Illinois Federal Court Holds Responsible Party Under Oil Pollution Act Does Not Have To Establish Actual Cause Of Incident To Obtain Limitation Of Liability

In January 2005, a barge exploded in the Chicago Sanitary and Ship Canal.  The explosion killed an employee of the barge owner and spilled 4,718 gallons of oil into the canal.  The insurers of the barge owner paid more than $8.6 million in costs associated with the removal effort and then sought to recover the costs from the Oil Pollution Act’s Oil Spill Liability Trust Fund through administrative claims to the National Pollution Funds Center (NPFC), claiming they were entitled to full exoneration from liability and recovery of all clean-up and removal costs under 33 U.S.C. § 2703 because the incident was solely caused by acts or omissions of third parties or alternatively, that their liability was limited to $2 million under 33 U.S.C. § 2704(a)(1)(B) because the incident was not proximately caused by the gross negligence or willful misconduct of, or a violation of an applicable federal safety standard by, the responsible party (the barge owner) or its agent.

The NPFC denied the claims, finding that the cause of the explosion remained unknown and that it was fundamental to a claim for entitlement to limitation of liability for the cause to be explained.  The NPFC stated  it could not determine that the claimants had demonstrated entitlement to the limitation of liability where exceptions may apply, specifically that the owner may be guilty of gross negligence because one of its employees caused the explosion by using a propane torch near an open standpipe.

Last week, the U.S. District Court for the Northern District of Illinois ruled that the NPFC incorrectly interpreted the Oil Pollution Act to require the insurers to prove by a preponderance of the evidence the proximate cause of the explosion in order to demonstrate a limitation of liability and recover from the fund.  The NPFC failed to conclude that either of the two exceptions to the limitation of liability—cause by gross negligence or willful misconduct of the responsible party or the violation of an applicable federal safety, construction, or operating regulation—applied; instead, the NPFC denied the claim after concluding that the insurers had the burden of proving the actual cause of the explosion by a preponderance of the evidence.  Unlike § 2703(a), §2704(a) does not impose a burden on a responsible party to establish its right to the limitation of liability by a preponderance of the evidence.  The court explained that if the NPFC cannot conclude that an exception to the limitation on liability applied, then the general rule applies, regardless of whether the proximate cause of the incident is conclusively established, and the party is entitled to the limitation of liability.