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MANAGING LIABILITY AND INSURING RISK IN THE WORLD OF SUBCHAPTER M: LEGAL ISSUES TO CONSIDER AND THE OBLIGATIONS OF MARINE OPERATORS.

TABLE OF CONTENTS

   I. Introduction                                             290
  II. Subchapter M Will Minimize the Applicability of the
      Coast Guard and OSHA MOU                                 293
 III. The TSMS Option Opens the Door to More Discovery From
      Towing Vessel Operators                                  296
      A. Discovery--A Real Fishing Expedition                  297
      B. Internal Audit Records Under the TSMS Versus
         Attorney Work Product and Maintaining Privilege Over
         Records                                               301
         1. Work-Product Doctrine                              301
         2. Attorney-Client Privilege                          307
         3. The Fifth Amendment                                308
      C. Handling Coast Guard Investigative Reports Versus
         Subchapter M Audits                                   309
  IV. The Pennsylvania Rule                                    310
   V. Vessel Owners May Be Presumed Liable More Often Than
      Expected Under Subchapter M                              313
  VI. Vessel Owner Liability May Be Limitless Under
      Subchapter M                                             319
 VII. Marine Insurance Coverage Under Subchapter M             325
VIII. Conclusion                                               330


I. INTRODUCTION

Although Subchapter M (1) "takes effect" in July 2018, the world of regulatory compliance has already changed as many vessel operators work towards conforming with Subchapter M. The form that a Towing Safety Management System (TSMS) takes will be important to any operator's ability to succeed in a Subchapter M environment, with the TSMS essentially replacing the typical safety management system (SMS). (2) This new regulatory scheme will effectively change inland towing vessel operations and their safety programs, as well as the manner in which operators, insurers, and lawyers view risks and liabilities in this new environment. Under Subchapter M, an SMS will no longer be merely an accepted practice or industry standard, but a requirement under federal law. This will likely place more power in the hands of plaintiffs' lawyers with respect to claims that relate to violations of a TSMS and Subchapter M, which in turn will have an impact on the defenses that vessel operators can employ under general maritime law and statutes.

The effort to bring uninspected towing vessels into United States Coast Guard (Coast Guard) certification began nearly thirty years ago, initiated by an American Waterways Operators (AWO) working group. AWO studied problems related to Occupational Safety and Health Administration (OSHA), the Coast Guard, Operator Uninspected Towing Vessels (OUTV), and the Jones Act and made a report that included a recommendation that inland towboats become part of the Coast Guard inspection program. This was prior to the establishment of a Towing Safety Advisory Committee (TSAC). At that time, the Coast Guard made it known that it did not want inland towing vessels to become inspected, and neither did most inland towing vessel owners. Time passed, Navigation and Vessel Investigation Circulars (NVICs) were written, large corporate operators replaced many "mom and pop" operators, and competent individuals from various companies began to look for more permanent solutions to long-term operational and navigational problems.

The enactment of the Maritime Transportation Act of 2004, and the regulations that followed, represent the culmination of more than thirty years of work towards an inspected regime for inland towing vessels. The practicality of the rules, costs, efficiency, and initial efforts necessary for inland towing companies to achieve compliance remain the primary focus of the marine industry. Ultimately, the goal is to enhance safety, reduce reportable accidents, prevent personal injuries, protect the environment, and increase efficiency for every operator. Reducing injuries and accidents has a significant impact on every company's bottom line. Operations that are safer, more professional, and more efficient increase net profit and decrease the need for lawyers.

Defense attorneys representing inland towing companies should be focused on the consequences of failing to comply with this new regulatory regime. Whether they are dealing with clients who either resist change, whose stubbornness keeps in place unacceptable systems because "this is the way we have always done it," or who make good faith efforts to bring their companies into compliance, they all can become overwhelmed by the requirements of Subchapter M. So how can litigation arising from personal injuries, collisions, allisions, and other incidents change in an inspected world? Going forward, every lawsuit, from claim through closing argument, will now carry with it the implications of Subchapter M.

The resounding themes of Subchapter M are undeniable: reducing the number of accidents and injuries, increasing the amount of policies and procedures to achieve that goal, maintaining documentation to support compliance with these new policies and procedures, and increasing involvement of management and ownership in all vessel operations. These themes alone dramatically change operators' legal exposure during the transition from a world in which towing vessels were uninspected to one in which they are inspected. This article provides some immediate good news and obvious bad news, and also identify issues for further thought. In the same way many vessel owners volunteered to participate in the bridging program with the Coast Guard, this paper is intended to serve as a "bridge" to assist owners and operators in understanding the legal implications and risks of operating in a Subchapter M environment.

II. SUBCHAPTER M WILL MINIMIZE THE APPLICABILITY OF THE COAST GUARD AND OSHA MOU

On March 17, 1983, the Coast Guard and OSHA signed a Memorandum of Understanding (MOU) agreeing that, because the Coast Guard exercises comprehensive authority over inspected vessels, OSHA "may not enforce the OSH Act with respect to the working conditions of seamen aboard inspected vessels." (3) This means that the Coast Guard's authority extends not only to those working conditions on inspected vessels specifically addressed by Coast Guard regulations, but to all working conditions on inspected vessels, including those "not addressed by the specific regulations." (4)

Almost twenty years later, the United States Supreme Court granted certiorari in Chao v. Mallard Bay Drilling to determine the burning issue that the MOU did not address: Whether safety regulations under the OSH Act apply to the working conditions of seamen on uninspected vessels. (5) In Chao, Mallard Bay Drilling operated a fleet of barges used for inland oil and gas exploration. (6) While drilling a well, an explosion killed several members of the crew and injured others. (7) The Coast Guard conducted an investigation into the casualty, which was described as being limited to "purely vessel issues." (8) Although the rig possessed a Coast Guard Certificate of Documentation, it was not required to, nor did it hold, a Coast Guard Certificate of Inspection. (9) OSHA cited Mallard Bay Drilling with three violations of the OSH Act. (10) While the company did not deny the charges, it challenged the agency's jurisdiction on grounds that OSHA was preempted by the Coast Guard's general marine safety regulations. (11) The United States Fifth Circuit Court of Appeals held that the Coast Guard had exclusive jurisdiction over the regulation of working conditions of seamen on board both inspected and uninspected vessels. (12)

After granting certiorari to resolve the split of authority among the federal circuits, the Supreme Court held that OSHA regulations applied to uninspected vessels where existing Coast Guard regulations did not address the specific type of risk involved. (13) As a result, owners of uninspected vessels were confronted with numerous claims attempting to impose liability on the vessel owner by using OSHA standards. In addition, clever personal injury plaintiffs attempted to bootstrap OSHA violations onto Section 3 of the Federal Employers' Liability Act (FELA) to find an employer negligent per se and an employee free from comparative fault because of an OSHA regulation violation. Although federal district courts routinely denied these attempts, they were still a danger in several state courts that had misinterpreted Chao. (14)

This utter confusion and inconsistency was exactly what the Fifth Circuit had predicted in Mallard Bay Drilling, Inc. v. Herman (15) prior to the Chao ruling. In Herman, the court stressed that having overlapping and multiple federal jurisdictions would create confusion due to a proliferation of government regulations, and would produce anomalies of vessels "steaming in and out of OSHA coverage." (16) The Fifth Circuit held that the Coast Guard should have exclusive jurisdiction over the working conditions of seamen on all vessels in navigation, whether inspected or uninspected. (17) The court also specifically stated that the Coast Guard is no stranger to uninspected vessels, because the Coast Guard has authority to issue safety regulations for uninspected as well as inspected vessels, and had exercised this authority to some degree. (18) Therefore, the court urged a uniform set of rules to govern the maritime workplace. (19)

Thankfully, with the advent of Subchapter M, the Fifth Circuit's logic in Herman has been brought back to the forefront. One of the goals of industry leaders in seeking to move uninspected towing vessels into an inspected class was to end the confusion and inconsistency caused by the overlapping federal safety jurisdictions. In response to a suggestion that the Coast Guard "obtain full jurisdiction over regulated towing vessels," the Final Rule states:
OSHA will continue to enforce its requirements on shipyard employers
that perform shipyard employment subject to 29 CFR 1915 on inspected
and uninspected vessels. OSHA will also continue its current
enforcement on uninspected vessels. (20)


While OSHA will continue to enforce workplace safety and health requirements on board uninspected towing vessels, (21) the MOU will continue to exist and apply to the excepted class of vessels, and those uninspected vessels that do not fall within the definition of "towing vessels" under Subchapter M. According to the Final Rule, Subchapter M requires owners and operators of towing vessels subject to inspection to "develop and implement their own health and safety processes and procedures." (22) OSHA will cease to have jurisdiction over "the workplace safety aspects for seamen on towing vessels subject to [S]ubchapter M." (23)

Although towing vessels will now be "inspected vessels" for purposes of the MOU, this does not mean that owners and operators will forever be free from a visit from OSHA. In Elaine Chao v. Transocean Offshore, Inc., (24) the Fifth Circuit upheld a judgment of civil contempt and an award of attorney's fees in favor of the Secretary of Labor that resulted from the refusal of the owner of an inspected vessel to honor an inspection by OSHA. (25) Transocean Offshore, owner of the M/V DISCOVER ENTERPRISE, refused to honor a search warrant authorizing OSHA to inspect the work areas of Ingalls Shipbuilding employees, including on the vessel's decks. (26) The basis for Transocean's objection was that inspected vessels were subject to exclusive regulation by the Coast Guard. (27) In rejecting Transocean's argument, the Fifth Circuit reasoned that OSHA's jurisdiction over a longshoreman is uncontradicted and expressly authorized by federal regulation, (28) and that OSHA's regulatory power is not displaced as to workers who are engaged in their assigned duties, even if those duties are aboard an inspected vessel. (29)

In sum, Subchapter M is supposed to achieve the goals of industry and Coast Guard leaders, which is ending the overlapping jurisdiction of OSHA on inland towing vessels. The Coast Guard now has exclusive jurisdiction to regulate and enforce safety standards in the context of a workplace that it knows best--vessels in navigation.

III. THE TSMS OPTION OPENS THE DOOR TO MORE DISCOVERY FROM TOWING VESSEL OPERATORS

The face of litigation for inland towing companies will change dramatically as a result of Subchapter M. In many ways, brown water vessels will now be exposed to more liability in the same ways that their offshore cousins, blue water vessels, have been for years. In other ways, because of the specific and detailed instruction that Subchapter M provides (particularly with the TSMS option) and because some of that instruction is not a perfect fit for the inland towing industry, the industry's liability exposure may be even greater.

Inland vessel owners will need time to transition their vessels into an inspected vessel world and to adjust to litigation in a new system of extensive regulatory requirements. In most cases, they will have until July 20, 2018, to do so. When litigation arises, the discovery period will become more onerous; affirmative defenses, once exercised routinely, will likely be limited; and statutes that once protected owners may be rendered useless.

