October 2012

Part II: Litigating Oil Leak Claims

Trucking and Marine Accidents: Oil Spills and Liability for Environmental Remediation

Van Krkachovski
Partner

By Van Krkachovski
Presented at a McCague Borlack Environmental Law Seminar

Introduction

When an accident occurs, the typical liability issues arise. Upon receipt of a claim, insurers are prompted to consider a number of important questions. Such questions include whether the accident was a result of the action or inaction of the driver; what if anything could have been done to avoid the accident or mitigate the consequences; what kinds of contributing factors may have been at play (such as the road or weather conditions), among other considerations.

When an accident involving a transport truck or marine vessel occurs, there are also often cargo and fuel considerations and more specifically, environmental considerations relating to fuel and cargo spills. It is this very issue that some insurers have been failing to turn their minds to; more specifically, the environmental liability aspects of accidents that result in fuel or oil spills, both from trucks and ships.

This paper does not purport to cover all of the environmental liability issues with regards to transport truck accidents and vessel collisions that may amount to hazardous cargo or fuel spills but indeed endeavours to elucidate some of the relevant statutes to consider when such an accident occurs and shed light on the appropriate steps an insurer ought to take upon receiving such claims.

A look at relevant statutes and their application

Recent legislative enactments have made it possible for carriers to be held liable for losses other than those of the cargo itself. The Canadian Environmental Protection Act (CEPA)¹ is Canada's principal federal environmental statute, governing a variety of environmental activities such as regulation of toxic substances, air and water pollution, and waste disposal into the oceans. Included in these activities, is the transportation of toxic substances both on land and by sea.

What is more relevant for insurers in Ontario is the provincial equivalent of the federal environmental statute. In Ontario, the carrier of any cargo which is defined by the statute as being a pollutant, will attract, the Environmental Protection Act (EPA)² . The Ontario EPA imposes potentially far reaching consequences on a carrier, dependent on the effects of the discharge of the cargo on the environment.

Part X of the Ontario EPA deals particularly with spills and establishes three basic elements: the duty to report a spill, the duty to clean up, and accountability.³

More specifically, section 92 of the EPA requires the person in control of a pollutant to report a spill to the Ministry, to the municipality where the spill occurred and where the discharger is not the owner, to the owner of the spilled pollutant.⁴ In some circumstances a further report to other authorities is required. In our case, reporting the spill to the carrier's insurer is often essential to ensure that coverage will be provided for the cleanup. O. Reg. 675/98 further requires that the discharger contact the Spills Action Centre.⁵

Section 93 of the EPA stipulates that there is a duty to clean up the pollutant, and to restore the spill site to essentially pre-spill conditions where this can reasonably be expected.⁶

Section 99 addresses accountability and compensation issues by extending rights to third parties for the recovery of costs and expenses⁷, as well as loss and damages, from the person who had control of the spilled pollutant and the owner of the pollutant spilled, without having to prove fault or negligence. The EPA also gives municipalities the right to respond immediately to a spill and to recover costs from those the EPA holds accountable for the spill.

When environmental damage occurs, the Ministry of the Environment is called to the site to assess the nature and extent of the damage and generally provide an order for clean up and remediation. As noted, liability for environmental damage is not contingent on there being any fault or negligence on the part of the carrier, however proof that the carrier has taken all reasonable steps to prevent the spill is indeed a defence. In the case of transport truck or marine vessel accidents, the further defences of act of war, civil war, terrorism or related matters, an act of God, or the intentional act of others are not typically available.

The Ontario legislation also provides that a person or organization who takes charge of a remediation endeavour has a right to be compensated by the Crown and the Crown then has a right of subrogation against the carrier⁸. In most cases, however, the right of subrogation is rarely exercised as most carriers have an insurance policy that is able to respond to remediation for the losses. In the case of tanker truck accidents, it is likely that the truck's automobile insurer and CGL carrier will be called upon to respond to the loss.

The most important effect of the Ontario legislation is that it imposes a statutory obligation to ensure the protection and restoration of the environment in the event of a spill. The carrier is subject to this duty and a failure to discharge this duty allows the Ministry of the Environment to step in and have others discharge this duty. Those incurring costs in connection with the Ministry's order, including the Ministry itself, are permitted civil recourse to recover any expenditure. Unfortunately for insurers, the scope of the carrier's civil liability is nearly unlimited. Consider the after-effects of a serious accident and spill on a major Canadian highway: the highway would have to be shut down, resulting in significant inconvenience and astronomical expenditures for remedial measures such as resurfacing, clean up and decontamination, to name but a few.

