Industry News & Tips

Court Ruling on Independent Contractors

April 27, 2019

Gene Horton

As a broker insuring maritime workers compensation under the Long Shore Act, USL&H, I often encounter prospective customers who have been told by employers that now “they are independent contractors” and will now have to obtain their own workers compensation insurance. The department of Labor has certain tests for who is and who is not an independent contractor. The below article is by Aaron Holt and Nandini Kavuri who practice at the law firm Cozen O’Connor who specialize in admiralty law. I hope you find the article useful. Regards, Gene Horton
March 27, 2019

On February 28, 2019, the U.S. Court of Appeals for the Fifth Circuit issued an employer-friendly opinion, clarifying the level of “control” an employer may exercise over its independent contractors under the Fair Labor Standards Act (FLSA). The ruling comes as a boon to many employers seeking clarity on whether — and to what extent — they may supervise and apply their policies to independent contractors without converting them into employees.

Background Facts

In 2016, a group of independent contractors working as directional drilling consultants (DD) at Premier Directional Drilling brought a lawsuit against the company, claiming they were improperly classified and should be considered employees. See Parrish v. Premier Directional Drilling, L.P., 917 F.3d 369 (5th Cir. 2019). The plaintiffs in this lawsuit alleged that as a result of this misclassification, they failed to receive overtime compensation under the FLSA. Id.  

Significantly, the plaintiffs noted that the company classified some DDs as independent contractors and some as employees, despite having “essentially the same job duties.” Id. The employer’s vice president agreed, “the only difference between an [Independent Contractor DD] and an employee [DD] … is their ability to turn down work [a]nd negotiate their pay.” Id. Some of the plaintiffs had previously been employed as DDs, classified as employees, but were converted to independent contractors in 2015 due to “a drastic downturn in the oilfield industry and [the employer] was forced to significantly reduce its workforce …” Id.

Both employee and Independent Contractor DDs were told where to work, when to work, and what equipment could be used. Id. Additionally, all DDs were required to undergo mandatory safety training, comply with the employer’s drug and alcohol policy, ensure they had fire retardant clothing, and to confirm that they were “supervised by a coordinator, but also perform[ed] their task with little to no intervention.” Id. As part of their job duties, DDs advised “the oil company’s driller how best to effectuate the” drilling plan in order to “target oil ‘thousands of yards below ground and up to several miles distant from the drilling rig location.’” Id.

While employee DDs were paid a salary plus a day bonus for each day on the job, a car allowance, a per diem, and benefits, independent contractor DDs were paid “by the job, but receive mileage for travel.” Id. Both independent contractor DDs and employee DDs could be elevated to a higher pay classification based upon experience, which was a decision made by management. Id. Finally, the employer did not use a bidding system to hire contractors; rather, it directly contracted particular contractors by “call[ing] to offer the project” but occasionally the contractors would call and “request work, even if paid less.” Id.

Given the similarities in job duties of the employee and independent contractor DDs, the trial court granted summary judgment in favor of the plaintiffs’ claim that they were misclassified as independent contractors. The trial court evaluated each of the “five non-exhaustive factors” used to determine independent contractor status including: “(1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship.” Id. In sum, the trial court found the first and fourth factors (employer’s degree of control and requisite skill) to be neutral, the second and third factors (relative investments and opportunity for profit/loss) in favor of employee status, and the fifth factor (permanence of relationship) in favor of independent contractor status. Id. The point “most heavily” weighing into the trial court’s analysis was “the fact that employee DDs and IC DDs were treated the same, and supervised in the same manner, with no appreciable differences other than how they were compensated …” Id.

Fifth Circuit's Opinion

On appeal, the Fifth Circuit reversed the ruling of the trial court and rendered judgment in favor of the employer. Specifically, the Fifth Circuit found the first, third, fourth, and fifth factors in favor of independent contractor status, with only the second factor (relative investments) in favor of employee status.  

In significant part, the court’s analysis reiterated when evaluating independent contractor status, “the focus is on an assessment of the economic dependence of the putative employees [e]ach [independent contractor factor] must be applied with that ultimate notion in mind.” Id. (emphasis in original). “Stated differently, it is not what [plaintiffs] could have done that counts, but as a matter of economic reality what they actually do that is dispositive …The controlling economic realities are reflected by the way one actually acts.Id. (internal citations omitted) (emphasis in original).  

Degree of Control

With this in mind, the Fifth Circuit turned its analysis to the level of control actually exercised by the employer. The court found that the independent contractor DDs exercised greater control because they worked on a project-by-project basis, and the contractors, on occasion, “turned down projects without negative repercussion.” Id.  

While plaintiffs argued they were required to comply with company policies and procedures, were prohibited from subcontracting their work, and that the company controlled where and when they needed to report for duty, and provided a drilling plan specifying “what equipment will be at the drill [and] who can operate the drill,” the court did not find this persuasive. 

The court noted that the “DDs had to work in concert with the rest of the drilling operation [and] make adjustments to the [drilling] plan given what the drill experiences in real time[.]”  Therefore, the employer “had to know when DDs would be on-site [and] they could not show up at the drill site whenever they pleased.” Id

Further, the court held “although plaintiffs were provided an already-designed [drilling] plan, they made that plan work.” Id. The employer “did not dictate how plaintiffs completed the directional-drilling calculations.” Id. Submitting their reports in a mandatory format — the Fifth Circuit noted — was simply “good-client service.” Id.

Likewise, the Fifth Circuit did not find the employer’s prohibition on subcontracting to be dispositive and noted that “it is not unreasonable for a company to want to hire a specific person. This is especially the situation when the IC is being hired for his advanced skill and specialized expertise.” Id.

As for mandatory compliance with the employer’s policies and procedures, the Fifth Circuit found that “requiring everyone working at an oil-drilling site to be educated on safety protocol, and not be under the influence of illegal drugs, is required for safe operations.” Id. Indeed, the Occupational Safety and Health Act requires the employer to “furnish ... a place of employment ... free from recognized hazards … likely to cause death or serious physical harm to [its] employees… In that sense, an IC could be a hazard.” Id. Thus, mandatory “safety training and drug testing, when working at an oil-drilling site, is not the type of control that counsels in favor of employee status.” Id. (emphasis in original).

Relative Investments

After delving deeply into whether the employer actually controlled its contractors’ work, the Fifth Circuit discussed the remaining factors for determining independent contractor status. Specifically, both the trial court and the Fifth Circuit held the second factor (relative investments of the worker and the alleged employer) was in favor of employee status. In this regard, however, the Fifth Circuit gave “this factor little weight, in light of the nature of the industry and the work involved” because “[o]bviously [an oil company] invested more money at a drill site” compared to on-site workers. Id.

Opportunity for Profit or Loss

In determining “the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer[,]” the Fifth Circuit noted, “[a]lthough [the employer] had a set pay schedule for ICs based on their experience, plaintiffs made decisions affecting their expenses.” Specifically, independent contractor DDs did not receive any pay from the employer when they were not working on one of its projects, unlike the employee DDs, “who were paid even if they were not working on a project.” Id. The Fifth Circuit held that because “the work was on a project-by-project basis ... [t]his counsels heavily in favor of IC status; and, in this instance, it persuasively counsels in favor of it.” Id.

Skill and Initiative Required

With regard to the skill and initiative required for the job, the Fifth Circuit found that the independent contractor DDs were highly skilled. The court explicitly “decline[d] to require [independent contractors] to be more skilled than their employee counterparts.”  By way of analogy, the Fifth Circuit noted a “company with a highly-skilled general counsel can still hire an outside lawyer as an [IC], even if the general counsel is a more skilled lawyer[. Thus,] in the light of their complicated work, weighs heavily in favor of IC status.” Id.

