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Water Quality Insurance Syndicate v. United States

November 29, 2007


The opinion of the court was delivered by: Paul L. Friedman United States District Judge


Plaintiff Water Quality Insurance Syndicate ("WQIS") filed this lawsuit under the Administrative Procedure Act, 5 U.S.C. § 701 et. seq., seeking judicial review of the final agency action of the United States Coast Guard National Pollution Funds Center ("NPFC") denying plaintiff's claim under the Oil Pollution Act of 1990, 33 U.S.C. § 2701, et. seq., for reimbursement of uncompensated damages and removal costs incurred in connection with an oil spill off Puerto Rico on January 7, 1994. See Amended Complaint ("Am. Compl.") at 1. This matter is before the Court on the parties' cross motions for summary judgment based on the administrative record before the agency.*fn1

For the reasons explained below, the Court will deny defendant's motion for summary judgment, will grant in part and deny in part plaintiff's motion for summary judgment, and will remand this matter to the NPFC for further proceedings consistent with this Opinion.


A. Factual Background

The undisputed facts underlying this lawsuit were set forth succinctly in defendant's Statement of Material Facts in Support of its Motion for Summary Judgment, and will be repeated here.*fn2

On the evening of January 6, 1994, the tug EMILY S began a trip to tow the tank barge MORRIS J. BERMAN, which was half-loaded with fuel oil, from San Juan, Puerto Rico to Antigua (A.R. 252, 644, 710, 855-56, 900). Some time between 12:30 a.m. and 1:30 a.m. on January 7, 1994, the towline connecting the tug and barge parted (A.R. 252, 858). The tug crew retrieved the MORRIS J. BERMAN and repaired the tow wire by installing an emergency "soft eye" in the tow wire, made by clamping the wire with five saddle bolt clamps through a shackle in the towing bridle attached to the barge (A.R. 644, 651-53, 782). Although available, no metal "thimble" was installed in the emergency soft eye to prevent the shackle from rubbing against the tow wire (A.R. 652-53, 718-22).

Several hours later, the tow wire parted again and the barge was set adrift. The second towline parting went unnoticed by the sole watchstander aboard the tug (A.R. 661-62, 864). The towline parted the second time at the point where the soft eye had been added to the tow wire (A.R. 784). At approximately 4:00 a.m. on January 7, 1994, the MORRIS J. BERMAN stranded on a reef at Escambron Beach, Puerto Rico, spilling 798,000 gallons of fuel oil onto the beach and surrounding waters (A.R. 392-93, 643, 987-89).

The MORRIS J. BERMAN displaced 5,377 gross tons (A.R. 401). It was owned and operated by New England Marine Services (A.R. 401). The EMILY S was bareboat chartered by the Bunker Group Incorporated, and operated by the Bunker Group of Puerto Rico, Inc. (A.R. 401). All the companies were deemed "responsible parties" for the oil spill by the United States Coast Guard (A.R. 392).*fn3

At the time of the oil spill, plaintiff Water Quality Insurance Syndicate insured the MORRIS J. BERMAN for pollution risks pursuant to a $10 million insurance policy. New England Marine Services, the Bunker Group Incorporated and the Bunker Group of Puerto Rico -- the "responsible parties" -- were named as insureds (A.R. 393, 394). WQIS also executed a Certificate of Financial Responsibility ("COFR"), issued by the United States Coast Guard, in the amount of $806,550 for the MORRIS J. BERMAN (A.R. 397-98, 412-21).*fn4 The COFR had become effective on December 15, 1993.

Less than a month after the oil spill, on February 4, 1994, the National Pollution Funds Center ("NPFC"), on behalf of the Oil Spill Liability Trust Fund ("the Fund"), sent an interim invoice to WQIS and New England Marine Services in the amount of $7,356,108.72 for oil removal expenses incurred by the Fund as a result of the oil spill (A.R. 422-26; S.A.R. 1-4). On March 14, 1994, WQIS paid the Fund $806,550, representing the amount of its COFR (S.A.R. 5-6). On November 12, 1994, WQIS paid the Fund an additional $3,700,000 (S.A.R. 5- 6).

On September 26, 1996, New England Marine Services, Bunker Group Incorporated, Bunker Group of Puerto Rico, and Pedro Rivera, a shoreside manager for Bunker Group of Puerto Rico, were convicted of violating 46 U.S.C. § 10908 for knowingly sending the EMILY S to sea in an unseaworthy condition likely to endanger life (A.R. 346-58). Mr. Rivera alone appealed the conviction. On December 2, 1997, the United States Court of Appeals for the First Circuit, en banc, reversed Mr. Rivera's conviction, finding that while the evidence at trial was sufficient to show that Mr. Rivera knew the vessel was unseaworthy when it departed (based on the poor condition of the tow wire), the evidence was insufficient to show that he knew the vessel's unseaworthy condition was likely to endanger the life of an individual. See United States v. Rivera, 131 F.3d 222 (1st Cir. 1997) (en banc).*fn5 The convictions of the corporate responsible parties were not appealed and therefore stand.

On December 14, 1998, WQIS submitted a claim to the NPFC for $9,558,376.98 against the Fund, including the $4,506,550 previously paid to the NPFC and $5,051,826.90 allegedly paid directly to contractors for oil removal expenses. (A.R. 389-407). In July 2002, WQIS brought this action in the United States District Court for the Southern District of New York, seeking judicial review of the denial of its claim. Although the NPFC had not yet decided the claim at that time, under the applicable regulation this inaction could properly be deemed a denial. See 33 C.F.R. ยง 136.115(c). By stipulation the lawsuit was transferred to this Court. In the interim, the NPFC formally denied the WQIS claim on August 22, 2002 (A.R. 4-13) ("August 22, 2002 Denial of Claim"). A request for reconsideration of the denial of the claim resulted in the NPFC ...

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