A. Discovery--A Real Fishing Expedition

With enactment of Subchapter M, the Coast Guard and the industry hope not only to establish a comprehensive safety program for inland towing vessels, but also to ensure compliance with that program. With every regulation and requirement within Subchapter M comes an additional "compliance" regulation mandating that the owner or managing operator documents, records, or preserves "objective evidence" of its compliance with the regulation. (30) A brief overview of the proposed regulations reveals that, at a minimum, vessels opting for the Towing Safety Management System (TSMS) are required to maintain on board the following twenty-five categories of documentation:

* Certificate of Inspection (31)

* Objective evidence of TSMS compliance (32)

* Documentation of compliance activities (33)

* Report of each internal survey of a towing vessel, (34) including descriptive lists of all non-conformities identified during each survey, whether corrected or remaining at the end of the survey (35)

* Objective evidence of an external survey program (36)

* Objective evidence of internal survey program (37)

* Objective evidence of completion of vessel's drydock and internal structural examinations (38)

* Objective evidence of load line compliance (39)

* Owner or managing operator's organizational structure, responsibilities, procedures, and resources which ensure quality monitoring (40)

* Written policies and procedures of the vessel's TSMS (41)

* Copy of the TSMS certificate issued by TPO demonstrating compliance with TSMS requirements (42)

* Results of internal audits (43)

* Results of external audits (44)

** External management audits (45)

** External vessel audits (46)

* Records of non-conformity reports and corrective actions (47)

* Merchant Marine Credentials of each crew member required to hold such a credential (48)

* Personnel records (49)

** List of crewmembers (50)

** List of assigned positions and responsibilities (51)

** Passengers (52)

** Engineer logs if an engineering watch is maintained (53)

* Documentation of safety orientation which must occur within five days of an individual's employment (54)

* Records of refresher drills and training which must occur annually (55)

* A written health and safety plan and documentation of compliance (56)

* Records evidencing routine inspection of navigational safety equipment (57)

* Records of failure and subsequent repair or preplacement of navigational safety equipment (58)

* Records of navigation assessment (59)

* Records of navigation safety training (60)

* Records of oil residue discharges and disposals (61)

* Records evidencing every 30-day inspection of towing gear and inspections of towing gear prior to the vessel "getting underway" (62)

The bottom line is that this is a lot of paperwork. Further, it is a lot of paperwork that is required by law to be kept by the inland towing vessel owner. The towing vessel record requirements alone almost necessitate that every captain be provided with a secretary to handle his paperwork so that he can steer the vessel. In the hands of a competent plaintiff's attorney, these regulations, and the records generated by them as mandated by federal law, will likely become the standard request for production of documents in every case.

Federal Rule of Civil Procedure 26(b) states in part:
Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party's claim or defense and proportional to the needs
of the case, considering the importance of the issues at stake in the
action, the amount in controversy, the parties' relative access to
relevant information, the parties' resources, the importance of the
discovery in resolving the issues, and whether the burden or expense of
the proposed discovery outweighs its likely benefit. Information within
this scope of discovery need not be admissible in evidence to be
discoverable. (63)


Because the purpose of the documentation is to ensure compliance with regulations which, on their face, "ensure the safety of the vessel and crew, prevent human injury or loss of life, avoid environmental and property damage, and ensure continuous compliance with applicable regulations," it may be difficult to argue that proof of compliance with the regulations--documentation --is not relevant in a personal injury or property damage lawsuit. In addition to making these documents available to the Coast Guard and third parties who survey their vessels and audit their safety programs, vessel owners must also keep these documents for litigation, and ensure that those reasonably requested during discovery can be produced in a timely manner.

Gone are the days when a safety manual could be produced as evidence of a safety culture on board a towing vessel. Now, the manual must meet the varied requirements of Subchapter M and there must be extensive proof--in the form of documentation--that the manual is being enforced and implemented at every turn. As the upcoming sections of this paper demonstrate, it is one thing to not possess or produce a document required by a generic safety manual and an entirely different thing to not possess or produce a document required by law. While maritime litigation is already document-intensive, it will be even more so now that Subchapter M has gone into effect.

To complicate matters further, the Federal Rules of Civil Procedure require the production of documents including:
[W]ritings, drawings, grafts, charts, photographs, sound recordings,
images, and other data or data compilations--stored in any medium from
which information can be obtained either directly or, if necessary,
after translation by the responding party into a reasonably usable
form. (64)


One of the ways Subchapter M attempts to make these requirements less burdensome is to allow many records to be kept electronically. But simply because they may be kept electronically does not mean that they will not have to be produced in either electronic or paper form. The moral of the story is to be prepared. Not only do the rules provide plaintiffs' attorneys with a road map of exactly what to request, but Subchapter M can and will ensure that everything in the owner's and operator's electronic database and other documents will be used against them in a court of law.

B. Internal Audit Records under the TSMS Versus Attorney Work Product and Maintaining Privilege over Records

1. Work-Product Doctrine

The work-product doctrine, set forth in Rule 26(b)(3) of the Federal Rules of Civil Procedure, excludes from the general scope of discovery "documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)." (65) In short, the work-product doctrine shields from discovery materials "prepared by or for an attorney in preparation for litigation." (66) Despite this, certain materials may still be discoverable if they include "raw factual information," rather than "mental impressions, conclusions, opinions, or other legal theories of a party's attorney or other representative concerning the litigation." (67) Such materials, known as "ordinary work product," are discoverable by a party demonstrating "that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." (68)

In some instances, documents are created for both litigation and business purposes. (69) When there is a true purpose for the documents' creation independent of litigation, protection from discovery is less likely. (70) However, when the purposes for creation are "profoundly interconnected," determining whether the work-product doctrine applies is more complicated. (71) The doctrine does not protect materials that have been prepared in the ordinary course of business, nor those documents that "would have been created in essentially similar form irrespective of litigation." (72) In particular, "[m]aterials or investigative reports developed in the ordinary course of business do not rise to the status of work product." (73) A party seeking to protect incident reports as work-product must show that the reports "were prepared at the specific direction of counsel in anticipation of litigation rather than pursuant to a general protocol or course of business established by defendant." (74)

In some federal circuits, such as the Ninth Circuit, courts apply the "because of standard to determine whether the documents in question were prepared in anticipation of litigation. (75) The "because of standard requires that a document be deemed prepared in anticipation of litigation if, "in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation." (76) No consideration is given to whether the prospect of litigation was a "primary or secondary motivation behind the creation of a document." (77) Instead, materials are shielded from discovery if the totality of the circumstances indicate that they were "created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation." (78)

The discovery dispute in Hooke v. Foss Maritime Company arose from a maritime personal injury suit brought under the Jones Act and general maritime law. (79) The issue central to that case was whether the defendant employer properly withheld its Internal Incident Investigation Report (Incident Report), Event Information System (EIS) Report, and EIS Report Witness Statements (Witness Statements) on grounds that they were protected documents as attorney work-product. (80) The court held that none of the documents were protectable under the work-product doctrine because they were not prepared in anticipation of litigation. (81) First, the court reasoned that the Incident Report and the EIS Report were prepared as part of the defendant's compliance with its SMS manual, which required the creation of those documents after all incidents, except those that were minor or not sufficiently related to employment by the defendant. (82)

Next, the court recognized that submitting those documents to the company's outside counsel once the company believed that litigation was likely might have indicated a "dual purpose" for creating the documents (83) but concluded that "any litigation purpose [was] eclipsed by the 'true independent purpose' of fostering the safety" of the defendant's operations. (84) This finding was based on the language of the SMS Manual, which described the EIS system as "an essential program that helps create a safe operating environment... by fostering a process to understand what happened in an incident, why it happened and how to prevent it from occurring again." (85) The court determined that "the dual purposes of operational safety and litigation [were] not so 'profoundly interconnected' that it [could] be said that the documents were created 'because of the litigation." (86)

The court further justified its finding that the work-product doctrine would not apply because the documents would have been prepared in substantially similar form irrespective of the prospect of litigation. (87) For example, pursuant to the company's standard operating procedure, Witness Statements were recorded on preprinted forms. (88) The court held that sending them to outside counsel when litigation becomes more likely does not transform the documents into attorney work product. (89)

In other circuits, such as the Fifth Circuit, the "primary motivating purpose" test is utilized to determine whether materials were prepared in anticipation of litigation, thus qualifying them for protection from discovery. (90) Under this standard, "litigation need not necessarily be imminent... as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation." (91) Courts rely on the following factors to identify the primary motivation behind the preparation of a document: (1) retention of counsel, (2) counsel's involvement in the generation of the document, and (3) whether the document was prepared as part of a routine practice or in response to particular circumstances. (92)

In Chevron Midstream LLC v. Settoon Towing LLC, the court noted that anticipation of litigation alone does not automatically shield investigative reports from discovery under the work-product doctrine. (93) Importantly, "[i]f the document would have been created regardless of whether litigation was also expected to ensue, the document is deemed to be created in the ordinary course of business and not in anticipation of litigation." (94) This means that if an investigative report is produced as a result of an accident investigation, and such accident investigations are performed in the ordinary course of business, the resulting report is discoverable in civil litigation. (95)

Settoon Towing arose from the allision of a vessel with a pipeline that caused an explosion and fire resulting in personal injuries, death, and property damage. (96) During discovery, the defendant requested production of Chevron's "Root Cause Analysis" (RCA) and other documents created in relation to the incident. (97) In opposition to the production request, Chevron claimed that the RCA was protected by attorney-client privilege and the work-product doctrine because it was "legally chartered." (98) According to Chevron, legally-chartered RCAs were not routine and were "separate and distinct" from other routinely-performed RCAs. (99)

In determining whether the RCA at issue was protected, the court looked to whether the RCA would have been conducted "regardless of whether litigation was also expected to ensue." (100) According to the evidence before the court, RCAs "are routinely conducted by Chevron after incidents," such as the allision, for the purpose of "determin[ing] the root cause of said incidents in order to prevent similar accidents from re-occurring." (101) The court looked to Carroll u. Praxair, in which the Western District of Louisiana was tasked with the specific issue of "whether a root cause analysis directed by an in-house law department was subject to the work-product privilege." (102) As with the RCA in Carroll, the evidence established that RCAs were "conducted routinely as part of Chevron's 'culture;'" the RCA referenced "lessons learned and recommendations directed at operations functions;" and there was testimony that those lessons would subsequently be applied. (103) The defendant in Carroll "failed to establish that the primary motivating factor behind the investigation and the RCA was to aid in possible future litigation," (104) because:
Even if [the] documents were prepared with an eye toward litigation, it
is evident that the RCA contains information which Praxair would be
expected to compile in the ordinary course of its business after an
accident has occurred in order to ascertain the cause of the accident,
to evaluate equipment failures, and to implement changes in an effort
to prevent similar accidents in the future. (105)


The Eastern District of Louisiana held that the same was true of the RCA prepared by Chevron, (106) concluding that, "while the subject RCA was conducted, in part, to aid in preparation for litigation, it was not primarily motivated by that concern." (107) The RCA and other requested documents would have been created regardless of whether litigation was anticipated. (108) Therefore, the work-product doctrine did not shield those documents from discovery. (109)

The discoverability of internal compliance records is a crucial factor for towing companies to weigh when choosing between the TSMS option and the Coast Guard option. The TSMS option requires extensive annual internal audits to ensure compliance with the TSMS at every level of the organization. (110) Importantly, internal audit reports may contain evidence of noncompliance that would be detrimental to a towing operator in litigation.