Permanency of Relationship

The fifth and final factor evaluated by the court was “permanency of the relationship” between the employer and putative contractor. Here, the court agreed with the trial court finding this factor weighs in favor of IC status based upon the length of time the plaintiffs worked for the employer. Id. Although no bright-line rule exists, (and the Fifth Circuit explicitly declined to adopt one), it noted “where a plaintiff works for a defendant for ten months, the engagement begins to resemble an employment relationship[.]” Id.

Employer Takeaways

Determining whether a worker is truly an independent contractor requires an individualized assessment. Key factors that the Fifth Circuit — and other courts around the country — have continued to interpret for this assessment include: the degree of control exercised by the employer, the comparative financial investment, the worker’s opportunity for profit or loss, the level of skill and initiative required for the job, and the permanency of the relationship. 

Although no single factor is determinative, this decision serves as important guidance for employers — especially in the Fifth Circuit — to keep in mind the overall economic dependence of the contractors weighs heavily across each factor to be analyzed. For example, the Fifth Circuit, in this case, found the contractors’ ability to turn down work and that they were paid on a per project basis was more important than the fact other employees performed the same job and were classified differently. The Fifth Circuit also repeatedly emphasized these are economic realities, not economic hypotheticals. Stated differently, it is not what contractors could have done that counts, but as a matter of economic reality what they actually do that is dispositive. The greater the economic freedom the worker has, the more likely the worker will be considered properly classified as an independent contractor.    

Maritime Workers compensation

January 23, 2012

Gene Horton

As my customers and friends know, maritime workers compensation has been an ongoing problem and I have posted several articles on this subject. These coverage’s, Jones Act and United States Longshore and Harbor Workers insurance has been a problem in particular for smaller businesses. The USL&H market is getting even tighter with minimum annual premiums coming in at up to ten thousand dollars. Other industrial countries are surprised when starting businesses in the United States. They have government funded programs. Because the benefits are much higher in these U.S. maritime coverage’s and the politics involved, it will be very hard to make any changes to these laws. There is also very little defense to a claim, no matter how frivolous or even fraudulent. Included with this article is the announcement that Chartis is exiting this market to put their money in more profitable areas. Recently there was a change that exempted repair workers on pleasure vessels over sixty five feet and eighteen net tons. This took several years of complaining by the industry to make the change. Small sub-contractors are faced with a particularly bad situation. Owner operated businesses where the owner is the only worker doing work are not exempt from the act and are faced with these very high minimum premiums. Often the requirement for this coverage is a “deal killer”. Some states like Florida and Washington have “assigned risk” pools. This gives some relief to businesses in these states but businesses doing business in more than one state have a problem because the scheme either is prevented from extending coverage or other states refuse to recognize and accept the scheme coverage. What is the solution? Affected businesses need to start complaining to their representatives in the U.S. congress and senate. I have written to Elijah Cummings and Debbie Wasserman-Schultz but neither showed any interest in the matter.


Thanks for your support,


“Costa Concordia” disaster

January 23, 2012

Greg Knowler


When it comes to sinking cruise ships, size matters

by Greg Knowler

Jan 17, 2012, 10:14PM EST

Anger is mounting at the actions by the master of the Costa Concordia, but what if the growing passenger capacity of cruise liners is part of the problem?


Making money in shipping is all about economies of scale. Once the rates have been secured, the profitable operating of a giant vessel is simply a result of reducing unit costs.

By bringing down the cost per unit, a shipping company improves the margin of profit it earns on each unit. That’s why Maersk Line is building 20 container ships of 18,000 TEU.


And anyone who believes that ocean liners do not regard passengers as mere revenue-producing units should take a look around the inside of one of the floating shopping lines. There are more retail outlets of overpriced fashion brands than you would find at an international airport. Not to mention the casinos.

The passenger line business is expanding at an incredible rate, and unsurprisingly it is Asia where the big strides will be made in the next few years. At the first Asia Cruise Terminal Association meeting, held in Singapore this week, it was predicted that by 2015, the region’s cruise industry would carry seven million passengers a year.

This demand in Asia and across the industry has pushed out the orderbook to 2014 by which time 19 ocean going vessels will have floated into service. Most of the big ocean liners can only call at places like Laem Chabang in Thailand, in Singapore and at some Japanese ports, but that will change soon.

Shanghai’s cruise terminal will be opened later this year, and China is expected to be the one of the main contributors to the cruise business. Hong Kong is also constructing a new cruise terminal that will accommodate the largest liners when it comes online next year.

So the business has a bright future in Asia and all the major operators are aggressively chasing market share. The cruise window in most of Asia is narrow because of typhoon season from May to October and winter in the north, which means itineraries are jammed in the summer months. The Carribbean schedule is equally crowded.

This strong competition coupled with pressing demand is seeing cruise operators looking for economies of scale. That means they can carry more passengers, and more passengers mean more crew, which means more people to save if something goes wrong.

There were 4,200 passengers and crew on board the Costa Concordia when it went down, and the now ubiquitous Youtube footage shows the mayhem of trying to herd so many people into lifeboats on a listing ship.

It is worth bearing in mind that passengers are not sailors and have no idea of safety at sea. The only way they can be saved is to have participated in safety drills and if they follow the orders of crew when the abandon ship signal is given. Left to figure it out on their own, passengers will panic and people will die.

So paying attention to the location of safety exits and participating in evacuation and lifeboat drills is important. But what if cruise ships are simply becoming too large? No matter how well drilled 6,000 people are, if a vessel is sinking rapidly a lot of them will probably go down with the ship.

Of course, the answer is for the ship not to hit anything and that responsibility falls on the captain. But accidents happen, captains do stupid things like change course close to a rocky shore so the headwaiter can wave to his relatives. Not to mention bad weather and rogue waves.

Ultimately, safety is all about mitigating risk. Training for the bridge staff and ship’s crew is the best preparation for disaster, but even so, there is still a huge helping of “cross fingers and hope for the best”.

Statistics may show that cruising is perfectly safe, but before clambering up the gangway of a multi-storey vessel, maybe you should ask yourself this: Would you want to be passenger number 6,001 when your giant liner springs a leak in mid-ocean?

Big Oil

June 07, 2011

Gene Horton

I found this article in Marine Professional, one of my trade magazines. It is a great example of the behind the scene activity in the oil trade business and a good example of how even the big players can overlook important details and wind up losing massive amounts of money. The important thing to understand that in any bulk trade, it is impossible to get all of the cargo off the ship. Not only will the shipper wind up short, he/she will often get the bill for cleaning the cargo holds or tanks afterwards. This is a bit of a brain teaser, have fun.





May 07, 2011

Gene Horton


Because of the high cost of buying USL&H insurance it is understandable that many businesses without any employees but themselves look for ways to avoid having to buy the coverage. One very troublesome misconception is that if the worker/contractor is sixty-five years of older he/she doesn’t need to buy the insurance. I have had several customers tell me “they don’t need the coverage because they are on Medicare. This could be a very harmful misconception. If you are injured on the job and are treated under your Medicare insurance, Medicare can and will recover any money paid on your claim. Medicare does this under “Medicare Secondary Payer Recovery”.  This means that if an injury was occupational related and should be covered under a workers compensation policy, Medicare will take steps to recover any monies they paid on your behalf. To get all the details please visit their websites at

. Of particular help is their “Tool Kit”. Also very helpful is their “Attorney Tool Kit”. In it they have a flow chart. You will need an attorney if you don’t have insurance! As many of you have been told by me, there are no good deals in this insurance. Often, even the broker is forced to take a very minimal commission so everyone is a looser in game. If you have any questions please e-mail me and I will try to help you with some solutions.


