Articles by Will Bland, IV

Tides Are Turning: The Arrival of Subchapter M

*This article was prepared by our summer law clerk, Ridge Miguez.

 

On June 20, 2016 the U.S. Coast Guard posted a preview of the final version of the long-awaited Subchapter M regulation, which will extend inspection requirements to the majority of tugs and towboats for the first time. In 2004, Congress reclassified towing vessels as vessels subject to inspection, and consistent with 46 U.S.C. 3305, this rule sets out the scope and standards of inspection. Now with the implementation of Subchapter M the U.S. Coast Guard has created a comprehensive safety system that includes company compliance, vessel compliance, vessel standards, and oversight in a new Code of Federal Regulations (CFR) subchapter dedicated to towing vessels. This rule, which generally applies to all U.S. flag towing vessels 26 feet or greater, and those less than 26 feet moving a barge carrying oil or hazardous material in bulk, lays out both inspection mechanisms as well as new equipment, construction, and operational requirements for towing vessels.

 

To provide flexibility, vessel operators will have the choice of two inspection regimes. Under the Towing Safety Management System (TSMS) option, routine inspections of towing vessels will primarily be performed by third-party organizations (TPOs), including certain classification societies, and this rule creates a framework for oversight and audits of such TPOs by the Coast Guard. The TSMS will provide operators with the flexibility to tailor their safety management system to their own needs, while still ensuring an overall level of safety acceptable to the Coast Guard. Alternatively, under the Coast Guard inspection option, routine inspections would be conducted by the Coast Guard, providing an option for those operators who choose not to develop and implement their own TSMS.

 

Subchapter M also creates many new requirements for design, construction, equipment, and operation of towing vessels. Those requirements are typically based on industry consensus standards or existing Coast Guard requirements for similar vessels.

 

The most important change to the final revision of Subchapter M has been the changes made to the Coast Guard’s proposal in the NPRM. They have clarified the system for Coast Guard oversight and inspection of towing vessels that complements the TPO system. To address concerns about the cost impact of the rule, they have added “grandfathering” provisions to several requirements, so the requirements will not apply to existing vessels or vessels whose construction began before the effective date of the rule. Also, they have reorganized several parts for greater clarity or to better align with the existing text of other parts of the CFR. As noted in the NPRM (7 FR 49985), the Coast Guard still plans to promulgate a separate rulemaking for an annual inspection fee for towing vessels that will reflect the specific program costs associated with the TSMS and Coast Guard inspection options. As of now the Coast Guard is establishing the existing fee of $1,030 in 46 CFR 2.10-101 for any inspected vessel not listed in Table 2.10-101, as the annual inspection fee for towing vessels subject to Subchapter M. Furthermore, this fee will not be charged for a vessel being inspected for the initial issuance of a certificate of inspection (COI), however the fee will be charged annually starting the following year.

 

The Coast Guard released a statement that Subchapter M will affect approximately 5,509 U.S. flag towing vessels engaged in pushing, pulling, or hauling alongside, and the 1,096 companies that own or operate them. Towing vessels exempt from this rule include towing vessels inspected under Subchapter I, work boats, and recreational vessel towing vessels.

 

The estimate for total industry and net government costs is $41.5 million annualized at a 7 percent discount rate over a 10 –year period of analysis. The estimate for monetized benefits is $46.4 million annualized at a 7 percent discount rate, based on the mitigation of risks from towing vessel accidents in terms of lives lost, injuries, oil spilled, and property damage. Thus, a net benefit of $4.9 million is estimated from implementing Subchapter M.

 

The new rule became effective July 20, 2016. However, certain existing towing vessels subject to this rule will have an additional 2 years before having to comply with most of its requirements. It will be interesting to see how small operators are affected by the changes Subchapter M brings their way. Only time will tell, but it seems the rule change is in the greater interest of the industry as a whole.

 

Plaintiff’s Construction Defect Claims Against Offshore Spar Manufacturer Dismissed

In June 2011, an offshore worker was injured on a spar (a floating platform shaped like a giant buoy) on the outer continental shelf when he was struck in the face with the flange of a valve.  He filed a personal injury lawsuit against the manufacturer of the spar, McDermott, Inc., alleging his injury was caused by defective design and construction of the spar.

 

McDermott filed a motion for summary judgment, arguing that the plaintiff’s right of action was perempted under Louisiana law.  McDermott asserted that because plaintiff was covered by the Outer Continental Shelf Lands Act (OCSLA), the law of the adjacent state (Louisiana) applied as a surrogate to federal law.  McDermott then pointed to a Louisiana statute, La. R.S. 9:2772, which provides a five year peremptive period in which to bring an action arising out of deficiencies in the design or construction of immovable property.  Because McDermott delivered the finished spar to its customer (plaintiff’s employer) in 2004, plaintiff’s design defect claim filed in 2013, was time barred.  The District Court agreed with McDermott and dismissed plaintiff’s claims.  Plaintiff appealed to the U.S. Fifth Circuit Court of Appeals.