Subchapter M requires composition of internal audit records as part of a towing operator's ordinary course of business. Because they will be created without regard to the prospect of litigation, they will not be shielded by the work-product doctrine. Even documents prepared in anticipation of litigation will not be shielded by the work-product doctrine if their form is substantially similar to the form of the reports required by the TSMS option. To avoid the discovery of documents that contain potentially unfavorable information, it is safer for vessel owners to comply with Subchapter M via the Coast Guard option. This option requires less recordkeeping on the part of the towing vessel and operator because inspection is left solely to the Coast Guard. (111)

2. Attorney-Client Privilege

Although the work-product doctrine will not apply to internal audit reports, the ruling of In re Kellogg Brown & Root, Inc. indicates that internal audit reports may be shielded by the attorney-client privilege. (112) During the discovery surrounding that case, a request was made for production of Kellogg Brown & Root's (KBR) documents relating to an alleged fraud. (113) In its analysis, the court turned to Upjohn Co. v. United States, in which the Supreme Court held that "confidential employee communications made during a business's internal investigation led by company lawyers" was protected from discovery under attorney-client privilege. (114)

As in Upjohn, the internal investigation in KBR was undertaken to "gather facts and ensure compliance with the law after being informed of potential misconduct." (115) Additionally, both investigations were conducted at the direction of the in-house legal departments. (116) The court in KBR held that an organization's internal investigation would be protected by the attorney-client privilege "if one of the significant purposes of the internal investigation was to obtain or provide legal advice... regardless of whether [the] internal investigation was conducted pursuant to a company compliance program required by statute or regulation." (117) The court adopted a test that focused on whether "obtaining or providing legal advice was a primary purpose of the communication" rather than the primary purpose. (118) Thus, the attorney-client privilege was not inapplicable simply because the internal investigation was also performed in order to comply with federal regulations requiring the investigation. (119) The court also noted that Upjohn neither held nor implied that the application of the attorney-client privilege was predicated on involvement by outside counsel, (120) and instead adopted the general rule that "a lawyer's status as in-house counsel 'does not dilute the privilege.'" (121)

This general rule is especially pertinent to discovery of internal audit reports under the TSMS option. Although internal audits are required as part of compliance with Subchapter M via the TSMS option, towing operators should not assume that those audit reports will be protected by the attorney-client privilege. First, 46 C.F.R. [section] 138.310(d) sets forth several requirements for internal auditors. If the company's counsel does not meet those requirements, he will not be eligible to perform the audit. As such, communications made during the internal audit between an employee and a non-attorney auditor would not be privileged.

Assuming that the auditor is in-house counsel, an owner or operator seeking to invoke the attorney-client privilege would have to prove that the communication was confidential. Because of the extensive auditing and reporting requirements, it would be difficult to ensure that the privilege would not be lost due to a breach of confidentiality. Finally, communications made during internal audits will be protected by the attorney-client privilege only if a primary purpose for making the communication was to obtain legal advice. (122) The burden will be on the operator to prove the existence of this purpose and that the communication was not made solely for achieving compliance with Subchapter M.

3. The Fifth Amendment

Production of internal audit records may also be required if a towing operator is criminally prosecuted. The Fifth Amendment protects against compulsion of self-incriminating testimonial evidence. (123) However, the Supreme Court has held that this protection does not extend to business records voluntarily prepared by the defendant in the ordinary course of business. (124) This means that compliance with a company's TSMS, identification and reporting of deficiencies, and audit records--even if they reveal something bad or lead to a large volume of records that show a company's repeated non-compliance with its TSMS--are discoverable to show a pattern of conduct or to simply inflame the judge or jury. Although the TSMS option requires that operators create and maintain certain records, such as internal audit records, Subchapter M offers another avenue for compliance with its regulations via the Coast Guard option. By virtue of the voluntary election of the TSMS option, it stands to reason that the internal audit reports are also voluntary business records.

C. Handling Coast Guard Investigative Reports Versus Subchapter M Audits

Reports created by the Coast Guard as part of a marine casualty investigation are protected by Title 46 of the United States Code:
Notwithstanding any other provision of law, no part of a report of a
marine casualty investigation conducted under section 6301 of this
title, including findings of fact, opinions, recommendations,
deliberations, or conclusions, shall be admissible as evidence or
subject to discovery in any civil or administrative proceedings, other
than an administrative proceeding initiated by the United States. (125)


Marine casualties that require reporting are the following: death of or serious injury to an individual, material loss of property, material damage affecting the seaworthiness or efficiency of the vessel, and significant harm to the environment. (126) Before the deadline for full transition to Subchapter M compliance, more attention should be given to the possibility of extending the protection afforded Coast Guard accident reports to the documentation required to comply with the TSMS option. Extending the same level of protection to internal audit reports would encourage vessel operators to choose the TSMS option, which is designed to be a more efficient way of conducting towing safety management than relying solely on Coast Guard inspections.

Otherwise, as soon as the documents are produced during discovery, plaintiffs' attorneys will, no doubt, scour through every vessel log or towing vessel record, or both; TSMS audit; TSMS manual; health and safety manual; and survey attempting to find any and all violations of these new U.S. Coast Guard regulations. This is due to the Pennsylvania Rule, which creates a presumption that a vessel violating a statute or regulation intended to protect against a particular harm is at fault when that harm results. (127)

IV. THE PENNSYLVANIA RULE

The next argument coming down the pike likely will be that, because the TSMS is required by law, failure to enforce its specific requirements is a violation of law. Therefore, it is essential to review Subchapter M with the Pennsylvania Rule in mind: What aspects of it are impossible to comply with as written? How will the vessel owner demonstrate, with a document, compliance with each and every provision? How will the vessel owner prove, with a document, that the TSMS is being enforced?

Questions also exist as to the required extent of the vessel's TSMS, and what must be done at a bare minimum, while keeping in mind the necessary safety aspects of the program and regulations. As tempting and cost-efficient as it might be to cut and paste the already-approved TSMS of another vessel to quickly set up the system and obtain a certificate of compliance, cutting these corners will only backfire. Inland towing companies choosing the TSMS option must tailor their TSMS specifically to their vessels, employees, and businesses. On the other hand, over-drafting a TSMS with requirements that are impressive on paper but cannot practically be met is risky in the face of the Pennsylvania Rule.

In 1873, the Supreme Court held in The Pennsylvania that a vessel in violation of a navigational rule would be held liable unless it could prove that the violation did not cause the collision. (128) In that case, a vessel violated a navigational rule requiring underway vessels to sound their foghorns in foggy conditions and collided with another ship. (129) The Court set forth the following rule:
When... a ship at the time of collision is in actual violation of a
statutory rule intended to prevent collisions, it is no more than a
reasonable presumption that the fault, if not the sole cause, was at
least a contributory cause of the disaster. In such a case, the burden
rests upon the ship of showing not merely that her fault might not have
been one of the causes, or that it probably was not, but that it could
not have been. (130)


Since then, the scope of the rule has expanded beyond collisions to include "other maritime torts that occur[] after a statutory or regulatory violation." (131)

Now, a party seeking to apply the Pennsylvania Rule must establish the following: (1) its opponent breached a statutory duty, and (2) the opponent's breach is relevant to the resulting injury. (132) However, if the breach "had nothing to do with the disaster," the Pennsylvania Rule is not implicated. (133) Additionally, the rule only applies when the statute that has been violated "delineates a clear legal duty." (134) Once triggered, the burden shifts to the violating party to show that the violation could not have caused the injury in any way. (135)

Within Subchapter M, [section] 140.205(b) requires that towing vessels electing the TSMS option be "operated in accordance with the TSMS applicable to the vessel." (136) Thus, failing to adhere to a vessel's TSMS is a violation of that federal regulation. Not just any violation of a safety regulation will warrant application of the Pennsylvania Rule--for the presumption of causation to attach, the regulation must impose a clear legal duty. Because the language of [section] 140.205(b) unambiguously requires that a towing vessel operate in accordance with its TSMS when the TSMS option has been elected, federal courts in all circuits will likely deem this a clear legal duty imposed by Subchapter M.

The Fifth Circuit has broadly construed what is a "clear legal duty." (137) For example in Mike Hooks Dredging Co. v. Marquette Transp. Gulf-Inland, L.L.C., the court stated that "a statute imparts a clear legal duty if it is part of a statutory scheme that's general purpose is to prevent collisions." (138) The suit arose when the PAT MCDANIEL allided with the MIKE HOOKS, a dredge which was moored in the Intracoastal Waterway. (139) The Fifth Circuit ruled that the MIKE HOOKS was partially liable because she failed to rebut the Pennsylvania Rule presumption of causation that was triggered by her violation of Inland Navigational Rule 9 (INR 9), (140) which states: "Any vessel shall, if the circumstances of the case admit, avoid anchoring in narrow channels." (141) The court found that the express prohibition against anchoring in narrow channels absent exceptional circumstances was "part of the INR's overall scheme to manage the risk of collisions." (142) The Fifth Circuit held that, as part of that scheme, INR 9(g) imparts a clear legal duty, a violation of which leads to application of the Pennsylvania Rule. (143)

In light of Mike Hooks Dredging, in the Fifth Circuit it is all but certain that violating a TSMS would trigger the presumption of causation under the Pennsylvania Rule. Part 140 of Subchapter M requires compliance with the contents of a TSMS. (144) Part 138 describes the purpose of a TSMS as "establish[ing] policies, procedures, and required documentation to... ensur[e] continuous compliance with all regulatory requirements." (145) This means that a TSMS and compliance with it are parts of the larger regulatory scheme outlined in Subchapter M. Failing to comply with the requirements of the TSMS would violate the Coast Guard's "comprehensive safety system... dedicated to towing vessels." (146) Therefore, a towing vessel involved in an accident related to a violation of its TSMS should expect to bear the burden of proving that its violation could not have been the cause of the casualty.