Thanks for your support,

Gene Horton



The first step in the Medicare Secondary Payer recovery process is reporting your case to the Coordination of Benefits Contractor (COBC).  If you have not reported your case, please


for COBC reporting instructions and contact information.

Don’t Forget!


Once you establish your case with the COBC, you will receive a "Rights and Responsibilities" (RAR) letter from the MSPRC.  The MSPRC will then automatically generate a "Conditional Payment Letter" (CPL) within 65 days from the date on your RAR letter.  You do NOT need to request the CPL separately.

Alert: MSPRC Mailing Addresses and Fax Number Have Changed!

As of September 30, 2010, all MSPRC mailing addresses and the MSPRC fax number have changed. The new addresses and fax number have been updated on, our call center system, and on all outgoing written correspondence. Please share this information with all appropriate staff.

For an immediate e-mail notification when this change occurs, through our E-mail Newsletter,


To view the new addresses and fax number, visit our



Top of Form

Letter ID Quick Search

Bottom of Form

News and Updates

ALERT UPDATE: Issuance of the Demand letters is temporarily suspended - Review of the Rights and Responsibilities letter is complete

The Demand letter for liability insurance (including self-insurance), no-fault insurance and workers’ compensation has been temporarily suspended while this letter is under review. The MSPRC is still working cases, and Demand letters will be mailed out once this review is complete. Review of the Rights and Responsibilities letter (“RAR”) is complete. Issuance of the RAR is anticipated to resume on June 10, 2011. A copy of the revised RAR will be made available by that time on this website.


The Medicare Secondary Payer Recovery Contractor (MSPRC) protects the Medicare trust fund by recovering payments Medicare made when another entity had primary payment responsibility.  The MSPRC accomplishes these goals under the authority of the Medicare Secondary Payer (MSP) Act.  The MSPRC identifies and recovers Medicare payments that should have been paid by another entity as the primary payer either under a Group Health Plan (GHP) or as part of a Non-Group Health Plan (NGHP) claim which includes, but is not limited to 

Liability Insurance (including Self-Insurance), No-Fault Insurance, and Workers' Compensation.  The MSPRC does not pursue supplier, physician, or other provider recovery.

Please utilize the tools and resources available on this site for more information on the recovery process.





April 08, 2011

Gene Horton



Some of the world’s most influential maritime organization have created a campaign to raise awareness regarding the social and economic cost of piracy and urge international government to take a firmer stand against increasing Somali pirate activity in the gulf of Aden and Indian Ocean.

 The campaign ,called save our seafarers, come in wake of escalating violence against mariners, including the murder of four Americans aboard a private yacht and a recent hijack of yacht with a Danish Family, including three teenage children.

The organization involved include The International Transport Workers Federation(ITF),BIMCO, International Chamber of Shipping, INTERTANKO and Intercargo .

To save our seafarers campaign hope to raise awareness of piracy through a use of its website, social media, including Facebook and Twitter and a letter writing campaign. You can send a pre-formatted letter to your respective head of state through the website.

The letter calls on government to:

·          Reduce the effectiveness of the easily identifiable mothership.

·          Authorize naval forces to hold pirates and deliver them for prosecution and punishment.

·          Increase naval assets available in this area.

·          Provide greater protection and support for seafarers.

·          Trace and criminalize the organizers and financier behind the criminal network.

According to an economic impact analysis by oceans beyond piracy, a Project of the one earth foundation, the costs of piracy in 2010 to the Global economy were between $7bilion to $12 billion. The analysis factors In ransom costs, insurance premium, cost of naval forces and security equipment, re-routing of ships, prosecutions, anti piracy organization cost to regional economies.

The one earth foundation is a private organization formed by Marcel Arsenault, A real state investor and chairman, CEO and founder Colorado & Santa Fe.

Entry into Costa Rica

March 07, 2011

Gene Horton


Chris Ellison, Captain on the yacht “Invader” was kind enough to pass this handy information along.

1. Copy of the Vessel’s Certificate of Documentation or Registration.

2. Copy of the Owner’s and Captain’s Passport.

3. Copy of the Crew List.

* Clearance into Costa Rica must be done in one of the following official ports of entry: Golfito, Quepos, Caldera, Puntarenas, Playa del Coco or Punta Morales. As the only government-sanctioned Marina in the country, Los Sueños Marina is also considered an official port of entry. However, you must contact an agent in advance in order to coordinate an official visit by the corresponding government authorities.

Following you will find important information concerning your entrance into Costa Rican waters and Los Sueños Marina. Please read it thoroughly and contact the Marina Office (tel. 011 506 2630 4200 or E-mail if you have questions. We would be happy to help you.


Upon your initial entry into the country, you will receive a Temporary Permit for your boat, called the Certificado de Importación Temporal from the Ministry of Finance and Customs (in Spanish, Ministerio de Hacienda y Aduana). This permit is valid for three months. Renewals should be discussed with the marina office prior to the expiration date.

Local law prohibits non-Costa Rican flagged boats from operating as commercial charters.

Please be aware that government authorities are very strict in this regard, and officials make regular inspections of Los Sueños Marina.

Foreign vessels found chartering could be impounded.

Our recommended agent is Ernesto Andrade. His phone number is (506) 2661-0948 (office) or (506) 8811-7290 (cellular). E-mail: or


All boats are required by law to obtain a Costa Rican fishing license for sport fishing. A non- Costa Rican flagged vessel is prohibited from fishing for commercial purposes.

The documentation required by INCOPESCA (the Fishing Commission) is as follows:

1.            Customs temporary permit (original and copy).

2.            Certificate of Documentation/Registration of the boat (original and copy).

3.            If the owner of the boat is a corporation, a notarized document stating that the legal representative of the boat is the person whose name appears on the temporary permit.

4.            Passport (original and copy).

The originals are only presented to INCOPESCA so that they may verify their authenticity and are returned to the boater at the time of presentation.

A fishing license is issued to a boat for a one year term, regardless if the boat has a temporary 90-day permit or a two-year permit.

Fishing licenses are priced in accordance with the length of the boat:

A. Up to 10 meters:         $300.00

B. 10.01 meters to 15 meters:     $450.00

C. 15.01 meters to 20 meters:     $650.00

D. 20.01 meters and up:                $850.00

Any person on your boat who intends to fish must purchase an individual fishing license.

Your captain and crew must each have an individual license as well. This type of license costs $25.00. The person requesting such a license must present their passport at the time of purchase. Individual licenses can be purchased at the marina office.


1. Copy of the Boat’s Entry Documents

             Customs Temporary Permit (“Certificado de Importación Temporal”)*

             Float plan and agricultural inspection documents

2. Copy of the Boat’s Insurance Policy, which MUST include the Marina as an additional insured.

(Please see additional named insured’s listed below)

             All NON-COMMERCIAL users must have comprehensive, all-risk general liability insurance in the amount of not less than $300,000 from an insurer with no less than a Best “A” rating. Please provide the marina office with the insurance information prior to the vessel’s arrival at the marina.

