Who pays?

In the more than one hundred countries party to the Civil Liability Convention, developed under the aegis of the International Maritime Organization (IMO), an oil tanker which spills part of its cargo or bunker fuel at sea, for whatever reason, is obliged to pay compensation of victims, up to a certain limit.

Beyond this limit, supplementary compensation is available from the IOPC Funds, managed by the member States and financed by mandatory levies from oil importers.

IOPC compensation rules

Any expense/loss must actually have been incurred.

Any expense must relate to measures which are deemed reasonable and justifiable.

A claimant’s expense/loss or damage is admissible only if and to the extent that it can be considered as caused by contamination.

There must be a link of causation between the expense/loss or damage covered by the claim and the contamination caused by the spill.

A claimant is entitled to compensation
only if he has suffered a quantifiable economic loss.

A claimant has to prove the amount of his loss or damage by producing appropriate documents or other evidence.

It is therefore the tanker owner, through his insurance premiums, and the oil importer, through a contribution per tonne imported, who finance the protection of those affected. This mutual system functions without a bonus-malus system: it insures against risks but does not encourage shipowners and importers to reduce accident occurrence. In the case of large spills where the total compensation funds available are not sufficient to face all damages, it is usually the national government which bridges the gap with national solidarity funds.

IOPC Funds compensation limit

The rules of IOPC Funds stipulate an overall maximum amount payable per disaster. In the event of damages being estimated at a value above this limit, payments to victims are reduced in proportion to the maximum available amount and the total of recognised damages.

This limit has proved to be far too low when faced with a major heavy oil fuel spill. For all the economic operators affected by the Erika pollution to receive complete compensation, the French State and the Total group had to voluntarily choose not to claim their expenses. Similarly, at the time of writing, payments for the Prestige pollution are restricted to only 30% of damages taken into account.

A post-Prestige European initiative led to the creation of a complementary third-tier fund, which is now in effect for its signatory countries. If this fund had existed at the time of the Prestige accident, current payments could have bordered on 90% of accepted damages.

A joint IPIECA/ITOPF guide available on the IPIECA website provides detailed information on compensation issues.

Did you know?

Exerting one’s rights

To assist compensation claimants, the IOPC Funds publishes a practical guide to the rules governing the system. In the event of a major incident, a claims office is often established near the scene by the vessel’s insurer and the IOPC Funds to assist claimants. Claimants have a period of 3 years after the spill has taken place to make their claim and come to an amicable agreement. Beyond this period, they can only conserve their rights by filing a lawsuit.

Oil on the shoreline

The USA is the only major country not party to the IOPC Funds system: it has opted for a national compensation fund under its own rule: the Oil Pollution Act, 1990. The US fund functions in a similar way to the international regime with one major difference: it accepts the compensability of environmental damage. Canada has opted for an intermediary arrangement: a national fund with rules comparable to those of the US fund plus adhesion to the IOPC Funds system, towards which the national fund reverts after payment for reimbursement.

Case studies

Amoco Cadiz (16/03/1978, France)
According to the regulations in force at the time of the accident, the shipowner’s liability was limited to 77 million French Francs (the equivalent of 33 million Euros today). Rather than attempting to establish that the shipowner was at fault in French courts in order to lift his limit of liability, the French authorities and victims turned to the shipowner’s parent company, which they litigated in American courts during a 14 year long lawsuit.

Tanio (07/03/1980, France)
This was the first major oil spill that the IOPC Funds were to handle. The shipowner’s limit of liability was 11.8 million French Francs and the IOPC Funds’ 2,447 million French Francs (in total 84 million Euros today). Compensation from the IOPC Funds was settled amicably, five years after the incident. The French State and the IOPC Funds jointly embarked upon a lawsuit in the court of Brest (Brittany, France) against the insurer, the shipowner, the naval shipyard which carried out the last repairs and several other stakeholders. In 1997, an out-of-court settlement allowed the IOPC Funds to recover part of its payments and allowed the French State to complete compensation payouts.

Aegean Sea (03/12/1992, Spain)
The shipowner’s liability was limited to 1,121 million Pesetas and the IOPC Funds’ intervention to 9,513 million Pesetas (a total of 59.2 million Euros today). After a long process of amicable compensation claims to the IOPC Funds and simultaneously recourse to Spanish courts with penal then civil judgements, an overall agreement between the Spanish Government and the IOPC Funds was signed in 2002 to settle all the remaining disagreements.

Braer (05/01/1993, Great Britain)
The shipowner’s liability was limited to £4.9 million and the IOPC Funds’ intervention to £50.6 million (in total 97.4 million Euros today). Amicable settlements rapidly progressed until the third year following the incident, when legal action before Scottish courts led to an interruption in payments. In 2000, the withdrawal of a claim from the UK Government, for response expenses, allowed payments to be resumed and the case was closed by the end of 2002.

Sea Empress (15/02/1996, Great Britain)
The shipowner’s limit of liability was £7.5 million at the time, and that of the contribution of the IOPC Funds was £51 million (in total, 90 million Euros today). Like the Braer, all the amicable settlements had not been completed three years after the incident and thus legal action was taken by the claimants against the shipowner, the insurer and the IOPC Funds. The liability of the Milford Haven port authorities was also questioned, concerning the competency of the pilot in charge of assisting the vessel. By the end of 2004, a total of £36.8 million of compensation had been paid by the insurer and the IOPC Funds, while procedures continued.