. ”Prestige” 19 November 2002Spillt over 60,000 tons heavy fuel oil

39. Polluted thousands of beaches in Portugal, Spain and France

40. Legal short comings cont. - 2003 The 2003 Supplementary Fund Protocol (came into force in 2005) Following the Erika and Prestige incidents, a third instrument, the Protocol to the 1992 Fund Convention (Supplementary Fund Protocol), was adopted in 2003, providing additional compensation over and above that available under the 1992 Fund Convention for pollution damage in the States that become Parties to the Protocol. The Supplementary Fund Protocol entered into force in 2005, establishing the International Oil Pollution Compensation Supplementary Fund, 2003 (Supplementary Fund). The total amount available for compensation for each incident is 750 million SDR, including the amounts payable under the 1992 Conventions. Annual contributions to the Supplementary Fund are made on the same basis as contributions to the 1992 Fund. However, the contribution system for the Supplementary Fund differs from that of the 1992 Fund in that, for the purpose of paying contributions, at least 1 million tonnes of contributing oil are deemed to have been received each year in each Member State.

41. IOPC Funds - http://www.iopcfunds.org/ Thus, There are at present three International Oil Pollution Compensation Funds (IOPC Funds): the 1971 (1978) Fund, the 1992 (1996) Fund and the 2003 Supplementary Fund (2005). They came into force at different times (1978,1996 and 2005), and have different maximum amounts of compensation and have different Member States. The membership of the 1992 Fund is increasing. The Supplementary Fund was established to supplement the compensation available under the 1992 Civil Liability and Fund Conventions with an additional third tier of compensation. Membership of the Supplementary Fund is optional and any State which is a Member of the 1992 Fund may join. The membership of the Supplementary Fund is expected to increase fairly quickly. Due to a number of denunciations of the 1971 Fund Convention, this Convention ceased to be in force on 24 May 2002 and the 1971 Fund therefore no longer has any Member States. The 1971 Fund will continue to deal with a number of incidents which occurred in 1971 Fund Member States before that date. The three organizations have a joint Secretariat, based in London. Since their establishment, the 1992 Fund and the preceding 1971 Fund have been involved in 147 incidents varying sizes all over the world. In the great majority of cases, all claims have been settled out of court.

42. IOPC Funds in practise Arrange MOU contracts to be agreed between the Fund, the P&I Club(s) involved and contractors for expert services ‘This Agreement is a contract for the provision of services and not a contract of employment or of agency and does not constitute a partnership. The Contractorshall be, and provide the Services in the capacity of, an independent expert.’ ‘The Services to be provided by the Contractor during the currency of this Agreement (“the Service”), and the scope of such Service, shall be set out in a document entitled ‘Scope of Service’.’ ‘In the event the Contractor reasonably requires the services of any sub- contractors in order to provide the Services or to facilitate the full provision of the Services, the Contractor may appoint such person, firm or company as a Sub-contractor provided that the Club and Fund have given their prior written approval to such appointment.’

43. IOPC Funds in practise - Anyone who has suffered pollution damage in a Member State may make a claim against the IOPC Funds for compensation. - Strives to provide prompt payment of compensation to victims of oil pollution damage. In the great majority of cases, claims are settled out of court. - The 1992 Fund (& the Fund Protocol) pays compensation when: - the damage exceeds the limit of the ship owner’s liability under the 1992 CLC, or - the ship owner is exempt from liability under the 1992 CLC, or - the ship owner is financially incapable of meeting his obligations in full under the 1992 CLC and the insurance is insufficient to pay valid compensation claims. No incidents have occurred so far which involve the Supplementary Fund.

44. IOPC Funds – Summing-up The framework for the regime was the 1969 International Convention on Civil Liability for Oil Pollution Damage (1969 Civil Liability Convention) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution (1971 Fund Convention). Over time, it became clear that the amount of compensation available for major incidents needed to be increasedand the scope of the regime widened. This resulted in two further instruments, known as the 1992 Civil Liability Convention and the 1992 Fund Convention. Following the Erikaand Prestige incidents, a third instrument, the Protocol to the 1992 Fund Convention (Supplementary Fund Protocol), was adopted in 2003, providing additional compensation over and above that available under the 1992 Fund Convention for pollution damage in the States (countries) that become Parties to the Protocol. The IOPC Funds are financed by contributions paid by entities that receive certain types of oil by sea transport. These contributions are based on the amount of oil received in the relevant calendar year, and cover expected claims, together with the costs of administering the Funds.

45. IOPC Funds – Summing-up • Reasonable pollution prevention and clean-up measures (e.g. booms, skimmers, dispersants, shoreline clean-up); • Damage to property (e.g. oiling of fishing boats and gear); • Economic losses (e.g. lost income by fishermen, hotel operators); • Costs of reasonable measures to reinstate a damaged environment – how do you do that?;

47. IOPC - Summing-up

48. Legal short comings cont. • Civil Liability and Fund Conventions (1992 CLC & 1992 Fund + 2003 Protocol) • International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, “Bunkers Convention”, in force since 21 Nov. 2008 Modelled on the International Convention on Civil Liability for Oil Pollution Damage, 1969. Akey requirement in the bunkers convention is the need for the registered owner of a vessel to maintain compulsory insurance cover. Opens up for direct actions. • 1996 HNS Convention (2010 HNS Protocol) – not yet in force The 2010 HNS Convention establishes a comprehensive regime covering pollution damage from hazardous and noxious substances carried by ships, as well as the risks of fire and explosion, including loss of life, personal injury, and loss of or damage to property. Strict liability, compulsory insurance cover. • Domestic legislationsE.g. OPA 90 (USA), SOPF (Canada).

49. ITOPF ’The International Tanker Owners Pollution Federation Ltd’ Established in 1968 as a not-for-profit service organization for administering the Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution (TOVALOP, signed on Jan. 1969 by oil major tanker owners). A sister voluntary oil spill compensation regime CRISTAL (Contract Regarding a Supplement to Tanker Liability of Oil Pollution) for cargo owners was developed in parallel. Pending the widespread adoption by maritime states of two international conventions developed by the International Maritime Organization, namely the Civil Liability and the Fund Conventions.

50. ITOPF Specialized group to provide technical advice on response techniques and effects; Assess objectively the reasonableness of clean-up measures and the merits of claims for compensation under both the voluntary agreements and international conventions; About 20 marine biologists, chemists, ecologists and other experts; Based in London; http://www.itopf.com/