             All COMMERCIAL users must provide the following proof of insurance:

Vessels carrying 6 or fewer passengers require comprehensive “all risk” general liability insurance for commercial marine activities engaged in by User in a combined single limit of not less than U.S. Hundred

Three Thousand Dollars ($300,000) and an annual aggregate limitation of not less than U.S. Three Hundred Thousand dollars ($300,000) from an insurer with not less than a Best “A” Rating.

             Vessels carrying 7 to up to 14 passengers require comprehensive “all risk” general liability insurance for commercial marine activities engaged in by User in a combined single limit of not less than U.S Five Hundred Thousand Dollars ($500,000) and an annual aggregate limitation of not less than U.S One Million dollars (1,000,000) from an insurer with not less than a Best “A” Rating.

             Vessels carrying over 14 passengers require comprehensive “all risk” general liability insurance for commercial marine activities engaged in by User in a combined single limit of not less than U.S One Million Dollars ($1,000,000) and an annual aggregate of not less than U.S Five Million dollars ($5,000,000) from an insurer with not less than Best “A” Rating. Vessels carrying over 14 passengers are also required to pay a fee of $10.00 for

every passenger aboard the vessel. Please contact our Marina Office for further information.

Liability Insurance


(1) El Sueño Resort, a Delaware Limited Liability Company

Los Sueños Resort and Marina

Corporate Office, Marina Village

Bahia Herradura, Puntarenas

Costa Rica

Attention: Jacobo Alter, Associate General Counsel

(2) Guapizul, Ltda., a Sociedad de Responsabilidad Limitada

Los Sueños Resort and Marina

Marina Los Sueños, Marina Village,

Bahia Herradura, Puntarenas

Costa Rica

Attention: William G. Kirby, Director of Marina Operations

(3) Marina de Herradura, S.A., a Sociedad Anonima under the laws of Costa Rica

Post Office Box 5684

  Chris Ellison is the current captain on a one hundred sixty-five foot yacht.


Stretching the Longshore (USL&H) Maritime Worker Compensation Boundaries

October 25, 2010

From Our Friends at LIG Marine

Longshore In Russia


Dennis Greenan vs. Crowley Marine Services, Inc. 55134-5-1


Greenan worked to help offload a barge just off Sakhalin Island, a large elongated island in the North Pacific, lying between 40° 50' and 54° 24' N. It is part of Russia and is its largest island.


The Longshore Act has long said that it applies in the "territorial waters of the United States" and while understandably it has been stretched to the high seas when sailing directly between two US ports, this is now the third and most far reaching option taking the Longshore Act into foreign lands. The first was Jamaica; the second the English Channel and now this third Russian case.


There is little in the case to dispute that Mr. Greenan's job was one that would have given him Longshore STATUS, but the SITUS (location) is a stretch in Russian Waters, in fact just off the beach.


Here is the big problem: In the Jamaican case, Webber vs. SC Loveland, while the court extended benefits to Mr. Webber, they held that the insurance company did not have to pay as their policy specified the states where coverage was provided and clearly Jamaica was not one of them.


What's worse is that few carriers will provide Longshore outside of the U.S., so now we are faced with an expansion of the territory, without any way to insure it in more cases.





The Effects of the Deepwater Horizon Disaster Just Starting!

May 31, 2010

Gene Horton

   Early on Thursday while marketing an account I was told by one of my markets that the marine and the re-insurance markets where in a “state of alarm” over the Deepwater Horizon disaster. Already underwriters are staking their positions in order to limit their exposure. The following article from Insurance Journal give a good glimpse of what is to follow.


   “ Lloyds, Other Insurers Sue to Block BP Claim Against Transocean

               Lloyd's of London has asked a U.S. court to block a claim filed by oil major BP seeking damages against driller Transocean, which drilled the well which is currently gushing crude into the Gulf of Mexico.

  Lloyds underwriting syndicates and other insurers who provided $700 million of cover to Transocean lodged a case with a federal court in Houston, arguing that the policies provided to Transocean preclude claims related to environmental damage caused by leaks from the well.

  According to court documents, the insurers argue that Transocean's contract with BP only makes it liable for environmental damage caused by any spills from its rig, which exploded and sank, causing the pipe running from the rig to the well to snap. The well is leaking oil. BP said it had lodged a claim against the insurers but declined to comment further. No one was available for comment at Transocean.


  Even if BP were awarded the full $700 million of cover the insurers provided to Swiss-based Transocean, it would be only a small fraction of the total bill for the cleanup operation and compensating people who suffered losses due to the spill. Analysts at UBS put the likely cost of this at $12 billion, in a report issued on Tuesday.''

  (Reporting by Tom Bergin; Editing by Cynthia Osterman)

  All of us in the maritime industry know where and how this is going to affect us. For the insured's, rates and premiums will be higher. For brokers, placements will be harder and more stressful, especially on renewals. Some older tonnage may be placed out of the market all together. The average person watching this on television may not be aware of the effects on them, but they will soon start feeling the results as their premiums go up as re-insurers try to make up their losses because of Deepwater Horizon. To add to everyone's concern, we are not even in hurricane season yet!






  Will add more to this if we get any more industry information,

  Gene at




Latest Updates on Marine Insurance Rates

March 31, 2010

Gene Horton

Whenever possible I like to give our friends and customers updates on what is happening in the insurance industry as far as changes, available and cost are concerned. This article is from one of our very knowledgeable underwriters that specialize in marine insurance. LIG Marine regularly send us updates and I am happy to pass on anything that will help our customers and friends better understand the driving forces in insurance costs and therefore be better prepared deal with these critical coverage's. I hope you find this article interesting and useful.

Thanks for your support,

Gene Horton


                                                     Marine Rates Down, Down and Up?

The year end 2009 results from LlG Marine Managers WaveLine Survey are showing a further drop of 1.8% for 2009, with some moderate hardening predicted for 2010:

Most notable, but least surprising is the geographical split of results which range from an average rate decrease in the Mid-Atlantic of 3% to a small rise in the West Coast of 0.3%.



No surprises here, the biggest accounts achieved an average of 12.5% rate decrease



2009 shows the continued free fall of cargo rates, down another 5.6%, when will it end? Charter/Sightseeing has seen a modest increase but all other lines dropped for the year.


With the exception of cargo and marinas, most marine professionals are expecting modest raises in most lines during 2010. Bluewater P&l leading with 2.5%.


We again surveyed policy delivery and the result nationally shows that the average marine policy was delivered to the agent/broker 63 days AFTER binding. A marked decline of 8 days over the last 2 years.


is the on-line marine and Longshore insurance market survey sponsored by LlG Marine Managers and compiles responses from the top marine and Longshore agents, brokers and insurance companies in both the USA and London.

Latest Pollution Liability Reqiurements

March 07, 2009

Gene Horton

More on tonnage comparisons and Short Sea solutions.

July 26, 2008

Gene Horton

More on tonnage comparisons. I seem to be getting a lot more information on this subject lately. This is probably due to our energy situation. But there are other issues arising at an ever increasing rate. Two additional considerations are safety and pollution. For this month’s news and tips I have reproduced an article from Marine News, one of the trade magazines I subscribe to. This was an article taken from a study by the National Waterways Foundation. The article was also reprinted in Maritime Reporter, another trade magazine I subscribe to. Their website is  I recommend you go to their site because the graphs did not come out well on our site.  It is a very thorough and well written work. For this months News and Tips I have reprinted their exhibits. If you would like the complete article from Marine News including their cover contact information, please contact me by e-mail.   I hope you find this article interesting and useful.Thanks for your support,


Tonnage Comparisons

March 08, 2008

Gene Horton


I’m sure many of you have seen the commercial on television extolling the advantages of rail shipping. In the advertisement the advertiser makes the point that railroads can carry a ton of freight four hundred and twenty miles on a gallon of fuel. That is very impressive compared to motor-truck.However I thought it would be fun to put out some factoids from some of the trade magazines I subscribe to. So here we go. 