The Transportation of Dangerous Goods Act

The Transportation of Dangerous Goods Act (TDGA)⁹ applies to all modes of inter-provincial and international transportation of dangerous goods in Canada. The main objective of the TDGA is to promote public safety and to protect the environment during the transportation of dangerous goods. The TDGA applies to those who transport or import dangerous goods, manufacture, ship, and package dangerous goods for shipment, or manufacture the containment and storage materials for dangerous goods

Section 7 of the TDGA requires an Emergency Response Assistance Plan, security training and an implemented security plan before transport or importation of dangerous goods is allowed.¹⁰ This Emergency Response Assistance Plan must be approved by the Minister of Transport, or a designated person, and such approval is revocable. Section 7.3 (2) stipulates that the security plan must include measures to prevent the dangerous goods from being stolen or unlawfully interfered with in the course of importing, offering for transport, handling, or transporting.¹¹

Oil and Cargo Spills In The Marine Context

Spills from waterborne vessels are one of the major sources of water pollution from shipping. There are several different types. For the purpose of this paper, only spills occurring as a result of vessel collisions or when a boat runs aground or breaks up in bad weather are discussed.

"Such disasters typically occur when boats are moving into or out of ports or in other restricted areas, where there is little or no room for maneuvering or going off course in case of bad weather."¹²

Spills can range from large quantities of oil from oil tankers to smaller accidental discharges of oil and fuel from smaller craft in marinas or ports. Some of the most serious oil spills result from accidents involving oil tankers.

Ship-source oil spills can have serious and long-term consequences on

• marine life and habitats;
• recreational activities such as swimming, boating, fishing;
• economic activities such as tourism and commercial fishing; and
• human welfare such as public anxiety over lost livelihood, harmful pollution and environmental degradation.

Certain chemicals, referred to as hazardous or noxious substances, are also transported by ship within Canada. Similar to oil, these substances spilling into the marine environment can have significant impacts on both the environment and the surrounding coastal communities. Between 2007 and 2009, approximately 4,160 pollution incidents involving spills of oil, chemicals, or other pollutants into Canadian waters were reported to the Canadian Coast Guard.¹³

Canada's Marine Oil Spill Preparedness and Response Regime

In 1989, as a response to growing concern following the Exxon Valdez spill, the federal government established the Public Review Panel on Tanker Safety and Marine Spills Response Capability. The Panel issued a report in 1990 and as a result, in 1995, Canada's Marine Oil Spill Preparedness and Response Regime was established.¹⁴ The Regime outlined specific procedures for how to deal with marine oil spills including a variety of requisite response times with relation to the quantity of oil spilled.

When a collision occurs and both ships are at fault, cargo owners may be able to recover for loss to cargo, either in contract against the carrier or in tort against the other vessel that collided with the carrying vessel.

In most cases, a cargo owner's action against the carrying vessel will fail, because of Article IV (2)(a) of the Hague and Hague/Visby Rules.¹⁵. This article purports to exempt the carrier from liability when the loss or damage is due to an error in the navigation or management of the ship. In spite of this, cargo owners may still attempt to prove that the collision was a result of the carrier's failure to exercise due diligence to make the ship seaworthy, a cause for which the carrier cannot be exempt.

Ship Collisions and Hazardous Marine Cargo

The Canada Shipping Act

The Canada Shipping Act (the CSA)¹⁶ is not specifically an environmental statute. However, it does contain a number of provisions addressing environmental issues and in particular, the CSA provides for the creation of regulations prohibiting the discharge of specified pollutants from marine vessels. The CSA requires certain vessels to have arrangements with various emergency response organizations. In some cases, the CSA also requires oil pollution prevention plans and oil pollution emergency plans.

Part 8 and 9 of the CSA deal with pollution prevention and response.¹⁷ These parts of the Act apply with respect to "vessels in Canadian waters or waters in the exclusive economic zone of Canada, and in respect of oil handling facilities in Canada, but do not apply in respect of vessels that are on location and engaged in the exploration or drilling for, the production, conservation of, oil or gas in certain areas described in the Canada Oil and Gas Operations Act."¹⁸

To ensure that Canada is prepared for and can respond to oil spills from vessels and other oil facilities, Transport Canada works with Environment Canada, the Canadian Coast Guard, four response organizations and other agencies to respond to incidents, help reduce and eliminate pollution sources from ships in Canadian waters, and continually improve Canada's National Oil Spill Preparedness and Response Regime.¹⁹ The emergency regime sets standards for response organizations and oil handling facilities. Transport Canada sets the guidelines and regulatory structure for the preparedness for, and response to, marine oil spills.