 

On appeal, plaintiff argued that La. R.S. 9:2772 did not apply to his claim because the spar was not an immovable, which was a matter of first impression for the Court.  The Fifth Circuit had previously determined that a spar is not a vessel for purposes of the Jones Act, but no court had ever addressed whether a spar is immovable property under Louisiana law.  The Court noted that fixed platforms are considered immovable property.  The Court further noted that the spar in question was permanently moored to the ocean floor, was intended to remain in its location for its twenty year life, and it would take months of planning to move the spar.  The Fifth Circuit concluded that enough similarities exist between a spar and fixed platform that a spar is immovable property under Louisiana law.  Thus, plaintiff’s design defect claims were dismissed as time barred by state law.

 

Hefren v. McDermott, Inc.

5th Circuit Finds Record Insufficient to Confirm OCSLA Situs in Indemnity Dispute

The U.S. Fifth Circuit Court of Appeals recently addressed the situs requirement of a personal injury claim arising under the Outer Continental Shelf Lands Act (OCSLA).  Tetra Technologies was performing a salvage operation on a decommissioned oil production platform in the Gulf of Mexico and retained Vertex Services to assist with the project.  A rigger employed by Vertex was injured when he fell approximately 80 feet into the water.  He sued Tetra for personal injury and Tetra sought indemnity from Vertex pursuant to a Master Service Agreement between the two companies.  The District Court determined Tetra was entitled to indemnity from Vertex and Vertex appealed to the 5th Circuit.

 

On appeal, Vertex raised several arguments including that under OCSLA, Louisiana law was applicable and the indemnity agreement was voided under the Louisiana Oilfield Indemnity Act (LOIA).  The first question for the Court was whether OCSLA applied to this case such that Louisiana law should be applied as a surrogate to federal law.  The adoption of state law as a surrogate to federal law requires 1) that the controversy arise on a situs covered by OCSLA (such as a fixed platform on the outer continental shelf); 2) that federal maritime law must not apply of its own force; and 3) state law must not be inconsistent with federal law.  For the controversy to arise on a situs covered by OCSLA in a contractual dispute, the majority of the work performed under the contract must occur on a stationary platform or other OCSLA situs.

 

After reviewing the plaintiff’s deposition testimony, the MSA, and the Salvage Plan, the Court was unable to conclude whether the majority of Vertex’s work was to be performed on an OCSLA situs.  The Court determined the record was inadequate and the case was remanded to the District Court for further evaluation of this dispositive question.

 

Tetra Technologies v. Continental Insurance Co.

Fifth Circuit: Who “Invited” Plaintiff on the Vessel?

The U.S. Fifth Circuit Court of Appeals recently addressed competing indemnification provisions in a maritime contract.  A pipeline operator, W&T Offshore, hired a diving contractor, Triton Diving Services, for an offshore pipeline decommissioning project.  Triton provided their own vessel and personnel, but operated under W&T’s instruction pursuant to a Master Service Contract.  W&T also hired a safety contractor, Tiger Safety, to assist with filtration of pipeline fluids.  An employee of Tiger was working on Triton’s vessel under supervision of W&T when he fell and injured himself. 

The Tiger employee sued both W&T and Triton in U.S. District Court.  W&T and Triton filed cross-claims against one another seeking defense and indemnity based on their Master Service Contract.  W&T had agreed to indemnify Triton for personal injury claims brought by members of the “W&T Group”.  Likewise Triton had agreed to indemnify W&T for personal injury claims brought by members of the “contractor group”.  The contract defined the “contractor group” to include Triton’s “invitees on the work sites” and “W&T Group” included W&T’s “invitees on the work sites”.  The indemnification question therefore boiled down to whether the Tiger employee was an “invitee” of W&T or Triton.  At the time of the accident, the Tiger employee was working on Triton’s vessel under the direction of Triton personnel, but he was hired by W&T and was being monitored by a W&T employee also on the vessel. 

The District Court sided with Triton, finding that the plaintiff was W&T’s invitee and W&T appealed to the Fifth Circuit.  On appeal, the Court confirmed that the Master Service Contract was a maritime contract and turned to Fifth Circuit precedent that defined “invitee” as “a person who goes onto premises with the expressed or implied invitation of the occupant, on business of the occupant or for their mutual advantage”.  The Court concluded that even though the plaintiff was injured on Triton’s vessel, he was a W&T invitee because he was hired by W&T and was working under the supervision of W&T.  The Fifth Circuit affirmed the District Court’s finding that W&T owed Triton defense and indemnity. 

Grogan v. W&T Offshore