A tanker trade group states that a VLCC, (very large crude carrier) moves one metric ton of cargo 2,800 kilometers on one liter of fuel. The carbon footprint (in CO2 per ton-kilometer) is less than one tenth of a heavy truck and less than one hundredth of an aircraft. 

A large freight aircraft can carry up to one hundred fifty tons of cargo.The lifting capacity of the cranes on some heavy lift ships is now four hundred tons.  

Another inland waterways group points out that one tug and barge or barges can carry as much cargo as sixty four to four hundred tractor trailers. 

The ship “Estelle Mearsk” is thirteen hundred feet long and carries eleven thousand containers. That is the equivalent of a freight train forty three miles long. The average long haul freight train is now eight thousand feet long or about a mile and one half.

The amount of money spent on highways and roads infrastructure is thirty nine billion dollars. The amount spent on maritime infrastructure, four hundred forty six million dollars. Europe and other countries are way ahead of the United States in “short sea transport”. There is finally some movement in our government to expand short sea transport up and down our Atlantic and Pacific coasts and inland waterways. Not only will this save energy, it will save wear and tear on our highway infrastructure, ease traffic congestion and improve traffic safety. The next time you’re on the highway count the number of tractor trailers that can be put on one ship or barge. If you have any interesting facts on the maritime industry please pass them on.

Thanks for your support,

Gene Horton

Placing Your Cargo Insurance

August 25, 2007

Gene Horton

When Should I Insure My Export Shipments?  

This question is too often confused with "When do I have to insure my export shipments"? There is a world of difference between the two.

First, you should review the contract and terms of sale - they will determine which party is responsible to insure the export shipment. An example would be when the price quoted to a prospective customer is on a C.I.F. (Cost, Insurance, Freight to Destination) basis. C.I.F. sales should be equal to the cost of your shipment landed at the port of destination. This includes the cost of insurance.

Other forms of contracts of sale - F.O.B. (Free on Board Vessel), F.A.S. (Free Along Side Loading Port), and C & F (Cost and Freight to Destination) - leave the responsibility of providing the marine insurance to your customer. You may or may not choose to provide the insurance; an agreement between the two parties is all that is necessary. There are times when you should obtain the insurance for your own economic self-protection. This is decided by determining whose money is at risk - which is determined by the Terms of Payment.

If the Terms of Payment are either "Cash in Advance" or "Letters of Credit," your exposure to financial loss is very limited. Insuring these shipments is an option you may want to consider.

If, however, the Terms of Payment are one of the following, you should arrange for the insurance, because your money is at risk: "Draft Terms," "Open Accounts," "Consignments" and "On Approval" just to name a few.

In some cases, a shipment may be exposed to potential loss for two or more months before you have received payment for it. Should a loss occur, are you positive that you will receive full payment for damaged goods? When will you receive it? Maybe the shipment was totally destroyed and your customer failed to insure it. Only by arranging for the insurance yourself can you be sure that your assets are protected. And there are advantages for your customer as well.

·  If the shipment is lost before it arrives in your customer's country and the customer allows you to process the claim in the United States, the claim will be paid in U.S. dollars. This money could be applied immediately to the cost of a replacement shipment.

·  You may be able to obtain broader coverage for a lower price than you or your customer can.

·   The possibility of uninsured shipments due to misunderstandings is eliminated. Your coverage           automatic.

·    The insurance is "Warehouse-to-Warehouse." Coverage begins from the time the shipment leaves your warehouse until it reaches the warehouse of your customer. There are no gaps in coverage.So when you are making the decision whether to insure a shipment or allow your customer to seek coverage, make sure that you ask the right questions. It can make a world of difference. If you have any questions contact Gene Horton at or 800-553-3624 ext131

Dangerous Cargo

July 18, 2007

Gene Horton



In the early afternoon of March 21, 2006, the MV Hyundai Fortune after loading cargo in Singapore and several ports in China, steadily steamed about 60 miles south of the Yemen coast on its way to the Suez Canal, then to ports in Europe. Suddenly a violent explosion below deck propelled 60 to 90 containers over the side into the sea. The blast blew out a large chunk of the hull below deck but above the waterline on the port side. Immediately below deck an intense fire roared through the entire ship and within minutes the flames ignited fireworks packed in seven containers stowed on the deck near the stern. The fast-moving fire forced the 27 crew member to leave the ship who were then rescued by a Dutch destroyer, which happened to be in the area. Two days later, firefighting tugs arrived and extinguished the fire. General average was declared and a close inspection later revealed that the blaze and explosion resulted in the loss of over 500 containers. The combined cost of the damage to the ship and the lost cargo is now estimated at nearly $300 million. Though the cause for the explosion has yet to be determined, it will most certainly involve a container or containers stowing dangerous or hazardous cargo. Unfortunately, the hazardous material may not have been identified as such by the shipper, thus it might not have been properly stored by the ship's crew.


Even with 95 percent of dangerous cargo in containers being rightfully declared each year, the five percent remaining represents more than half a million containers that are not so labelled. This mislabelling could have been the culprit in 16 major container ship casualties between 1998 and 2006 — an average of two per year. These disasters left the insurers paying losses of millions of dollars for damaged cargo and ships. A report by the International Maritime Organization of inspections carried out in seven countries in 2006, including the U.S., Italy and Korea, found of the 25,284 containers inspected, almost 8,000, or 32 percent, had some deficiency. Alarmingly, almost 1,000 of which contained hazardous cargo had no dangerous goods documentation.


Governing the transport of dangerous goods by water is the International Maritime Organization's International Maritime Dangerous Goods Code (IMDG Code). The Code provides detailed instructions for the safe transortation of hazardous materials by vessel, protecting crew members and preventing marine pollution. Implementation of the Code is mandatory in conjunction with various governments' obligations under the Inter-national Convention for the Safety of Life at Sea and the International Convention for the Prevention of Pollution from Ships. The U.S. is signatory to these two conventions. Today, at least 150 countries whose combined merchant fleets account for more than 98 percent of the world's gross tonnage use the Code as a basis for regulating sea transport of hazardous materials. The Code is currently updated every two years.


Within the Code, dangerous goods are grouped into nine classes, and some classes are further subdivided to define and describe characteristics and properties of the substances, materials and articles which would fall within each class or division. The classification of the hazardous cargo is made by the shipper/consignor or by an appropriate competent authority. The classes include Explosives, (6 subdivisions); Gases (3 subdivisions); Flammable Liquids; Flammable Solids (3 subdivisions); Oxidizing Substances (2 subdivisions); Organic Peroxides; Toxic and Infectious Substances (2 subdivisions); Radioactive Material; Corrosive Substances, and Miscellaneous Dangerous Substances and Articles. The order of the classes and divisions does not denote the degree of danger. But even with the Code in effect almost universally around the world, non-compliance with identifying dangerous cargo can be from lack of experience and training, volume pressures, the complexity of the rules for different modes of transport, and the lack of effective controls and enforcement. Of further concern are the deliberate reasons for non-compliance, including cost cutting and lack of a safety culture, a desire to avoid dangerous goods surcharges and increased insurance premiums, limited sources of some products, and the necessity to ship cargoes that some lines ban. 


