GUILFORD D. WARE

NORFOLK

Chapter 4

WRECK REMOVAL

(7) Liability for cost or expenses of, or incidental to, the removal of the wreck of the vessel named herein when such removal is compulsory by law, provided, however, that:

(a) There shall be deducted from such claim for cost or expenses, the value of any salvage from or which might have been recovered from the wreck, inuring, or which might have inured, to the benefit of the Assured.

(b) The Assurer shall not be liable for such costs or expenses which would be covered by full insurance under the [ ] or claims arising out of hostilities or war-like operations, whether before or after declaration of war.

WRECK

A sunken vessel damaged to an extent of being rendered unnavigable is a "wreck" within a marine policy covering liability for expenses of removal of a wreck. In action on marine policy to recover the cost of removal of a sunken vessel, plaintiff must initially prove that vessel was a wreck within provision of the policy. M.J. Rudolph v. Lumber Mutual Fire Insurance Co., 371 F. Supp. 1325 (E.D.N.Y. 1974).

When removal of a fishing boat blocking a channel was not undertaken to preserve the ship's hull, gear and personalty, but, rather, at the time the salvage effort was commenced, the vessel appeared to be a total loss or a constructive total loss, the cost of the removal fell under the "wreck removal" provisions of the vessel's P & I policy, rather am under the "sue and labor" provisions of the vessel's marine hull insurance. The fact that the hull insurance underwriter solicited bids to restore the vessel subsequent to her removal was nothing more than an attempt to mitigate its liability. Zurich Insurance Company v. Pateman, et al., 692 F. Supp. 371 (D.N.J. 1988).

SALVAGE RIGHT

In exchange for his right to total recovery for loss of vessel, insured is obligated to transfer his interests in ship to insurer. Continental Insurance Co. v. Clayton Hardtop Skiff, 239 F. Supp. 815 (D..N.J. 1965) vacated 367 F.2d 230 (3rd Cir. 1966).

COMPULSORY REMOVAL (Compulsory By Law)

"Compulsory removal" is a term of art in admiralty law and refers to a situation in which a hull has been abandoned by the owner and the hull underwriter but, pursuant to government order, must be removed from navigable waters. Seaboard Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500 (2nd Cir. 1972).

Where owner was served with summons charging it with obstructing waterfront property under rule providing that if the waterfront property is obstructed commission may have it removed and charge the owner for such expense, the owner was under compulsion to remove wreck. M.J. Rudolph v. Lumber Mutual Fire Insurance Co., 371 F. Supp. 1325 (E.D.N. Y. 1974).

Under Missouri law, a marine indemnity policy providing coverage for "any neglect or failure to raise, remove, or destroy" the wreck of an insured vessel did not provide coverage for liability arising when ship struck assured's sunken barge after expiration date of policy term and insured's failure to remove barge had largely occurred during policy term. Eagle Leasing Corp. v. Hanford Fire Insurance Co., 540 F.2d 1257 (5th Cir. 1976), cert. denied 431 U.S. 967 (1977).

In 1981, the Fifth Circuit, disagreed with the Second Circuit's 1972 holding in Seaboard Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500 (2nd Cir. 1972), and concluded that no express order from a governmental agency requiring the removal of the vessel was needed. Instead a three-pronged test was suggested, that is, a removal is "compulsory by law" if (a) it was reasonably required by law, or (b) failure to remove would expose the insured to liability of such magnitude as to justify removal; and (c) the insured believed that removal was necessary to avoid legal consequences of the type covered by the policy. Progress Marine, Inc. v. Foremost Ins. Co., 642 F.2d 816 (5th Cir. 1981), cert. denied. 454 U.S. 860 (1981).

Two years later, sitting en banc, the Fifth Circuit modified its own Progress Marine test by eliminating the requirement that the insured subjectively believe removal was reasonably necessary, but held that the assured could not recover from the P & I underwriter because (a) Conoco was not the owner of the vessel and was not negligent, and therefore was not legally obligated to remove the wreck; and (b) since Conoco was neither negligent nor the owner of the vessel, it was not exposed to any third party liabilities of a magnitude sufficient to justify incurring the removal expense. The court did, however, allow Conoco recovery against the vessel owner, whose negligent crew caused the sinking, and hinted in a footnote (n. 2) that the owner's liability to Conoco was probably covered by the P & I policy, but that question was not at issue. Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365 (5th Cir. 1983).