The strong, albeit rebuttable, presumption of the Pennsylvania Rule creates an uphill battle for defense attorneys in any litigation. Rather than simply defending the vessel owner by demonstrating that a collision or injury was caused by something other than the vessel owner's negligence or unseaworthiness of the vessel, defense counsel may also have to affirmatively prove that the injury or collision was not caused by each and every regulation violation. The road was smooth enough for plaintiffs' attorneys before Subchapter M--especially in Jones Act litigation, where the burden of proving causation was already "featherweight." (147) What could be lighter than a feather? The plaintiffs burden of proof under Subchapter M.

V. VESSEL OWNERS MAY BE PRESUMED LIABLE MORE OFTEN THAN EXPECTED UNDER SUBCHAPTER M

In a standard answer to a Jones Act claim, every defendant pleads the affirmative defense of contributory negligence--that the accident or injury was caused, wholly or in part, by the actions or neglect of the plaintiff. However, this key affirmative defense may now be lost if a vessel owner fails to comply with Subchapter M. In an ideal world, casualties would be attributable to the fault of only one party. The truth is that in most cases blame is shared between multiple parties.

Perhaps the vessel had an unseaworthy condition, yet the plaintiff entered into it without regard for his own safety. (148) Maybe the vessel owner was negligent, but before his hire the plaintiff failed to disclose a pre-existing injury that made him unfit to serve on a vessel. (149) Ordinarily, the doctrine of comparative fault applies to claims under the Jones Act and for unseaworthiness, and results in apportioning fault according to the percentage by which the plaintiff's negligence contributed to his accident. (150) However, comparative fault will not apply if the plaintiff's accident resulted in part from the vessel owner's violation of a law intended to protect the plaintiff--for example, the regulations contained within Subchapter M.

The Jones Act is derived from the Federal Employer's Liability Act (FELA), which states in Section 3:
In all actions... brought against any such common carrier by railroad
employees under or by virtue of any of the provisions of this chapter
to recover damages for personal injuries to an employee, or where such
injuries have resulted in his death, the fact that the employee may
have been guilty of contributory negligence shall not bar a recovery,
but the damages shall be diminished by the jury in proportion to the
amount of negligence attributable to such employee: provided, that no
such employee who may be injured or killed shall be held to have been
guilty of contributory negligence in any case where the violation by
such common carrier of any statute enacted for the safety of employees
contributed to the injury or death of such employee. (151)


This provision of FELA applies to actions under the Jones Act. (152) Therefore, the violation of a regulation having any causal relationship to the injury can result in employer's liability, and any contributory negligence of the injured employee will not be considered in the apportionment of fault. (153) Liability exists when a statutory violation contributes in fact to a seaman's death or injury, without regard to whether the injury flowing from the breach was one that the statute sought to prevent. (154)

The Ninth, Second, and Fifth Circuits agree that district courts sitting in admiralty must apply negligence per se and are precluded from considering the comparative fault of an employee whose injury occurred as a result of "an employer's violation of a safety statute that was designed to protect its employees." (155) The same is true when his injury is caused by a violation of a Coast Guard safety regulation. (156) An employer is negligent per se if a plaintiff proves the following:

(1) a violation of Coast Guard regulations;

(2) the plaintiff's membership in the class of intended beneficiaries of the regulations;

(3) an injury of a type against which the regulations are designed to protect;

(4) the unexcused nature of the regulatory violation; and

(5) causation. (157)

In light of the Pennsylvania Rule, if the plaintiff shows that a Coast Guard regulation was violated then the burden shifts to the defendant to disprove causation. In other words, it will be presumed that the accident was caused by the vessel owner's violation of the regulation, unless the vessel owner can demonstrate that his violation could not have been a cause, in whole or in part. (158) In Jones Act cases, the determination of causation turns on whether the act or omission of the defendant contributed to the plaintiffs injury "in even the slightest degree." (159) Such a "featherweight" (160) standard of causation means that "negligence is a legally sufficient cause of injury if it played any part, no matter how small, in bringing about the injury." (161)

In Johnson v. Horizon Lines, LLC, an electrician on board the M/V HORIZON was injured when he fell down an uncovered hatch. (162) According to the plaintiff, the owner of the vessel should have been found negligent per se, and the plaintiff's comparative negligence not considered, because the owner had violated two requirements of 33 C.F.R. [section] 96.230. (163) According to that regulation, a safety management system (SMS) must:

(a) Provide for safe practices in vessel operation and a safe work environment onboard the type of vessel the system is developed for;

(b) Establish and implement safeguards against all identified risks;..., (164)

The objectives of SMSs designated in 33 C.F.R. [section] 96.230 are included in Chapter I, Subpart B of Title 33 of the Code of Federal Regulations, which has the purpose of "establish [ing] the minimum standards that the safety management system of a company and its U.S. flag vessel(s) must meet for certification to comply with the requirements of 46 U.S.C. [[section][section]] 3201[-]3205 and Chapter IX of SOLAS." (165)

Like Subpart B, the Coast Guard enacted Subchapter M for the safety and protection of seamen on vessels in navigation. The entire focus of Subchapter M is establishing a "comprehensive safety system... dedicated to towing vessels." (166) The preamble of the Final Rule states in part that "[t]he 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." (167) A great portion of the proposed regulations is dedicated to identifying and eliminating various safety hazards and vaguely defined terms such as "unsafe practices" and "unsafe conditions."

In Johnson, to succeed on his negligence per se and comparative fault arguments, the plaintiff needed to show that the defendant "violated a specific safety requirement contained in a Coast Guard regulation." (168) The court held that violating the Coast Guard regulation outlining the objectives of an SMS, 33 C.F.R. [section] 96.230, was not enough to trigger negligence per se or to preclude a finding of comparative negligence in an action under the Jones Act and general maritime law. (169) The court opined that in contrast to "other precise regulations with respect to safety structures," 33 C.F.R. [section] 96.230 is "cast in general terms which restate principles already well established by American case law." (170)

An example of a "precise regulation" regarding safety structures is 46 C.F.R. [section] 108.221, a violation of which could be the basis for negligence per se in a Jones Act case. (171) That Coast Guard regulation requires that mobile offshore drilling units:

[H]ave a storm rail in the following locations:

(a) On each deckhouse side that is normally accessible.

(b) On each side of each passageway that is wider than 1.83 meters (6 feet).

(c) On at least one side of each passageway that is less than 1.83 meters (6 feet) wide. (172)

According to Subchapter M, a TSMS serves the purpose of "establish[ing] policies, procedures, and required documentation to ensure the owner or managing operator meets its established goals while ensuring continuous compliance with all regulatory requirements." (173) Paragraph (b) lists the items established and maintained by a TSMS:

(1) Management policies and procedures that serve as an operational protocol for all levels within management;

(2) Procedures to produce objective evidence that demonstrates compliance with the requirements of this subchapter;

(3) Procedures for an owner or managing operator to evaluate that they are following their own policies and procedure and complying with the requirements of this subchapter;

(4) Arrangements for a periodic evaluation by an independent third-party organization (TPO) to determine how well an owner or managing operator and their towing vessels are complying with their stated policies and procedures, and to verify that those policies and procedures comply with the requirements of this subchapter; and

(5) Procedures for correcting problems identified by management personnel and TPOs and facilitating continuous improvement. (174)

The holding in Johnson is likely inapplicable to TSMS and SMS violations under Subchapter M. While [section] 138 does not include safety requirements as specific as the storm rail example from 46 C.F.R. [section] 108.221, its requirements concerning the policies, procedures, functionality, and content of TSMSs are more specific than the requirements for SMSs found in 33 C.F.R. [section] 96.230. (175) Furthermore, Subchapter M explicitly calls for compliance with a vessel's TSMS in 46 C.F.R. [section] 140.205(b). (176) Thus, it stands to reason that failure to comply with a TSMS would constitute a violation of a "specific safety requirement contained in a Coast Guard regulation." (177)

Subchapter M allows an owner or managing operator to use an already-existing SMS to comply with the TSMS requirements of Subchapter M. (178) An SMS fulfills the TSMS-related requirements of Subchapter M if it is "fully compliant with the International Safety Management (ISM) Code requirements, implemented in 33 C.F.R. part 96." (179) The Coast Guard may accept other SMSs, in full or with modifications, as meeting the TSMS requirements of Subchapter M part 138. (180) The Coast Guard likely intends that the duty of compliance set forth in 46 C.F.R. [section] 140.205(b) also applies to these approved SMSs. To find a TSMS violation sufficient to trigger application of negligence per se and preclusion of comparative fault, but noncompliance with an approved SMS insufficient under Johnson, would offer a loophole for vessel operators seeking to minimize their operation costs by negating certain safety procedures.

Ultimately, vessel owners can no longer be so quick to point the finger at the plaintiff when an accident or injury occurs. If a personal injury plaintiff proves the violation of a regulation and some causal connection between the violation and the injury, the vessel owner may be absolutely liable. (181) This means that although a plaintiff-deckhand may have been wearing flip flops when he slipped in oil on the main deck, a vessel owner cannot argue his negligent choice of footwear if he was not "properly" trained to wear appropriate personal protective equipment (PPE) per either the regulations or the vessel's TSMS. The incident may have resulted in part from the vessel owner's failure to implement procedures to routinely check and clean up oil on the main deck and failure to train its employees regarding PPE. The incident may also be due in part to the plaintiff's failure to wear proper footwear and failure to avoid an open and obvious condition. These two defenses may no longer be available if the procedures are required by Coast Guard regulation. Thus, a violation of Subchapter M found in some way to be a contributing cause of a seaman's injury may ultimately preclude vessel owners from arguing the plaintiffs contributory fault. Compliance with Subchapter M is not only crucial to the Coast Guard, but also to a vessel owner's legal exposure.

VI. VESSEL OWNER LIABILITY MAY BE LIMITLESS UNDER SUBCHAPTER M

In 1851, Congress enacted the Limitation of Liability Act (182) to promote American shipbuilding and the investment of American money into the shipping industry. (183) In those days, vessel ownership was perhaps even riskier than today, considering the lack of technology and the inability to communicate with the crew for months at a time after a vessel set sail. It was therefore only fair to allow the shipowner to limit his liability in cases arising from circumstances that were beyond his control--i.e., those that occurred without his privity or knowledge. (184)

In general, a vessel owner's liability for accidents occurring outside his control "cannot exceed the value of its interest in the vessel (and her freight, then pending)... valued at the end of the voyage on which the loss or damage occurs." (185) Courts perform a two-step analysis to determine whether a shipowner is eligible to limit his liability. (186) First, the court must determine whether the accident was caused by negligence or unseaworthiness. (187) The court must then determine "whether the shipowner was privy to, or had knowledge of the negligent acts or unseaworthy conditions. (188)

A vessel owner will only be entitled to limit his liability if he proves that he lacked privity or knowledge of "the act or condition that caused the injury." (189) Privity or knowledge, which may be actual or constructive, (190) "implies some degree of culpable participation or neglected duty on the shipowner's part." (191) For example, privity or knowledge may be found if the vessel owner "committed a negligent act, or knew of an unseaworthy condition but failed to remedy it, or through the exercise of reasonable diligence could have prevented the commission of the act or the onset of the condition." (192)

When the vessel owner is a corporation rather than an individual, "the test is whether culpable participation or neglect of duty can be attributed to an officer, managing agent, supervisor, or other high-level employee of the corporation." (193) This means that if one of those individuals knew or should have known about the conditions or actions likely to cause the harm then the corporation will not be permitted to limit its liability. (194) For over fifty years, vessel owners have sought, with some success, to limit their liability to the value of their vessel pursuant to the Limitation of Liability Act. But limiting liability may be almost impossible under Subchapter M, which mandates that owners and operators essentially micromanage their vessel crews and dramatically increase the responsibilities of vessel captains.