“Compliance means mastering a series of very complex rules for dangerous goods classification, packaging, labeling, stowage and segregation in the container and documentation”

The vast majority of shipments are properly identified by shippers, but this compliance means training personnel to enable them to master a series of very complex rules for dangerous goods classification, packaging, labelling, stowage, and segregation in the container, and documentation. "It is a time-consuming task in a fast-moving process," said Ken Burgess, director of Exis Technologies. His company has been behind the computerization of the IMDG Code. "The last check before a container goes on board is the shipping line's 'hazdesk.' Under the pressure of sailing deadlines, booking staff work through shippers' faxes, e-mails and documentation as each manifest is built, mindful that rejected shipments may involve a conversation with the commercial department." "In almost every investigation of problematic, dangerous cargo, the major source of non-compliance is shipper/packer incompetence," Burgess continued. "Enforcement is lacking. Right now, there is no 'reach' ashore to make any standard or competence mandatory for the shore-side staff who consign and pack dangerous goods in containers. That's the gaping hole in the fence and there will probably be a move to plug it soon." Labelling is not the only problem. "Incorrect packaging and, very importantly, incorrect or no segregation of incompatible chemicals within the container are a big worry," he added. Captain James McNamara, president of National Cargo Bureau Inc., noted that the shipper who declares the cargo has the responsibility to declare hazardous cargo. "The problem is that the ship's crew has no sure idea what is in the box," he said, "unless it is opened and inspected." He said one method of gaining greater control over the declaration of dangerous goods is for "insurance companies to be much more rigid and demand that a greater number of inspections be done and more thoroughly" He further urged all parties in the supply chain to understand enough about their customers' business activities to identify whether dangerous goods may be involved.

Maritime Economic Losses

May 05, 2007

Gene Horton


By John W Reis


A vessel catches fire on navigable waters, invoking maritime law. The cause was a defective engine, but all warranties on the vessel have expired. The only viable theories are negligence and strict liability. The manufacturer defends asserting the economic loss rule, which bars such tort theories when a product malfunctions and the only thing damaged is the product itself. But is this a winning defense in a maritime case? The answer depends on the nature of the vessel and where the court falls within the ongoing debate over an exception to the economic loss rule called the consumer/commercial product distinction or the "pleasure craft" exception.


The mother ship of the economic loss rule is East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986). There, the United States Supreme Court, applying maritime law, held that the owner of a commercial vessel could not sue the manufacturer of the vessel's defective engine turbine in tort for the physical damage the turbine caused to the engine and ship. The rationale was that such products come with warranties, the terms of which should control the remedies available to the purchaser when the only thing damaged was the product itself. Otherwise, reasoned the Court, contract law would "drown in a sea of tort."THE COMMERCIAL/CONSUMER DISTINCTION OR THE "PLEASURE CRAFT" EXCEPTION

One of the driving principles behind vesting the federal courts with admiralty and maritime jurisdiction is to establish uniformity of substantive maritime law. However, because East River involved sophisticated commercial parties and a commercial vessel, a debate ensued over whether in maritime cases the economic loss rule applies only to commercial vessels but not to personal vessels or pleasure crafts. 


In Sherman v. Johnson & Towers Baltimore, Inc., 760 F. Supp. 499 (D. Md. 1990), the owners of a yacht that caught fire sued the seller under warranty and tort claims. The court denied the defendant's motion to dismiss the tort claims, holding that the East River doctrine was limited to cases involving commercial relationships and did not apply to pleasure craft.

In Farley v. Magnum Marine Corp., N. V. Case No. 89-0725-CV, 1995 WL 795711 (S.D. Fla. 1995), the court recognized and applied the consumer/commercial distinction, denying the defendant's motion for summary judgment on the tort claims for fire damages to a secondhand,sixty-foot pleasure yacht.

The Farley analysis was applied in Ins. Co. of North America v. American Marine Holdings, Inc. 2005 WL3158049 (M.D. Fla. 2005), upholding a subrogated insurer's tort claims against the manufacturer of a used vessel after finding no warranty theories were available.

Similarly, in United States Aviation Underwriters v. Pilatus Business Aircraft, Ltd. ("USAU"), 358 F.Supp.2d 1021 (D. Col. 2005), the court applied the consumer/commercial distinction under maritime law in a subrogation suit against an airplane engine manufacturer. The court applied the distinction even though USAU's insured, the airplane's lessee, was using the aircraft for commercial purposes because the end user had no bargaining power against the engine manufacturer.

CASES REJECTING THE DISTINCTIONOn the other hand, in Karshan v. Mattituck Inlet Marina and Shipyard, Inc., 785 F. Supp. 363 (E.D.N.Y, 1993), the court applied the economic loss rule to bar tort claims for damages to a new, fifty-foot pleasure craft that caught fire from a defect in the starboard shore power connector while berthed at Daytona Beach, Florida. The fire caused S89,620.82 in damages.In Somerset Marine, Inc. v. Forespar Prods. Corp., 876 F. Supp. 1114 (D. Cal. 1994), the court refused to make the commercial/consumer distinction in a yacht-damage case in which the vessel capsized when the defective mast snapped in two.

In the same year and same jurisdiction as Farley, another Southern District judge in Sbarbao v. Yacht Sales International, Inc., 1996 A.M.. 133, 138 (S.D. Fla. 1995) barred tort theories by a new yacht owner against the yacht manufacturer. However, the vessel in Sbarbaro was purchased new directly from the manufacturer and its authorized dealer and would have come with a warranty.

In Marshall v. Wellcraft Marine, Inc., 103 F. Supp.2d 1099 (S.D. Ind. 1999), the vessel had not been the subject of a fire lass but was a "lemon," subject to numerous problems which could not be repaired to the owners' satisfaction. The court rejected the commercial/consumer distinction and applied the economic loss rule because there were viable warranty claims. 


Close review of these cases reveals that the outcomes are driven less by differing philosophies than by differing facts. Courts consistently make and apply the pleasure craft exception when a vessel is purchased used for personal pleasure and there are no available warranties from the manufacturer or dealer. Courts tend to reject the distinction when the vessel is new and has a warranty, especially when the damages are not catastrophic. Indeed, the nature of the damage often tips the balance. Cases involving a vessel that is catastrophically destroyed and/or involving other property damage (Sherman, Farley, USUA, and ICNA) tend to recognize the distinction. Those cases involving reparable damages (Karshan and Marshall) tend not to recognize the distinction.


Despite the debate over the pleasure craft exception, outcomes can be predicted based on the facts. The "pleasure craft" exception is more likely to be applied in a set of facts involving: (1)   purchase by an individual,(2)   of a used product,(3)   for purely personal or pleasure purposes,(4)   that is totally destroyed, and(5)   causes damage to other property.

The exception is less likely to be applied in a case involving: (1)   purchase by a sophisticated commercial entity,(2)   of a new product,(3)   for commercial purposes,(4)   that is not totally destroyed but involves reparable damages, and(5)   causes no damage to other property.

Given the tide of cases recognizing the distinction, tort claims under maritime law are not yet completely drowned in a sea of contract.

John W Reis is a member of the Charlotte, NC office of Cozen O'Connor.
John can be reached at
Phone: 704.348.3416 • Fax: 866.248.2901 •

Cargo liability caused by your cargo, not to your cargo.

