I recently had an opportunity to submit several claims to the National Pollution Funds Center on behalf of a client in connection with a boat that leaked oil into a river. The Center’s claim submission process is very different from an insurance claims submission process.
What is the National Pollution Funds Center?
The National Pollution Funds Center is an agency within the U.S. Coast Guard created to process claims resulting from oil spills. It was created following passage of the Oil Pollution Act of 1990, which itself was a response to the Exxon Valdez oil spill. The Oil Pollution Act addresses preventing, responding to, and paying for oil pollution incidents in the navigable waters of the United States. Most of the funds come from a per-barrel excise tax on imported and domestic oil. But funds also come from costs and penalties recovered from “Responsible Parties.”
What kinds of claims does the National Pollution Funds Center pay for?
They pay only for costs associated with oil spills, not spills of other hazardous chemicals. Moreover, an oil spill must discharge or substantially threaten to discharge oil in the navigable waters of the United States.
Are there any conditions precedent to submitting a claim to the National Pollution Funds Center?
Yes. You first must submit the claim to any responsible party or parties and give them ninety (90) days to pay the claim. Often the name of the responsible party or parties, including their address, will be provided in an advertisement for claims provided directly to a potential claimant or otherwise published locally.
Why would the responsible party not pay?
There are many reasons, including the responsible party’s failure to maintain required insurance coverage, claims exceeding the insurance coverage amount, or – as in our case – a dispute between the insurer and the insured concerning whether insurance coverage was available. (The insurer argued the boat was not seaworthy, which was a requirement for insurance coverage.)
Can a Claimant sue the responsible party directly?
Yes. But it may be quicker and less costly to submit a claim to the National Pollution Funds Center than to attempt to obtain and enforce a judgment through the courts. Importantly, if you choose to sue the responsible party directly, any claims you submit to the National Pollution Funds Center will be held in abeyance while you move forward in the courts.
Are there practical considerations when submitting Oil Pollution Act claims?
The National Pollution Funds Center issues formal decisions explaining why they have decided to pay and/or not pay claims. So you are likely to have to provide a lot more documentation and/or explanation than you would when submitting a claim to an insurance company. I had two very different experiences with Center claim representatives. One claims representative reached out repeatedly when she had a questions or otherwise did not understand something. It was annoying at the time, but in hindsight resulted in near-full payment of the claim at the end of the initial review. The second claims representative reached out only once and filed a decision on the last possible day denying a large portion of our claims, and we ended up having to request reconsideration to get them paid – even though several short emails or calls likely would have produced that result without the additional hassle.
Are there caps or practical limits on an Oil Pollution Act claim?
Yes, but the cap is $500 million to $1 billion per incident. As a general rule, the National Pollution Funds Center will pay for any costs directly related to an incident that the claimant otherwise would not have incurred. But there are practical limitations. First, the Center requires a lot of documentation before it will pay personnel costs and then will pay only for personnel costs when the employee is working overtime or extra hours. One lesson we learned was that it would have been better to pay a third-party contractor to perform some of the work rather than to redirect the claimant’s own personnel. Second, the Center treats some relatively inexpensive items as equipment, rather than as supplies, and limits payment based on original cost and useful life. Third, while it is theoretically possible to recover for lost profits, the Center makes it very difficult to do so.