In the case of In re Bald Head Island Transp., vessel owners requested limitation of liability for damages resulting from the grounding of the vessel. (195) The corporation that owned the vessel employed a "Safety Director" who had knowledge of the vessel's SMS and was responsible for providing training to the company's employees. (196) The Fifth Circuit determined that the Safety Director was a "managing agent," such that his privity or knowledge would be imputed on the company to preclude limitation of its liability, according to the following factors :

(1) the scope of the agent's authority over day-to-day activity in the relevant field of operations;

(2) the relative significance of this field of operations to the business of the corporation;

(3) the agent's ability to hire and fire other employees;

(4) his power to negotiate and enter into contracts on behalf of the company;

(5) his authority to set prices;

(6) the agent's authority over the payment of expenses;

(7) whether the agent's salary is fixed or contingent; and

(8) the duration of his authority (i.e., full-time or restricted to a specific shift). (197)

The Safety Director was "the top level person with respect to safety issues for the corporation." (198) He was responsible for providing safety training sessions to the owner's employees, which covered topics such as first aid, accident reporting, lock out tag out, and fire extinguishing. (199) The Safety Director also investigated causes of accidents involving the owner's assets, made recommendations for changes to the policies and procedures of the company, and worked with insurance companies during audits. (200) Based on those responsibilities, the court concluded that he had supervisory authority over the marine safety management for the vessel owning company. (201) Considering his position and duties, the court held that the Safety Director's knowledge of the negligent acts causing the harm could be imputed to the vessel owner. (202)

Various provisions of Subchapter M essentially charge the vessel owners and their managers with knowledge and require privity in the day-to-day operations of the vessel. Most of these fall under the TSMS option. The following are a few of note:

* Section 137.325(d)--The owner or managing operator must notify the cognizant OCMI when the condition of the vessel creates an unsafe condition. (203)

* Section 138.210(a)--Under the TSMS option, the management must demonstrate that it implemented the policies and procedures as contained in the TSMS and the entire organization is adhering to the safety management program. (204)

* Section 138.210(b)--Under the TSMS option, the TSMS must describe and document the owner or managing operator's organizational structure, responsibilities, procedures and resources which ensure quality monitoring. (205)

* Section 138.215(b)--Under the TSMS option, there must be defined levels of authority and lines of communication between shoreside and vessel personnel. (206)

* Section 138.220--Under the TSMS option, a policy must be in place that outlines the TSMS culture and how management intends to ensure compliance with this subpart. (207)

* Section 138.220(a)(1)(h)--Under the TSMS option, each owner or managing operator must designate in writing the shoreside person(s) responsible for ensuring that the TSMS is implemented and continuously functions throughout management in the fleet, and the shoreside person(s) responsible to ensure that the vessels are properly maintained in an operable condition, including those responsible for emergency assistance each towing vessel. (208)

* Section 138.220(a)(1)(iii)--Under the TSMS option, each owner or managing operator must define the scope of the master's authority. The master's authority must provide for the ability to make final determinations on safe operations of the towing vessel. Specifically, it must provide the authority to the master to cease operation if an unsafe condition exists. (209)

* Section 140.210(a)--Under either Coast Guard or TSMS option, the safety of the towing vessel is the responsibility of the Master and includes: (2) compliance with the applicable provisions of this subchapter. (210)

* Section 140.210(b)--Under either option, if the Master believes it is unsafe for the vessel to proceed, then an operation endangers the vessel or crew, or that an unsafe condition exists, the Master must ensure that adequate corrective actions are taken and must not proceed until it is safe to do so. (211)

* Section 140.801--Under either option, the owner, managing operator or Master of a towing vessel must ensure that: (a) the strength of each component used for securing the towing vessel to the tow and for making up the tow is adequate for its intended service and (b) the size, material and condition of towlines, lines, wires, push gear, cables, and other rigging used for making up a tow or securing the towing vessel to a tow must be appropriate for [four identified situations]. (212)

In light of In re Bald Head Island Transp. and the "designated person" requirement of Subchapter M, there is reasonable concern that knowledge will always be imputed to the vessel owner. Owners and managing operators who choose the TSMS option under Subchapter M must designate "the shoreside person(s) responsible for ensuring the TSMS is implemented and continuously functions throughout management and the fleet." (213) Ultimately, this means that the designated person is responsible for making sure the TSMS is implemented and continuously functions according to [section] 138 of Subchapter M throughout the entire towing operation. (214)

A person who, by written designation, is responsible for ensuring that the TSMS is implemented and functional would likely be deemed to have supervisory authority, and thus would know, or should know, of the truth of those facts. Case law regarding corporate vessel owners indicates that the towing company would be treated as if it had knowledge of the state of TSMS compliance of its towing vessels. (215) This means that if a violation of the TSMS is the cause of an accident, the towing company will not be able to prove that it lacked privity or knowledge and will therefore be precluded from limiting its liability.

Furthermore, Subchapter M requires that a TSMS include an outline of "[t]he management organization, authority, and responsibilities of individuals." (216) Clearly outlining responsibilities of parties involved in the towing operation will make it easy to point to who either knew or should have known of a certain condition, perhaps a violation of the TSMS, that may have been the cause of an accident. If that person is a manager, supervisor, or officer of the towing company, what he knew or should have known according to the TSMS will be treated as the company's knowledge for purposes of the Limitation of Liability Act.

It is likely that Subchapter M, particularly through the TSMS option, essentially requires that vessel owners and operators make themselves aware, through the implementation of a safety management system, of the daily minutia of each and every vessel. Arguably, such knowledge is statutorily mandated by [section] 138 of Subchapter M. Privity may be implied regardless of whether it exists. In the wake of the BP Oil Spill, the Limitation of Liability Act has been the subject of renewed criticism and calls for its extinction as a policy matter. Times have changed such that the vessel owner is now capable of overseeing or controlling his vessels at a greater distance. But, should he be required to do so? The new rules do not appear to give owners the option of delegating many things to their crew. Gone are the days when a vessel owner could render a vessel seaworthy with good equipment and qualified crew, and be relieved of certain obligations once she sailed. With Subchapter M, the Limitation of Liability Act may no longer be of use to inland towing vessel owners.

VII. MARINE INSURANCE COVERAGE UNDER SUBCHAPTER M

Marine insurance contracts are encompassed in federal admiralty jurisdiction as established in Article 3, Section 2 of the United States Constitution. (217) After Wilburn Boat Co. v. Fireman's Fund Ins. Co., (218) courts have ruled that state law governs disputes involving marine insurance contracts, absent an established federal maritime law controlling the issue. (219) Because the federal circuits do not agree as to whether federal maritime laws govern marine insurance disputes, the application of the federal doctrine of uberrimae fidei may not always apply. (220)

Uberrimae fidei is a federal admiralty doctrine requiring that "parties to a marine insurance policy must accord to each other the highest degree of good faith," (221) and "invalidates marine insurance contracts on evidence of the [in]sured's material misrepresentations to the underwriter." (222) Encompassed in this reciprocal duty is the insured's obligation to disclose to its insurer "all known circumstances that materially affect the risk being insured." (223) The insured is held to a standard of knowledge of "whether a reasonable person in the [in]sured's position would know that the particular fact is material." (224) A fact is material if it is "something which would have controlled the underwriter's decision." (225) The insured is obligated to disclose all material facts to its insurer regardless of whether the insurer inquires about them. (226) It is expected that marine insurers will require vessel owners and operators to warrant their compliance with Subchapter M and a TSMS in addition to all other federal laws and regulations. Thus, the question arises as to whether the doctrine of uberrimae fidei and misrepresentation by an insured would or could invalidate coverage under marine policies. The first analysis is the appropriateness of applying this doctrine to a vessel operator's warranty of compliance with Subchapter M.

In Albany Insurance Co. v. Anh Thi Kieu, the insurer sought to apply uberrimae fidei to "support its denial of liability on the policy covering the STACY MARIE" after the shrimping vessel allided with an offshore platform. (227) The defendant was the vessel's owner who had made several misrepresentations in her insurance application regarding who operated the vessel, previous damage to the vessel, and the purchase price of the vessel. (228) The Fifth Circuit relied on the following factors to determine whether a federal maritime rule controlled the disputed issue: "(1) whether the federal maritime rule constitutes entrenched federal precedent, (2) whether the state has a substantial and legitimate interest in the application of its law, [and] (3) whether the state's rule is materially different from the federal maritime rule." (229) While acknowledging that the factors were instructive, not dispositive, (230) the court stated that "[s]tate insurance law generally should not govern marine insurance disputes" if any of the preceding factors were resolved in the affirmative. (231)

Beginning with the third factor, the court opined that "state law should not be applied unless it bears a reasonable similarity to the federal maritime practice." (232) The court distinguished the federal doctrine of uberrimae fidei, which could invalidate an insurance contract for any material misrepresentations, (233) from Texas law, which would only call for invalidation if the insured made those misrepresentations with deceptive intent. (234) Irrespective of that difference, the Fifth Circuit concluded that the "fundamental nature" of the Texas law and the federal law were the same, because they both reflected the concern that "an [in]sured should not profit from her material misrepresentation to the underwriter." (235)

With respect to the second factor, the court reasoned that "state law should not be applied unless the local state interest materially exceeds the comparative maritime concerns in the controversy." (236) The court found that Texas had a "substantial and legitimate" interest in preventing underwriters from using an insured's unintentional misrepresentations as a basis for invalidating a marine insurance contract. (237) This interest is rooted in the regulation of marine insurance relationships "historically be[ing] a matter of state concern." (238) On this point, the court concluded that the state interest outweighed the federal concerns surrounding the controversy. (239)

