National Pollution Funds Center Acted Arbitrarily and Capriciously When Denying Claim for Oil Spill Clean Up Costs

January 4, 2017

Types : Alerts

In a recent decision, the United States District Court for the District of Columbia took the rare step of holding that the United States National Pollution Funds Center (“the Fund”) wrongfully denied an oil pollution insurer’s claim for reimbursement of oil spill cleanup costs.  The district court offered three rationales for its decision to grant the Claimant’s motion for summary judgment and remand the matter back to the Fund for another determination consistent with the district court’s opinion.  First, the Fund’s response to the Claimant’s request for reconsideration was too late.  Second, the Fund ignored, without explanation, critical findings of fact from the United States Coast Guard’s investigation.  Third, the Fund incorrectly defined the “gross negligence” legal standard applicable to claims for reimbursement under the Oil Pollution Act of 1990, 33 U.S.C. §§ 2701 et seq. (“OPA 90”).

The underlying oil spill incident occurred when an offshore supply vessel was maneuvering through ice and currents to reach an offshore oil and gas production platform in the Gulf of Alaska.

The vessel was pinned against the platform by the ice and currents, sank, and spilled oil.

The Coast Guard investigated and attributed the cause of the incident to the ice and currents as well as to crew fatigue.  It further found that the master “lost situational awareness” by concentrating on maneuvering the vessel through the ice instead of the vessel’s approach to the platform.

Water Quality Insurance Syndicate (“WQIS” or “Claimant”), who issued an oil pollution insurance policy to the vessel’s owner (i.e. the responsible party) paid $2.7 million in cleanup costs.  WQIS then sought a determination that the responsible party was entitled to limit its liability under OPA 90 and requested reimbursement of $1.9 million (i.e. cleanup costs less the $800,000 limitation of liability).

In its “First Determination,” the Fund found that the incident was caused by gross negligence and, therefore, the responsible party was ineligible for limitation under OPA 90.  Relying on its own definition of “gross negligence,” the Fund found that the master failed to exercise the “higher degree of care” required when maneuvering a vessel through ice and currents.

The Fund’s findings, however, were contrary to or inconsistent with the Coast Guard’s investigation.  For example, the Fund found that the master failed to assess the vessel’s position during the approach to the platform whereas the Coast Guard found that the master immediately corrected the vessel’s position and estimated time of arrival to the platform when he took command.

WQIS submitted a request for reconsideration, supported by additional evidence, to the Fund.  One year later, the Fund still had not responded.  Therefore, WQIS sought judicial review under the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. (“APA”), by commencing a lawsuit against the United States in the district court.

Two months after WQIS commenced the lawsuit, the Fund finally issued a “Second Determination” in which it again denied limitation due to the master’s “gross negligence.”  Without offering any specific explanation, the Fund stated that it “was not bound” by the Coast Guard’s investigation.

WQIS and the United States submitted cross-motions for summary judgment to the district court.

The district court held that the Fund’s Second Determination should be stricken from the administrative record because it was untimely.  Under OPA 90, the Fund had only 90 days to respond to WQIS’ request for reconsideration.  Therefore, the “final agency action” subject to judicial review under the APA was the Fund’s First Determination.

The district court then recited the applicable legal standards under the APA – arbitrary and capricious, abuse of discretion, not in accordance with the law – and explained that an agency’s determination would be set aside if it did not consider relevant factors or made clear errors in judgment.  The district court applied these legal standards and found the Fund’s factual findings were flawed.  The district court cited the conflicts and inconsistencies between the Coast Guard’s investigation and the Fund’s First Determination, noting that the local Coast Guard personnel who investigated the incident had superior knowledge regarding the conditions experienced by the vessel and her crew.

The district court also found that the Funds definition of “gross negligence” was incorrect.  Congress did not define “gross negligence” under OPA 90.  Further, Congress did not grant the Fund express authority to define “gross negligence” under OPA 90.  The district court, therefore, looked to OPA 90’s companion natural resource damage statutes and in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. (“CERCLA”) found a definition of “gross negligence” that required “reckless, willful, or wanton misconduct.”  The Fund’s definition, in comparison, did not capture the same notion of deliberate and conscious disregard for the risks.

For these reasons, the district court held the Fund’s First Determination was arbitrary and capricious.  It set aside the Fund’s First Determination and remanded the matter back to the Fund for a third determination consistent with its Memorandum Opinion.

The case is Water Quality Ins. Syndicate v. United States, No. 15 Civ. 789 (BAH), 2016 WL 7410549 (D.D.C. Dec. 22, 2016).  A copy can be provided upon request.

For more information please contact Robert E. O’Connor or any member of the Maritime and Transportation practice group.


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