The Marine Liability Act

The Marine Liability Act (the Act)²⁰ includes provisions to implement international conventions on liability and compensation for oil pollution damage. The Act imposes liability on the owner of a ship for the costs and expenses incurred as a result of measures taken to prevent, repair, remedy or minimize oil pollution damage from the ship. The owner of the ship may be liable for costs and expenses incurred by the government or any other person who takes responsibility for the cleanup of a spill.

Article VII of Schedule 5 of the Act stipulates that a ship carrying more than 2,000 metric tons of oil must not enter or leave a port in Canada's waters without a certificate showing that a contract of insurance or other security satisfying the requirements of the Civil Liability Convention in force.²¹

Post Accident Considerations for Insurers

Pollution Exclusion—Not Always Applicable

The "pollution exclusion" clause is a standard clause which is found most often in CGL insurance policies. The clause aims to exclude losses arising out of the discharge or escape of pollutants into the environment. These types of exclusions were first introduced by insurers as a response to litigation arising out of these kinds of losses. Prior to the introduction of the pollution exclusion clause, insurers who sought to avoid coverage for pollution claims could only rely upon the standard exclusions found within their CGL policies, which usually did not apply to these losses.

The pollution exclusions introduced in the 1970s were not of the "absolute" variety found in most policies issued today, but contained an exception to the exclusion for losses which were "sudden and accidental". The phrase "sudden and accidental" gave rise to extensive litigation concerning what exactly it included. Initially, the courts interpreted the exclusion broadly, often holding that the phrase should be interpreted to mean "unexpected and unintended".²² This broader definition led to many losses falling within the exclusion. A new trend began to develop in later decisions, in which the phrase was interpreted much more narrowly.

Currently, large carrier companies (both ground and marine carriers), are aware of the exclusions in certain insurance policies. Accordingly, there has been a shift in the kinds of insurance products they are purchasing as well as the kind of insurance products that are being offered to these kinds of customers. Insurers are becoming more committed to offering specialized products to help carriers deal with environmental exposures that some are not even aware exist. Many insurers have even instituted Spill Reporting Hotlines and other 24/7 emergency response mechanisms. The reason for this, of course, is that more and more insurers are being called upon to deal with the after-effects of an oil spill.

Despite improved regulations, standards and laws, oil spills continue to occur at a startling rate. In 2008, over 5,000 spills occurred in Ontario; approximately 46% of these spills affected land and over 1,030 of these spills occurred in water.²³

Attached as Figure 1, is a document created by the Toronto and Region Conservation Authority succinctly outlining the policies, roles and responsibilities of various factors relating to oil spills. Figures 2 and 3 also produced by the Toronto and Region Conservation Authority, outlines various causes of spills in York Region and the City of Toronto, as well as the statistics for each as they relate to various business sectors. Finally, Figure 4 depicts the cleanup percentages in Toronto, Vaughan and Markham after a spill has been reported and remediation ordered.²⁴

So what considerations should be paramount to insurers?

• Offering the right coverage
• Knowing their reporting duties
• Emergency Response; Containment; Clean up; and Restoration
• Remaining Legally Defensible After a Spill; Documentation!
  • Thorough documentation of an environmental release or spill is one of the best ways to maintain a legally defensible position against third-party claimants and avoid being included as a responsible party to a pre-existing contamination problem. A detailed record should be kept of all actions taken after a spill to document that your insureds' release was separate from an existing environmental issues and elicited its own clean up and remediation efforts separate from any others.
  • An insured involved in a fuel spill should record the quantity spilled (based on last fueling and distance driven), times and phone numbers of calls he or she made to report the spill, actions he or she took to contain the leak, actions taken by emergency crews at the scene, along with the number of responders, time on scene and equipment used. The adjuster should document the same information, requesting documentation and notes from the carrier as soon as possible.
• Adopting a 24/7 response program
• Retaining an expert

How McCague Borlack Can Help: Canadian Litigation Counsel Member - 24/7 Emergency Response Team

As a member of the Canadian Litigation Counsel, McCague Borlack LLP is prepared to assist their clients in a pro-active manner at the local level. This membership provides a unique opportunity for clients of CLC to quickly and efficiently access legal services and expertise to respond to their specific needs whenever and wherever they arise.