The term "compulsory by law" in a maritime P & I Policy should be interpreted according to the reasonable expectations of the parties. East Coast Tender Service v. Winzinger, Inc., 759 F.2d 280 (3rd Cir. 1985) (adopting the interpretation of "compulsory by law" as set forth in Progress Marine).

Progress Marine standard applied and removal was "compulsory by law" when a shipowner was directed by the Coast Guard to remove a wreck from a channel and reasonably concluded that the failure to remove the wreck would expose it to liability in an amount "sufficiently great to justify the expense of removal." Zurich Insurance Company v. Pateman, et al., 692 F. Supp. 371 (D.N.J. 1988).

Removal of a wreck is "compulsory by law" if it is directed by valid government order, statute or regulation, or if the wreck owner's probable tort liability without the removal could reasonably be expected to exceed the probable removal costs. Grupo Protexa v. All American Marine Slip, 753 F. Supp. 1217 (D. N.J. 1990), rev'd 954 F.2d 130 (3rd Cir. 1992); 856 F. Supp. 868 (D. N.J. 1993); aff'd 20 F.3d 1224 (3rd Cir. 1994).

Under the 1986 amendments to the United States "Wreck Act," 33 U.S.C. §409, et seq., a vessel owner is responsible for promptly marking and removing any wreck which poses a hazard to navigation or, in the alternative, the owner will be strictly liable to the United States for the cost of the Government's removing the wreck from its navigable waters.

AS OWNER

Under the SP-23 form, the underwriters insure against losses incurred by the insured "as owners of the vessel named herein. " One of the risks covered is liability for expense of removal of wreck "of the vessel named herein."

No coverage where a dumb barge, under the complete control of a tug owned and operated by the same entity and insured under the same fleet policy as that of the barge, sank due solely to fault of the tug. The owner was not liable for the cost of the barge's removal "as owner" of the barge. St. Paul Fire & Marine Ins. Co. v. Vest Transp. Co., 500 F. Supp. 1365 (N.D. Miss. 1980), aff'd per curiam, 666 F.2d 932 (5th Cir. 1982).

Chartered operator of a vessel could not recover from the owner-operator's P & I underwriter for the cost of removal of the vessel's wreck because the chartered operator was not exposed to any liability "as owner" of the vessel; a time charterer has no obligation to remove the wreck. The court also held that the charterer could not recover under the policy provision covering "expense in connection with any fixed or movable object" because it incurred the expense as a lease operator, not "as owner" of the vessel. Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365 (5th Cir. 1983).

GENERAL REFERENCES

33 U.S.C. § 409 et seq.

Buglass, MARINE INSURANCE AND GENERAL AVERAGE IN THE UNITED STATES, 117-29, 410 (1991).

Henderson, The Wreck Act Duties to Mark and Remove, 21 JOURNAL OF MARITIME LAW AND COMMERCE, No. 3, 435-42 (1990).

Handford, Serious Snag in the Wreck Act, 15 TULANE L. REV. 103-181, (1990).

Koelzer, "Compulsory by Law " in a P&I Policy, 19 TULANE L. REV. 177-87 (1994).

Maloney, Wyandotte and its Effects on P&I Tower's Liability or Other Insurances. What Policy Covers?, 43 TULANE L. REV. 568 (1969).

McCarthy, P & I Liability for Compulsory Wreck Removal, LLOYD'S MARITIME AND COMMERCIAL LAW QUARTERLY No. 1 at 427-29 (1986).

Parks, THE LAW AND PRACTICE OF MARINE INSURANCE AND AVERAGE 468-74 (1987).

Schoenbaum, ADMIRALTY AND MARITIME LAW 2d, §14.5 (1994).

Snowcroft, Wreck Removal: An Overview and Recent Developments, 16 JOURNAL OF MARITIME LAW AND COMMERCE 311-36 (1985).