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Starr loses cover suit with marine pollution insurer

oil barges

A federal appeals court on Wednesday upheld a lower court decision and ruled against Starr Indemnity & Liability Co. in coverage litigation with a marine pollution insurer in a case involving two grounded oil barges.

In April 2014, two oil barges owned and operated by Houston-based Genesis Marine LLC ran aground on the Mississippi River near Chester, Illinois, according to court papers in Starr Indemnity & Liability Co., as subrogor of all rights of Genesis Marine LLC v. Water Quality Insurance Syndicate. One barge contained 16,702 barrels of oil while the second carried 13,813, according to the court papers.

Genesis was insured under several insurance policies, including New York-based Starr’s “hull and machinery” and “protection and indemnity” policies and a pollution liability policy provided by New York-based Water Quality, a marine pollution insurer, according to court papers.

Both Starr and Water Quality disclaimed coverage for costs incurred by Houston-based T&T Salvage LLC in overseeing removing the oil and salvage operations for the grounded barges.

Starr, which reimbursed or paid more than $3.4 million in pollution control cost and expenses related to the incident, according to the complaint, filed suit in U.S. District Court in New York in a subrogation action against Water Quality. 

The district court ruled in Water Quality’s favor, which was upheld by a unanimous three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York.

The district court ruled that “two necessary conditions” for coverage under Water Quality’s pollution liability policy had not been satisfied, said the appeals court ruling.

First the barges’ grounding never posed a “substantial threat of discharge” under the Oil Pollution Act of 1990, said the ruling.  Secondly, the oil removal and salvage costs “were not incurred to mitigate a perceived threat of discharge,” the ruling said.

“Starr maintains that the United States Coast Guard believed the barges posed a substantial threat of discharge, and that any finding to the contrary is thereby erroneous,” said the ruling.

The ruling said, however, “We identify no error – much less clear error – in the District Court’s conclusion that the Coast Guard made no such ‘substantial threat’ determination and that the grounded barges never presented a substantial threat of oil discharge.”

It said Starr “relies almost exclusively” on the testimony of a chief petty officer who testified “the barges presented a substantial threat of oil discharge.”

The ruling said among the reasons the district court discredited her testimony was it was “largely contradicted by the trial record and by other credible witness testimony,” said the appeals court, in affirming the lower court’s ruling.

John Woods, a partner with Clyde & Co in New York, who represented the syndicate in the litigation said the ruling is significant because “courts will look at the facts,” and that ultimately determined the coverage.

He said the ruling “again draws a bright line distinction between what would be a pollution loss vs. what is a salvage loss. There are often questions in the marine area whether the recovery of a vessel that has been in a casualty should be considered removal of a wreck, or a threat of pollution.”

Mr. Woods said here, “the court made clear once again that where the principal reason” for salvaging a vessel is a salvage claim, “it doesn’t become a pollution claim” simply because there is oil on board. “There has to be a substantial threat in order for there to be a pollution claim,” Mr. Wood said.

Starr’s attorney did not respond to a request for comment.

In February, a federal appeals court overturned a lower court ruling and ruled in favor of a OneBeacon Insurance Group unit in a dispute with a protection and indemnity insurer over insurance coverage for a sunken tugboat.








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