"The strategic geographic spread of the affiliated firms of Canadian Litigation Counsel means that CLC's Emergency Response Team can provide value added legal services 24/7."²⁵ One call to CLC's toll free number sets the Emergency Response Team in motion providing immediate access to highly skilled, experienced professionals able to respond to catastrophic losses anywhere in Canada.

The types of environmental disasters discussed in this paper are indeed those that McCague Borlack LLP is qualified and willing to assist with. CLC lawyers are able to respond promptly and competently and are often even able to attend the scene of the accident. At the scene of an accident or spill, the CLC lawyer will be responsible to:

• Co-ordinate, instruct and supervise the activities of the Response Team
• Assume control of the scene in cooperation with the police, fire marshal, and/or their agencies with jurisdiction
• Direct the investigations to insure they are accurate and complete
• Establish solicitor privilege appropriate
• Preserve the evidence
• Arrange for the appropriate chain of custody for evidentiary purposes at trial
• Assist insureds if incarcerated or if requiring medical care
• Respond to the media
• Handle issues relating to the contents/cargo/merchandise/goods²⁶

When called to a scene, the CLC Emergency Response team will work together under the direction of the insurer or representative of the insurer, giving instructions. For all these reasons, it is important for the claims examiner, adjuster or risk manager to be aware of the steps that need to be taken in the face of an environmental disaster.

¹ Canadian Environmental Protection Act, 1999. S.C. 1999, c. 33.
² Environmental Protection Act, 1990. R.S.O. 1990, c. E. 19.
³ Ibid., Part X.
⁴ Ibid., s. 92.
⁵ O. Reg. 675/98.
⁶ Supra note 2, s. 93.
⁷ Supra note 2, s. 99.
⁸ Supra note 2, s. 101.
⁹ Transportation of Dangerous Goods Act, 1992. S.C. 1992, c. 34.
¹⁰ Ibid., s. 7.
¹¹ Ibid., s. 7.3(2).
¹² "The Environmental Effects of Freight" Organisation for Economic Co-Operation and Development (Paris: 1997) online: http://www.oecd.org/trade/environmentandtrade/2386636.pdf.
¹³ "Report of the Commissioner of the Environment and Sustainable Development to the House of Commons: Chapter 1 – Oil Spills from Ships" Office of the Auditor General of Canada (Ottawa: 2010) online: http://www.oag-bvg.gc.ca/internet/docs/parl_cesd_201012_01_e.pdf at 1.
¹⁴ Ibid., at 7.
¹⁵ Marine Liability Act, S.C. 2001, c. 6., Schedule 3, article IV.
¹⁶ The Canada Shipping Act, 2001. S.C. 2001, c. 26.
¹⁷ Ibid., at parts 8 and 9.
¹⁸ Canadian Encyclopedic Digest (Ontario), 3d ed. (Toronto: Carswell, 2012) "Environmental Law (Ontario)", ss. 162.
¹⁹ "National Oil Spill Preparedness and Response Regime" Oil Tanker Safety and Oil Spill Prevention – Transport Canada. (Canada: 2012) online: http://www.tc.gc.ca/eng/marinesafety/menu-4100.htm.
²⁰ Marine Liability Act, S.C. 2001, c. 6.
²¹ Marine Liability Act, S.C. 2001, c. 6., Schedule 5, article VII.
²² Zatko et al. v Paterson Spring Service Limited, [1986] I.L.R. 7682 (Ont. H.C.J.).
²³ "Oil Spill Forensics" Rochon Report. Rochon Engineering Incorporated, Volume 3 Issue 4. Online: http://rochons.ca/wp-content/uploads/2010/08/22_RochonReport_December_20091.pdf.
²⁴ All figures included are collected from "Spills in Toronto and Region Backgrounder" Toronto and Region Conservation (August 2004) online: http://www.torontorap.ca/dotAsset/65177.pdf.
²⁵ Canadian Litigation Counsel, 24/7 Emergency Response Team, online: http://www.clcnow.com/index.php?option=com_content&view=article&id=34&Itemid=57.
²⁶ Ibid.

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