In reference to the first factor, the Fifth Circuit stated that "[i]n the absence of preexisting entrenched federal maritime law, this [c]ourt will refuse to impose unfamiliar federal common law maritime requirements on the parties to a marine insurance contract." (240) Therefore, the application of uberrimae fidei was dependent on whether the court found that the doctrine was entrenched federal precedent. (241) The Fifth Circuit concluded, against its previous declarations and hesitantly, that the uberrimae fidei was not entrenched in federal precedent. (242) The court seemed to base this determination on finding that, although the doctrine had been expressly declared as "solidarily entrenched in our body of federal law," (243) it had not been applied in cases recognizing it as such. (244) However, in those cases, applying the doctrine was "of minimal significance" because the relevant state law also precluded recovery by the insured. (245)

By contrast, other federal circuits, such as the Second Circuit, (246) have continued to apply uberrimae fidei to marine insurance contract disputes. (247) The Eleventh Circuit has gone so far as to declare the doctrine the circuit's controlling law. (248) In Certain Underwriters at Lloyds, London v. Inlet Fisheries, Inc., the Ninth Circuit declined to use the "entrenchment" standard, (249) instead requiring that a federal law be "sufficiently longstanding and accepted within admiralty law that it can be said to be 'established.'" (250) The court also criticized the Fifth Circuit's refusal in Anh Thi Kieu to recognize uberrimae fidei as entrenched in federal law. (251) The Ninth Circuit dismissed the Anh Thi Kieu analysis as "unpersuasive" and pointed out that, if not for the Fifth Circuit's decision in that case, there would be "little cause at all to doubt that uberrimae fidei is indeed firmly entrenched in maritime law." (252) The Ninth Circuit concluded that "no rule of marine insurance is better established," (253) and held that "the longstanding federal maritime doctrine of uberrimae fidei, rather than state law, applies to marine insurance contracts." (254)

Any discontent on the part of an insurer after Anh Thi Kieu should be calmed by the fact that the Fifth Circuit's holding likely will not apply to Subchapter M. In the aftermath of Anh Thi Kieu, the Fifth Circuit noted that there is some confusion as to whether, and under what circumstances, the doctrine of uberrimae fidei applies over state law. (255) The Anh Thi Kieu holding is based in part on a finding that the state interest in regulating insurance relationships outweighed any federal interest surrounding the matter. (256)

The federal government may not be very concerned with a vessel owner's misrepresentations about the history, value, and use of a vessel, but it does have a compelling interest in whether owners or operators of towing vessels comply with the federal regulations (i.e., Subchapter M) for safe operations of their vessels. Thus, it is expected that marine insurers will have this same compelling interest and depending upon the facts of a particular situation, may find it necessary to invoke the doctrine of uberrimae fidei. TSMS compliance is not only required by Subchapter M--it is imperative to further a safety culture in the national towing industry. The federal government has an undeniable interest in holding accountable any violators of Subchapter M. In states where the standard of good faith is ordinary, rather than utmost, violators may go unpunished under state law. Therefore, the federal doctrine of uberrimae fidei arguably could apply to marine insurance contracts to preclude coverage of a towing operator who violates a vessel's TSMS or Subchapter M. In effect, this would further encourage compliance with Subchapter M. Perhaps upon implementation of Subchapter M, insurers may find it to be an appropriate time to test the waters with the application of uberrimae fidei to resolve a marine insurance dispute.

VIII. CONCLUSION

Whether large or small, and no matter how diligent the owner is in attempting to comply with the new regulations, missteps are inevitable. Subchapter M is specific, and achieving compliance will likely be expensive and require substantial time and resources. Further, no matter how compliant a company may be, collisions occur, accidents happen, and litigation ensues. The vessel owner should consider several issues when moving forward into an inspected world:

* Think through the lawsuits in which you had successful outcomes and ask whether, in an inspected world, your lawyers would have achieved the same results. Would the possibility of a zero in a Jones Act case now essentially be nullified by a Pennsylvania Rule violation? Would an award of 80% contributory negligence on a plaintiff be erased because a Subchapter M violation triggers Section 3 of FELA? Would a limitation action, in which you successfully restricted the plaintiff's recovery to the value of your aging vessel, now result in full recovery without limit?

* Consider your insurance policy--many protection and indemnity policies contain a provision such as the following:
"Warranted the vessel(s) insured hereunder to comply with all
applicable United States Coast Guard regulations pertaining to the
trade and/or type of vessel insured herein."

And/or,

"It is agreed that the Assured fully comply with U.S. Coast Guard
regulations with respect to manning and navigation requirements."

Would violation of a Subchapter M provision now preclude coverage?


* For those vessel owners opting for the TSMS option, consider all these legal implications when choosing your auditor or surveyor. What if the third party auditor fails to identify a portion of the TSMS plan that is not being effectively implemented? What if the surveyor misses an unsafe condition on the vessel, and that knowledge will ultimately be attributed to you? While many vessel owners will seek out the auditor or surveyor who helped them obtain their certificate of insurance and certificate of compliance as quickly as possible, we urge you to find that third party auditor and/or surveyor who will scrutinize any aspect of your business and present you with the brutal truth.

* Check your contracts for third-party auditors and surveyors. As with the American Bureau of Shipping (ABS) and offshore vessels, efforts will be made through regulation and case law to protect these third-party organizations from liability when something goes wrong. (257)

New legal challenges present themselves when regulatory changes affect the marine operations environment, and marine operators must adapt. The prudent vessel owner will never forget the importance of focusing on how to best manage the fine line between regulatory compliance and legal liability.

Marc C. Hebert, Esq. ([dagger]) and Lindsey M. Ajubita ([double dagger])

(*) This paper was originally presented at the Greater New Orleans Barge Fleeting Association River and Marine Industry Seminar, which was held in New Orleans on Apr. 26-28, 2017.

([dagger]) Marc C. Hebert, Esq., is a senior partner with Jones Walker and practices with the Admiralty & Maritime, Business & Commercial Transactions, Commercial Litigation, and Government Relations groups. He is a member of the Greater New Orleans Barge Fleeting Association (GNOBFA) Seminar Committee and a Seminar Moderator, Greater New Orleans Port Safety Council Chairman in 2011, 2016, and 2017 Chairman, serves on the Southern Yacht Club House and Junior Activities Committees, serves as Legal Counsel to the Mississippi Valley Trade & Transport Council (Board Member and Vice Chair 2006 to September 2016), and is certified and trained in Marine Incident Investigation and Root Cause Analysis (SafeMARINER, LLC). From 1995 to 2002, he worked for the U.S. House of Representatives Government Reform and Oversight Subcommittee on National Economic Growth, Natural Resources, and Regulatory Affairs, and thereafter Bracewell & Patterson in Washington, D.C. before returning to New Orleans. Mr. Hebert graduated from Tulane University in 1991 with a B.A. in Economics, received his J.D. from the Loyola University New Orleans College of Law in 1994, and earned his LL.M. in Environmental Law from The National Law Center, George Washington University in Washington, D.C. in 1996. He was an Adjunct Professor at the Loyola University New Orleans College of Law from 2002-2005. He is admitted to practice in Louisiana and Virginia, the District of Columbia, Federal Court in the Southern District of Texas, and before the U.S. Court of International Trade.

([double dagger]) Lindsey M. Ajubita received her J.D. from Loyola University New Orleans College of Law in 2017. While at Loyola, she was a member of the Loyola Maritime Law Journal and served as its Technology Editor during the 2016-2017 academic year. Ms. Ajubita graduated from Auburn University with a Bachelor of Chemical Engineering degree in 2014.

(1.) Subchapter M went into effect on July 20, 2016. See Inspection of Towing Vessels, 81 Fed. Reg. 40,004 (June 20, 2016) (to be codified at 46 C.F.R. pts. 1, 2, 15, 136-44, 199).

(2.) SMSs are commonplace in industry practice today. Among the most notable are the following:

The American Waterways Operators (AWO) Responsible Carrier Program (RCP) is "a safety management system for tugboat, towboat[,] and barge companies that provides a framework for continuously improving company safety performance....The RCP incorporates best industry practices in three areas: company management policies, vessel equipment[,] and human factors." See http://www.americanwaterways.com/initiatives/safetyenvironmental-sustainability/responsible-carrier-program (last visited Apr. 14, 2017).

The Tanker Safety and Self-Management (TSMA) provides a standard framework to assess a ship operator's management systems. OCIMF has set out twelve self-assessment elements that companies can follow to show commitment to continuous improvement in safety and environmental excellence. These guidelines cover: management, leadership and accountability, recruitment and management of shore-based personnel, recruitment and management of ship personnel, reliability and maintenance standards, navigational safety, cargo ballasting and mooring operations, management of change, incident investigation and analysis, safety management, environmental management, emergency preparedness and contingency planning, measurement, and analysis and improvement. See Oil Companies International Marine Forum, Tanker Management Self Assessment 2, http://www.intertanko.com/upload/78115/LAP7%20tmsa2.pdf (last visited Apr. 14, 2017).

The Ship Inspection Reports (SIRE, or commonly referred to as SIRE Audits) through the Oil Companies International Marine Forum (OCIMF) "is a unique tanker and barge risk assessment tool used... to assist in the assurance of vessel safety. [It] provide[s] a standardised inspection format, with objective reports capable of being shared, it has now gained industry-wide acceptance as a benchmark for vessel inspections and standards." Oil Companies International Marine Forum, https://www.ocimf.org/media/53578/SIRE.pdf (last visited Apr. 14, 2017).

(3.) Authority to Prescribe and Enforce Standards or Regulations Affecting Occupational Safety and Health of Seamen Aboard Vessels Inspected and Certificated by the United States Coast Guard; Memorandum of Understanding, 48 Fed. Reg. 11,365 (Mar. 17, 1983).

(4.) Memorandum of Understanding, 48 Fed. Reg. 11,365.

(5.) 534 U.S. 235 (2002).

(6.) Id. at 237.

(7.) Id.

(8.) Id.

(9.) Id. at 238.

(10.) Chao, 534 U.S. at 238

(11.) Id. 238-39.

(12.) Id. at 240.

(13.) Id. at 240, 243-44.

(14.) Compare Jones v. Spentonbush-Red Star Co., 155 F.3d 587 (2d Cir. 1998), Falconer v. Penn Maritime, Inc., 397 F. Supp. 2d 68, 73-75 (D. Me. Oct. 25, 2005), and Tully v. Innerlake Steamship Co., 2007 WL 1174922 (E.D. Mich. Apr. 20, 2007), with Waterson v. Mallard Bay Drilling, Inc., 93-1494 (La. App. 3d Cir. 10/12/94), 649 So. 2d 431, 435.

(15.) 212 F.3d 898 (5th Cir. 2000), rev'd, 534 U.S. 235 (2002).

(16.) Id. at 901 (quoting Donovan v. Texaco, Inc., 720 F.2d 825, 829 (5th Cir. 1983)).

(17.) Herman, 212 F.3d at 901.

(18.) Id.

(19.) Id.