April 28, 2007

Gene Horton

There’s a new emerging liability from what is normally a very low exposure. That is the liability caused by your cargo to other cargo in the same shipment. Since cargo insurance is "property" insurance, liability coverage is not part of the contract. Let me give you an example of two situations where your cargo damages other shipper’s cargo.  First, your cargo breaks loose in heavy seas and damages other shipper’s cargo.  While I can’t say you wouldn’t be named, I’m comfortable in saying that in this situation the liability would belong to the ship owner and “those acting on their behalf”. In this case it would probably be the stevedores since it was their job to load and secure the cargo. Both you and the shipper with the damaged cargo would look to their respective cargo insurers for coverage. Bear in mind, there are limitations to the liability of ship-owners. These limitations will be shown on the back of your bill of lading.  

Now let’s look at a totally different situation. You are a battery manufacturer and regularly get shipments of battery solutions used for the chemical reaction to make electricity in your batteries. These shipments are shipped in drums that are then loaded in containers. Your shipping documents and bill of ladings all clearly state your cargo is corrosive, hazardous and even toxic. During one of your shipments, one of the drums in the shipping container leaks the acids during the whole voyage and damages other shipper’s cargo.  In this situation the steamship company would deny any liability. This would now split into two more scenarios. One, the steamship company would pay for the damages and then “subrogate” against you. Or more likely they would deny any liability and refer the owners of the damaged cargo to you. 

Now you as a boat owner shipping his yacht as cargo are confronted with a very similar situation. Let’s say your boat was run on its own bottom to the ship where it was loaded on board with no incidents. Unknown to anyone someone left both the electrical power on and an appliance or motor also on. The motor malfunctions and overloads and causes and electrical fire. Then this fire not only damages your yacht but other yachts and cargo on the same ship. 

Where would each of you look for coverage? Again, there are two possibilities. For the battery manufacturer he will have to look to his business insurance. His coverage will have to be tailored to his business since this type of loss is normally excluded in a standard “commercial general liability” policy.  He would probably find coverage under his environmental third party liability policy. This is a long and deep subject that needs to be addressed on an individual basis.  

For the yacht owner he could depending on the underwriter find some coverage in his personal liability policy. That’s a long shot. A more likely solution would be in his umbrella policy if it has a “drop down” provision. This provides coverage for exposures that you don’t usually have. The best solution would be to have a yacht policy in force during the shipping voyage. The underwriters usually suspend the hull portion of the policy leaving the liability in effect. This is the correct way to set up coverage. Unfortunately most yacht underwriters won’t or are reluctant to do this.  

As one of the oldest yacht cargo specialists we have some unique underwriters to work with and we offer a one year wrap around policy that covers the yacht from the factory, on board the ship and the first year of coverage. After the first year we have many options for renewal. I hope this article is interesting and helpful to those of you who will be shipping yachts. Please feel free to contact me by telephone or e-mail if you would like to discuss this further. Thanks for your support,

Gene Horton 

Oil Pollution Act Changes

March 10, 2007

Gene Horton


We have been notified by several trade sources about new limits of liability compliance in (OPA 1990). 

We now are able to give more detailed information. The important consideration is that these are minimums. For smaller vessels and even yachts, these limits are a large exposure. Many pleasure boat policies now have some oil spill cleanup coverage. That coverage will not cover "Fines and Penalties". This is getting to be a concern for us with our customers who own fishing boats, work boats and yachts that are now carrying large amounts of diesel oil. We are going to start offering this coverage as a separate policy.


On July 11, 2006 the President signed into law the Coast Guard and Marine Transportation Act of 2006 (P. L. 109-241). This bill among other things amends the limits of liability for vessels under the Oil Pollution Act of 1990 (OPA '90). The limits take effect from July 11, 2006 (immediately) for non-tank vessels and October 9, 2006 for tank vessels. The new limitation amounts will be:.       

For double hulled tank vessels over 3,000 gross tons, the greater of $1,900 per gross ton or $16,040,000;.       

For double hulled tank vessels 3,000 or less gross tons, the greater of $1,900 per gross ton or $4,000,000q  

For single skin hulled tank vessels over 3,000 gross tons, the greater of $3,000 per gross ton or $22,000,000;

For single hulled tank vessels 3,000 or less gross tons, the greater of $3,000 per gross ton or $6,000,000; and.       

For non-tank vessels limits would be increased to the greater of $950 per gross ton or $800,000.Tank vessels with double sides or double bottoms only will be considered single hulled.

****New EPIRB rules****

January 31, 2007

Gene Horton

Terrorism and the cruise and passenger ship trade

January 18, 2007

Gene Horton

Loss/Risk Management Notes


Counterterrorism Should Focus on Cruise Ships

Maritime counterterrorism efforts are too focused on port security and car-go containers, leaving cruise ships and ferries wide open to the possibility of deadly and costly terrorist attacks, according to a book-length study of the issue by Rand Corp.The report, Maritime and Terror­ism:Risk and Liability, says cruise ships and ferry lines need more protection against terrorism attacks because they meet terrorists' prerequisites for an attack: The damage would be highly vis­ible, would kill many people, would destroy costly property and would inter­rupt trade.Currently, the United States govern­ment is focusing its maritime efforts on port security and securing cargo con­tainers, the ships that carry them and the freight carriers that take containers in and out of ports. But focusing on car-go containers and ports without also securing cruise ships and ferries "is like bolting down the front door of a house and leaving the back door wide open," the report said.The study also said a maritime terrorist attack will create complicat­ed liability issues that would make it difficult to compensate victims. The United States currently has "ambigu­ous liability standards in the maritime terrorism context," owing to conflicts in the law."Civil liability standards in maritime terrorist attacks against the United States will likely draw on specialized rules in admiralty, particularly with regard to attacks on ferries and cruise ships," the report said. "Related rules include liability standards for personal injury and death, regulatory require­ments pertaining to vessel security, and statutory limits on liability for vessel owners. Admiralty jurisdiction over these sorts of claims may preempt com­peting legal rules that would otherwise apply on land and may limit the com­pensation that can be sought by victims in some circumstances."The report contained some good news, in that there is little evidence ter­rorists and pirate syndicates are in cahoots. Pirates, the report said, rely on maritime trade to be operating smooth­ly, while terrorists are motivated to disrupt it. Also, the report said, some com­monly anticipated attacks probably aren't attractive for terrorist groups because they wouldn't work. Sinking a cargo ship with an improvised explo­sive device to block a commercial ship-ping route—one common scenario—would be difficult owing to modern ship design, and sunken ships even then could be cleared quickly from shipping lanes. "Maritime terrorism policy should not be motivated by these perceived threats," the report said.The greatest risk to shipping, the report said, would be a nuclear device smuggled into the United States in a shipping container. But that, the report concluded, was far less likely than what it judged to be the greatest risk to human life: an attack on a cruise ship or ferry. Possible attacks there would be far easier to carry out, the report said, and might take the form of an onboard bomb or a biological agent tainting the food or water.The report also made a handful of policy suggestions, including a recom­mendation that the U.S. government "increase attention to the control of nuclear weapons and materials" to keep a possible nuclear device from sneaking in through a cargo container. "Policies must balance the need for reducing the risk with the need to keep shipping open," the report said.   

Marina Contracts

January 15, 2007

Gene Horton


The Case of Big Foot and the Undulating Wave

If you berth your boat at a marina, odds are you signeda marina storage contract. This document contains much "fine" print and legalese that is worth falling asleep to on a rainy day. In a recent admiralty case, the marina storage contract was the focal point involving a personal injury to a boater. 