(20.) Inspection of Towing Vessels, 81 Fed. Reg. 40,035 (June 20, 2016) (to be codified at 46 C.F.R. pts. 1, 2, 15, 136-44, 199).

(21.) Id.

(22.) Id.; 46 C.F.R. [section][section] 140.500-140.515 (2016).

(23.) Inspection of Towing Vessels, 81 Fed. Reg. 40,043 (June 20, 2016) (to be codified at 46 C.F.R. pts. 1, 2, 15, 136-44, 199).

(24.) 276 F.3d 725 (5th Cir. 2002).

(25.) Id. at 726.

(26.) Id.

(27.) Id.

(28.) Id. at 728 (citing 33 U.S.C. [section] 941 (2012)).

(29.) Chao, 276 F.3d at 728 (citing Reich v. Muth, 34 F.3d 240, 244 (4th Cir. 1994)).

(30.) 46 C.F.R. [section] 136.210 (2017).

(31.) Id. [section] 136.200(a).

(32.) Id. [section] 136.210(b).

(33.) Id. [section] 137.120(c)(5).

(34.) Id. [section] 137.135.

(35.) 46 C.F.R. [section] 137.135(a) (2017).

(36.) Id. [section] 137.202(b)(1).

(37.) Id. [section] 137.202(b)(2).

(38.) 46 C.F.R. [section] 137.315(2017).

(39.) Id. [section] 137.320.

(40.) Id. [section] 138.210(b).

(41.) Id. [section] 138.220.

(42.) Id. [section] 138.305(f).

(43.) 46 C.F.R. [section] 138.310 (2017).

(44.) Id. [section] 138.315.

(45.) Id. [section] 138.315(a).

(46.) Id. [section] 138.315(b).

(47.) Id. [section] 138.210(e).

(48.) 46 C.F.R. [section] 140.204(d) (2017).

(49.) Id. [section] 140.400.

(50.) Id. [section] 140.400(a).

(51.) Id. [section] 140.400(a).

(52.) Id. [section] 140.400(b).

(53.) 46 C.F.R. [section] 140.400(c) (2017).

(54.) Id. [section] 140.410.

(55.) 46 C.F.R. [section] 140.420 (2017).

(56.) Id. [section] 140.500.

(57.) Id. [section] 140.615.

(58.) Id. [section] 140.620.

(59.) Id. [section] 140.635.

(60.) 46 C.F.R. [section] 140.645 (2017).

(61.) Id. [section] 140.655.

(62.) Id. [section] 140.805.

(63.) FED. R. CIV. P. 26(b)(1). Query whether vessel owners will be able to claim that third-party audits or surveys are privileged and thus refuse their production. USCG reports are discoverable but not admissible per federal statute and laws. This raises the question of whether vessel owners need--or want--to hire an attorney to oversee the audit process in an attempt to keep the results privileged.

(64.) FED. R. CIV. P. 34(a)(1)(A) (emphasis added).

(65.) FED. R. CIV. P. 26(b)(3) (emphasis added).

(66.) Chevron Midstream Pipelines LLC v. Settoon Towing LLC, Nos. 13-2809, 13-3197, 2015 WL 65357, at *6 (E.D. La. Jan. 5, 2015) (citing Hickman v. Taylor, 329 U.S. 495 (1947)).

(67.) St. Paul Reinsurance Co. v. Commercial Fin. Corp., 197 F.R.D. 620, 628 (N.D. Iowa 2000); FED. R. CIV. P. 26(b)(3)(B).

(68.) FED. R. CIV. P. 26(b)(3).

(69.) Hooke v. Foss Maritime Co., No. 13-cv-00994, 2014 WL 1457582, at *2 (N.D. Cal. Apr. 10, 2014).

(70.) In re Grand Jury Subpoena, 357 F.3d 900, 908 (9th Cir. 2004).

(71.) Id.

(72.) Hooke, 2014 WL 1457582, at *2 (citing Arfa v. Zionist Org. of Am., No. CV 13-2942 ABC (SS), 2014 WL 815496, at *4 (C.D. Cal. Mar. 3, 2014) (quoting Umpqua Bank v. First American Title Ins. Co., No. CIV S-09-3208 WBS EFB, 2011 WL 997212, at *4 (E.D. Cal. Mar. 17, 2011))).

(73.) Id. (quotation omitted).

(74.) Hooke, 2014 WL 1457582, at *2 (quoting Fisher v. Kohl's Dep't Stores, Inc., No. 2:11- CV-3396 JAM GGH, 2012 WL 2377200, at *6 (E.D. Cal. June 22, 2012)).

(75.) Id.

(76.) In re Grand Jury Subpoena, 357 F.3d at 907-08 (quoting 8 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, & RICHARD L. MARCUS, FEDERAL PRACTICE & PROCEDURE [section] 2024 (2d ed. 1994)) (emphasis added).

(77.) Id.

(78.) In re Grand Jury Subpoena, 357 F.3d at 907-08 (quoting United States v. Adlman, 134 F.3d 1194, 1195 (2d Cir. 1998)) (emphasis added).

(79.) Hooke, 2014 WL 1457582, at *1.

(80.) Id.

(81.) Id. at*4.

(82.) Hooke, 2014 WL 1457582, at *3.

(83.) Id.

(84.) Id.

(85.) Id.

(86.) Id.

(87.) Hooke, 2014 WL 1457582, at *4.

(88.) Id. at *5-6.

(89.) Id. at *7.

(90.) United States v. Davis, 636 F.2d 1028, 1039 (5th Cir. 1981).

(91.) Id.

(92.) Settoon Towing, 2015 WL 65357, at *7 (citing Piatkowski v. Abdon Callais Offshore, LLC, No. 99-CV-3759, 2000 WL 1145825, at *2 (E.D. La. Aug. 11, 2000)).

(93.) Id. at *7 (citing Carroll v. Pixair, Inc., No. 05-CV-0307, 2006 WL 1793656 (W.D. La. June 28, 2006)).

(94.) Id. (citation omitted).

(95.) Carroll, 2006 WL 1793656, at *2.

(96.) Settoon Towing, 2015 WL 65357, at *1.

(97.) Id.

(98.) Id.

(99.) Settoon Towing, 2015 WL 65357, at *2.

(100.) Id. at *9.

(101.) Settoon Towing, 2015 WL 65357, at *9.

(102.) Id. at *10.

(103.) Id. at*11.

(104.) Id. (citing Carroll, 2006 WL 1793656, at *4).

(105.) Carroll, 2006 WL 1793656, at *4.

(106.) Settoon Towing, 2015 WL 65357, at *11.

(107.) Id. at *12.

(108.) Id. at*11.

(109.) Id.

(110.) 46 C.F.R. [section] 138.310(c) (2017) (stating that "[t]he results of the internal audits must be documented and maintained for a period of 5 years and made available to the Coast Guard upon request").

(111.) 46 C.F.R. [section] 136.130(a)(1) (2017).

(112.) In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).

(113.) Id. 756.

(114.) 449 U.S. 383 (1981).

(115.) In re Kellogg, 756 F.3d at 757.

(116.) Id.

(117.) Id. 760.

(118.) Id. (emphasis in original).

(119.) Id. at 758.

(120.) In re Kellogg, 756 F.3d at 758

(121.) Id. (citing In re Sealed Case, 737 F.2d 94, 99 (D.C. Cir. 1984)).

(122.) Upjohn, 449 U.S. at 390.

(123.) See U.S. CONST. amend. V.

(124.) Fisher v. United States, 425 U.S. 391, 409-10 (1976).

(125.) 46 U.S.C. [section] 6308(a) (2012).

(126.) Id. [section] 6101(a).

(127.) The Pennsylvania, 86 U.S. 125, 136 (1873).

(128.) Id.

(129.) Id. at 135.

(130.) The Pennsylvania, 86 U.S. at 136 (emphasis added).

(131.) J. Neale deGravelles, The Pennsylvania Rule: Its Past, Present, and Thoughts on Its Future, https://www.justice.org/sections/newsletters/articles/pennsylvania-rule-its-past-present-and-thoughts-its-future (citing Candies Towing Co. v. M/V B&C ESERMAN, 673 F.2d 91 (5th Cir. 1982)).

(132.) Pan American Grain Mfg. Co. v. Puerto Rico Ports Authority, 295 F.3d 108, 115-16 (1st Cir. 2002).

(133.) The Pennsylvania, 86 U.S. at 136.

(134.) Mike Hooks Dredging Co. v. Marquette Transp. Gulf-Inland, L.L.C., 716 F.3d 886, 891 (5th Cir. 2013) (quoting Tokio Marine & Fire Ins. Co. v. Flora MV, 235 F.3d 963, 966 (5th Cir. 2001)).

(135.) Id. (quoting The Pennsylvania, 86 U.S. at 136).

(136.) 46 C.F.R. [section] 140.205(b) (2016).

(137.) deGravelles, supra note 131 (citing Mike Hooks Dredging, 716 F.3d 886).

(138.) Id. (citing Mike Hooks Dredging, 716 F.3d at 889).

(139.) Mike Hooks Dredging, 716 F.3d at 888.

(140.) Id.

(141.) 33 C.F.R. [section] 83.09 (2016).

(142.) Mike Hooks Dredging, 716 F.3d at 892.

(143.) Id.

(144.) 46 C.F.R. [section] 140.205(b) (2016).

(145.) Id. [section] 138.205(b).

(146.) 81 Fed. Reg. 40,004, 40,005 (June 20, 2016).

(147.) Comeaux v. T.L. James & Co., 702 F.2d 1023, 1024 (5th Cir. 1983).

(148.) See Gautreaux v. Scurlock Marine, Inc., 107 F.3d 331 (5th Cir. 1997).

(149.) Johnson v. Cenac Towing, 599 P. Supp. 2d 721, 732 (E.D. La. 2009) (citing Johnson v. Cenac Towing, Inc., 544 F.3d 296, 304 (5th Cir. 2008).

(150.) See Gautreaux, 107 F.3d 331; Fontenot v. Teledyne Movable Offshore, Inc., 714 F.2d 17 (5th Cir. 1983); Scott v. Fluor Ocean Services, Inc., 501 F.2d 983 (5th Cir. 1974).

(151.) 45 U.S.C. [section] 53 (2012) (emphasis added).

(152.) See Kernon v. American Dredging Co., 355 U.S. 426 (1958).

(153.) Id. at 439; 46 U.S.C. [section] 688 (2012).

(154.) Kernon, 355 U.S. at 438.

(155.) Johnson v. Horizon Lines, LLC, 520 F. Supp. 2d 524, 527 (2d Cir. 2007) (quoting Fuszek v. Royal King Fisheries, Inc., 98 F.3d 514, 517 (9th Cir. 1996) (citing and following Roy Crook & Sons, Inc. v. Allen, 778 F.2d 1037 (5th Cir. 1985))).

(156.) Johnson, 520 F. Supp. 2d at 528 (citing Fuszek, 98 F.3d 514).

(157.) Id. at 527 (quoting Fuszek, 98 F.3d at 517 (citing Smith v. Trans-World Drilling Co., 772 F.2d 157, 160 (5th Cir. 1985))); Reyes v. Vantage S.S. Co., 558 F.2d 238, 242-44 (5th Cir. 1977).

(158.) The Pennsylvania, 86 U.S. at 125; In re T.T. Boat Corp., 1999 A.M.C. 2776 (E.D. La. 1999).

(159.) Smith, 772 F.2d at 161.

(160.) Comeaux, 702 F.2d at 1024.

(161.) Smith, 772 F.2d at 162.

(162.) Johnson, 520 F. Supp. 2d at 525-26.

(163.) Id. at 532.

(164.) 33 C.F.R. [section] 96.230 (2016).

(165.) Id. [section] 96.200. "SOLAS" refers to the International Convention for the Safety of Life at Sea of 1974. See Johnson, 520 F. Supp. 2d at 532.

(166.) Federal Register, Vol. 81, No 118 (Monday, June 20, 2016), Rules and Regulations (p. 40,005).

(167.) Id.

(168.) Johnson, 520 F. Supp. 2d at 587.

(169.) Id. at 533.

(170.) Johnson, 520 F. Supp. 2d at 533 (emphasis added).

(171.) Smith, 772 F.2d at 160.

(172.) 46 C.F.R. [section] 108.221 (2016).

(173.) Id. [section] 138.205(a).

(174.) 46 C.F.R. [section] 138.205(b) (2016).

(175.) See Id. [section] 138.

(176.) Id. [section] 140.205(b).

(177.) See Johnson, 520 F. Supp. 2d at 587.

(178.) 46 C.F.R. [section] 138.225 (2016).

(179.) Id. [section] 138.225(a).

(180.) Id. [section] 138.225(b).

(181.) The Pennsylvania, 86 U.S. at 125; see In re T.T. Boat, 1999 A.M.C. 2776.

(182.) Codified in 46 U.S.C. [section][section] 30501-30512 (2012).

(183.) Dennis J. Stone, The Limitation of Liability Act: Time to Abandon Ship?, 32 J. MAR. L. & COM. 317, 332 (2001).

(184.) See generally THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW [section][section] 12-1, 12-6 (5th ed. 2012). The Limitation of Liability Act currently provides that:
[C]laims, debts, and liabilities subject to limitation... are those
arising from any embezzlement, loss, or destruction of any property,
goods, or merchandise shipped or put on board the vessel, any loss,
damage, or injury by collision, or any act, matter, or thing, loss,
damage, or forfeiture, done, occasioned, or incurred, without privity
or knowledge of the owner.


46 U.S.C. [section] 30505(b) (2016) (emphasis added).

(185.) Carr v. PMS Fishing Corp., 191 F.3d 1, 4 (1st Cir. 1999) (citing Petition of Zebroid Trawling Corp., 428 F.2d 226, 228 (1st Cir. 1970) (citing Place v. Norwich & NY Transp., 118 U.S. 468, 490 (1886))).

(186.) Id;, see Otal Investments, Ltd. v. M/V CLARY, 673 F.3d 108, 115 (2d Cir. 2012) (citing In re Moran Towing Corp., 166 F. Supp. 2d 773, 775 (E.D.N.Y. 2001)).

(187.) Carr, 191 F.3d at 4; see Otal Investments, Ltd., 673 F.3d at 115 (citing In re Moran Towing Corp., 166 F. Supp. 2d at 775).

(188.) Carr, 191 F.3d at 4.

(189.) Carr, 191 F.3d at 4 (citing Coryell v. Phipps, 317 U.S. 406 (1943)) (other citations omitted).

(190.) Id. (citing Spencer Kellogg & Sons, Inc. v. Hicks, 285 U.S. 502, 512 (1932)).

(191.) Id. (citing Coryell, 317 U.S. at 411).

(192.) Id. (citing Coryell, 317 U.S. at 411).

(193.) Id (citing Coryell, 317 U.S. at 410-11).

(194.) In re Bald Head Island Transp., Inc., 124 F. Supp. 3d 658, 671 (E.D.N.C. 2015) (citing Trico Marine Assets Inc. v. Diamond B Marine Services Inc., 332 F.3d 779, 789 (5th Cir. 2003) (citing Pennzoil Producing Co. v. Offshore Express, Inc., 943 F.2d 1465, 1473 (5th Cir. 1991))).

(195.) In re Bald Head Island Transp., 124 F. Supp. 3d at 661-62.

(196.) Id. at 665.

(197.) In re Bald Head Island Transp., 124 F. Supp. 3d at 676 (citing In re Hellenic Inc., 252 F.3d 391, 397 (5th Cir. 2001)). Although not every factor is relevant in every case, In re Hellenic Inc., 252 F.3d at 398 n.38, the factors determine whether the employee is a managing agent "with respect to the field of operations in which the negligence occurred." In re Bald Head Island Transp., 124 F. Supp. 3d at 676 (citing Cupit v. McClanahan Cont., Inc., 1 F.3d 346, 348 (5th Cir. 1993)).

(198.) In re Bald Head Island Transp., 124 F. Supp. 3d at 676.

(199.) Id. at 677.

(200.) Id.

(201.) Id. at 677.

(202.) Id.

(203.) 46 C.F.R. [section] 137.325(d) (2016).

(204.) Id. [section] 138.210(a).

(205.) Id. [section] 138.210(b).

(206.) 46 C.F.R. [section] 138.215(b) (2016).

(207.) Id. [section] 138.220.

(208.) Id. [section] 138.220(a)(1)(iii).

(209.) Id. [section] 140.210(a).

(210.) Id. [section] 140.210(b).

(211.) 46 C.F.R. [section] 140.801 (2016).

(212.) As written, compliance with this rule might be virtually impossible. Many in the industry pointed out in their comments to the Notice of Proposed Rule Making that tows are often made up on the Upper Mississippi River, Missouri, Illinois, and Ohio Rivers for movement south by vessels small enough to operate on locking rivers. They are then combined into larger tows and moved by vessels with three times the horsepower after those tows start moving on the Lower Mississippi River. Accordingly, the rigging may come from different fleets, different rivers, and vary in age, condition, diameter, etc. See MarineLink, Bulk Transport Leadership: Clark Todd, https://www.marinelink.com/news/leadership-transport351685 (last visited Apr. 14, 2017).

(213.) 46 C.F.R. [section] 138.220(a)(1)(ii) (2016).

(214.) Id. [section] 138.220(a).

(215.) In re Bald Head Island Transp., 124 F. Supp. 3d at 677.

(216.) 46 C.F.R. [section] 138.220(a)(1) (2016).

(217.) New England Marine Insurance Co. v. Dunham, 78 U.S. 1, 21 (1871); Kossick v. United Fruit Co., 365 U.S. 731, 735 (1961).

(218.) 348 U.S. 310, 316 (1955).

(219.) Certain Underwriters at Lloyds, London v. Inlet Fisheries, Inc., 518 F.3d 645, 652-53 (9th Cir. 2008); Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886 (5th Cir. 1991) (citing Ingersoll-Rand Financial Corp. v. Employers Ins. of Wausau, 771 F.2d 910, 912 (5th Cir. 1985)).

(220.) Compare Anh Thi Kieu, 927 F.2d 882, with Certain Underwriters at Lloyds, 518 F.3d 645.

(221.) Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986) (citing Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985)).

(222.) Anh Thi Kieu, 927 F.2d at 886.

(223.) Knight, 804 F.2d at 13.

(224.) Id. (citing Btesh v. Royal Ins. Co., 49 F.2d 720, 721 (2d Cir. 1931)).

(225.) Id. (citing Btesh, 49 F.2d at 721).

(226.) Id. (citing Puritan Ins., 779 F.2d at 870).

(227.) Anh Thi Kieu, 927 F.2d at 885-86.

(228.) Id. at 885.

(229.) Id. at 886 (citing Kossick, 365 U.S. at 738-39 (internal citations omitted)).

(230.) Id. at 887.

(231.) Id. at 887-88.

(232.) Anh Thi Kieu, 927 F.2d at 887.

(233.) Id. (citing Gulfstream Cargo, Ltd. v. Reliance Ins. Co., 409 F.2d 974, 980-81 & n.20 (5th Cir. 1969)).

(234.) Id. (citing Mayes v. Massachusetts Mutual Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980)).

(235.) Anh Thi Kieu, 927 F.2d at 887.

(236.) Id. (citing Grant Smith-Porter Ship Co. v. Rhode, 257 U.S. 469, 477 (1922); Walter v. Marine Office of America, 537 F.2d 89, 94-95 (5th Cir. 1976)).

(237.) Id. at 887-88.

(238.) Id. at 887 (citing Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 316(1955)).

(239.) Id. at 889.

(240.) Anh Thi Kieu, 927 F.2d at 888.

(241.) Id.

(242.) Id. at 889.

(243.) Id. at 888. (quoting Wilburn Boat, 300 F.2d at 647, n.12).

(244.) Id.; see Fireman's Fund, 300 F.2d at 631; see also Gulfstream Cargo, 409 F.2d at 980-81.

(245.) Anh Thi Kieu, 927 F.2d at 888.

(246.) Certain Underwriters at Lloyds, 518 F.3d at 651 (citing Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293 (2d Cir. 1987); Knight, 804 F.2d at 9; Puritan Ins., 779 F.2d at 866).

(247.) Certain Underwriters at Lloyds, 518 F.3d at 645; Ingersoll Milling Machine Co., 829 F.2d 293; HIH Marine Servs. Inc. v. Fraser, 211 F.3d 1359, 1362 (11th Cir. 2000).

(248.) Fraser, 211 F.3d at 1362.

(249.) Certain Underwriters at Lloyds, 518 F.3d at 650.

(250.) Id.

(251.) Id. at 652-53.

(252.) Certain Underwriters at Lloyds, 518 F.3d. at 652.

(253.) Id. at 654 (quoting Thomas J. Schoenbaum, The Duty of Utmost Good Faith in Marine Insurance Law: A Comparative Analysis of American and English Law, 29 J. MAR. L. & COM. 1, 11 (1998)).

(254.) Id.

(255.) Black Stallion Enterprises v. Bay & Ocean Marine Towing, No. 10-30423, 2010 WL 3516629, at *1 (5th Cir. Sept. 2, 2010).

(256.) Anh Thi Kieu, 927 F.2d at 899.

(257.) See Otto Candies v. Nippon Kaiji Kyokai, Corp., 346 F.3d 530 (5th Cir. 2003) (finding maritime law "cautiously" recognizes the tort of negligent misrepresentation as applied to classification societies).
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