The Accident

A boat owner was injured at a dock owned by the marina. The boater's big foot got caught and crushed between the main dock and a floating dock to which his boat was moored. The accident occurred when the floating dock undulated as a result of the wake from a passing boat. His next step (limping, of course) was to sue the marina. The suit was brought in federal court pursuant to admiralty jurisdiction. The boater, now plaintiff, contended that admiralty jurisdiction existed because of a federal statute known as the Admiralty Extension Act 46 U.S.C. Section 740, which extends the federal court's admiralty jurisdiction to accidents resulting on land but having been caused by a vessel on navigable waters.By way of example, consider the ship berthing in New York Harbor, not too long ago whose bow wound up breaking through the wall of a harborside restaurant during docking and injuring some unwary diners. 

The Fine Print

The marina contract at issue in the big foot case contained an "exculpatory" clause stating that the boat owner would not bring any claims of any kind or nature against the marina and that he would even defend, indemnify, and hold the marina harmless from any such claims.Generally, courts disfavor contract terms that seek to relieve a marina from liability for its own negligence. However, such terms can and have been enforced if the exculpatory language is specific and clear, and when there is some consideration given by the marina in exchange for it, to wit, a better storage rate per foot. It's rare, but your author has heard of situations where a marina operator will agree to strike the clause to get the business.Written by James Mercante

Jurisdiction Challenge

The court has not yet decided the validity of the exculpatory clause, having been sidetracked with the marina's challenge over whether the federal court has jurisdiction. For the marina to have employed this jurisdictional battle, state law must have been more favorable to the marina then federal admiralty law on the enforcement of the marina's terms. The marina's position was that the contract (which governs whether or not the boater can go forward with his claim because of the exculpatory clause) is not a maritime contract. On the other hand, the injured plaintiff argued that the case belongs in federal court because the injury which occurred on an (undulating) dock caused by the wake of a vessel in navigable waters — is a maritime accident.The court found that the marina's storage agreement is a maritime contract and thus admiralty jurisdiction exists. However, the court determined that the plaintiff boater can not proceed on the injury claim until after the court first resolves the contractual issue. In other words, if the exculpatory term of the storage agreement is valid and enforceable, the boater's negligence claim would be doomed. The Judge summed it up this way: The negligence claim cannot be divorced from the contract claim because without success on the latter, the plaintiff cannot proceed on the former. That clears it up!

Marinas are entitled to store boats pursuant to maritime contracts. Boaters should read the fine (depending on one's perspective) print. As with the law, ignorance of the contract terms is no excuse.

Salvage Awards

January 15, 2007

Gene Horton

Pure Salvage Award Proper Notwithstanding EvidenceOf Pre-negotiated Towing Contract 

In Joseph v. J.P. Yachts, LLC, 436 F. Supp. 2d 254 (D. MA. 2006), the district court found that New Bedford Marine, a marine towing and salvage company, was entitled to recover a pure salvage award notwithstanding evidence of an oral fixed-fee agreement entered with the boat owner prior to the services being rendered. At around 0300 on September 2, 2003, the M/Y LADY MAZTF, a three million dollar motor yacht owned by Jerry Prescott, grounded in the outer harbor at Cuttyhunk Island, Massachusetts. Prescott was a member of Boat U.S. and was familiar with the organization's on-water towing services agreement. After the grounding Prescott called Boat U.S. and was provided with contract details for New Bedford Marine, an approved Boat U.S. towing services provider. According to the trial court, Prescott intentionally waited until after 0500 to contact New Bedford Marine in order to obtain the lower $125 per-hour daytime towing rate. Prescott spoke with Ralph Joseph, the owner of New Bedford Marine.


Prescott informed Joseph that he had dragged anchor, but did not disclose that he was aground, precipitously close to a rocky beach, with strengthening winds and waves pushing the vessel ashore. The trial court found that during the conversation with Joseph, Prescott (an experienced boater who once held a 100 ton master's license) intentionally minimized the nature of the problem and was emphatic that he only needed one assist boat to keep the yacht's stem from going on the beach. Asked for a price, Joseph quoted the discounted rate of $125 per-hour for one boat captained by Clinton Allen to tow the yacht and reset the anchor. Prescott agreed and Joseph dispatched Allen with a 23 foot tow boat equipped with a hawser. When Allen arrived, the vessel was aground with 18 inches of bottom paint visible, listing, and lurching towards shore. Allen immediately informed a member of the vessel's crew that they were in a salvage situation. With the crew's assistance Allen attached the towing hawser to the yacht's starboard quarter and kept a strain on it to minimize the yacht's contact with the rocks. He then called Joseph and requested a second boat. A shallow-water Kencraft was dispatched, captained by Joseph Moniz. The two rescue boats were able to keep tension on the yacht's stem until the rising tide lifted her off the ground at approximately 1020. The yacht sustained no damage. Allen released his hawser, leaving the Kencraft's towing line in place. To confirm that the yacht's engines were operating properly, Allen then carefully instructed Prescott to momentarily "bump it in gear" while the Kencraft's line was still attached. Instead, Prescott put the yacht in first gear for a full minute, causing the Kencraft assist boat to capsize. Allen rescued Moniz, retrieved the Kencraft, and gave Prescott a salvage invoice. Prescott refused to sign.

New Bedford Marine filed suit against Prescott seeking a pure salvage award of $350,000.00, or approximately 12% of the post-salvage value of the undamaged LADY MAZI  N;. The district court noted that in order to recover a salvage award a claimant must establish the existence of the following elements: (1) a marine peril; (2) service voluntarily rendered when not required as an existing duty or from a special contract; and (3) success in whole or in part, or that the service rendered contributed to such success. The district court found that the yacht was clearly subject to a marine peril and that the services rendered were successful.Prescott argued that New Bedford was precluded from obtaining a pure salvage award because the initial conversation between Prescott and Joseph created an oral fixed-fee contract based on a quoted rate of $125 per-hour. Rejecting this argument, the court noted that in order to establish the existence of a fixed salvage contract, there must not only be evidence of an agreement regarding the amount of compensation but, in addition, the evidence must establish that there was a mutual understanding and agreement that the requested services are in the nature of salvage. The court found that the initial agreement between Prescott and New Bedford was a contract for simple towage based on Prescott's description of the yacht's situation, which was not accurate or complete. The scope of this towage contract did not extend to the services required by the actual marine peril, nor was there an agreement to modify the contract to encompass the circumstances encountered by Allen when he arrived on scene. Relying on Flagship Marine Services, Inc. v. Belcher Towing Company, 966 F.2d 602 (11th Cir. 1992), Prescott also argued that the absence of a specific "no cure, no pay" agreement precluded the claim for pure salvage. The court agreed with Prescott's argument that the initial towage contract contemplated payment regardless of success, and found that the existence of a contract for salvage which guarantees payment regardless of the outcome will bar a claim for pure salvage. However, the court reiterated its finding that the initial contract was for towage, and not salvage. The court distinguished Flagship as involving a prior business relationship between the parties which involved salvage services.

The court considered several factors in assessing the amount of the salvage award to Joseph, including the labor, promptitude, skill, and energy of the rescuers, the value of the property employed by the rescuers, the risks they faced, the value of the property saved, and the degree of danger from which the property was rescued. Notable among these factors was the value of the capsized Kencraft, and the risk and degree of danger faced by the vessel as a result of the hawser remaining attached to the moving yacht. The court awarded an $80,000.00 salvage fee to Joseph, representing 2% of the post-salvage value of the yacht.