Reconciling Water Quality Ins. Syndicate v. U.S. and Great Am. Ins. Co. v U.S.

Authored By: Emma Aucoin

Water Quality Ins. Syndicate v. United States, 225 F. Supp. 3d 41 (D.D.C. 2016).

           The decision in Water Quality Ins. Syndicate v. United States[1]  can be distinguished from Great Am. Ins. Co. v. United States[2] regarding a claimant’s entitlement to be reimbursed by the Oil Spill Pollution Fund, and the burden of proof or general hurdles one might face in obtaining the reimbursement. The focus in Water Quality Ins. Syndicate and the NPFC decision therein were dedicated to the specific acts that were alleged to be grossly negligent, whereas the court in Great Am. Ins. Co. addressed a decision in which the NPFC found no grossly negligent acts at all.

           In Water Quality Ins. Syndicate, the D.C. court assessed the inadequacy of evidence that the NPFC predicated its finding of gross negligence upon. The court did not focus on the standard of gross negligence itself or the claimant’s burden of proof; rather, it found that the agency based its finding of gross negligence on mere speculation and insufficient evidence. For the general rule of limitation of liability to apply, the Responsible Party must be free of any gross negligence that might have led to the proximate cause of the incident, and the party must not be in violation of a federal regulation. In this case, the proximate cause of the incident was questioned by the NPFC which effectively hindered the claimant’s entitlement to be reimbursed by the Fund. According to the court, the agency’s finding of gross negligence based on its “factual determinations” ignored critical context such that it amounted to “cherry-picking of evidence” which raised doubt as to the ultimate conclusion it rendered. Thus, the court set aside the agency’s decision due to the insufficient evidence backing its finding of gross negligence.

           On the other hand, the Illinois court in Great Am. Ins. Co. corrected a decision made by the NPFC which denied limitation of liability based on the claimant’s inability to disprove its gross negligence by a preponderance of the evidence. The NPFC conceded the fact that it could not find the plaintiffs grossly negligent or in violation of a federal rule or regulation. Thus, the general rule should have taken effect given the absence of any exception; however, instead of applying the general rule, the NPFC imposed a burden upon the responsible party to disprove its gross negligence by a preponderance of the evidence. The Illinois court set aside the agency’s denial of the plaintiffs’ claim on the grounds that there is no language within OPA 90 that places a burden on the responsible party to disprove gross negligence acts that might bear on the proximate cause of the incident. The intention of Congress, as the Illinois court states, was not to impose upon a responsible party the task of proving “the multitude of ways in which they were not grossly negligent or did not violate federal standards […] particularly when Congress explicitly provided for a limitation of liability as the ‘general rule.’” In sum, while a responsible party is required to “demonstrate” their entitlement to the limitation of liability under section 2708(a) of OPA 90, the party is not required to prove this right by a preponderance of the evidence. More specifically, the general rule which entitles a responsible party to limitation of liability will apply unless there is a finding of an exception (gross negligence on behalf of responsible party or violation of a federal regulation). 

           Bridging the gap between the two aforementioned cases requires the relevant statutory framework. Take 33 C.F.R. § 136.105(a) for example: “A claimant ‘seeking recovery [from the fund] bears the burden of providing all evidence, information, and documentation deemed necessary by the Director [of the] NPFC, to support the claim.’”[3] The regulations outline what proof is necessary for the responsible party to obtain removal costs: “(a) that the actions taken were necessary to prevent, minimize, or mitigate the effects of the incident; (b) that the removal costs were incurred as a result of these actions; and (c) that the actions taken were consistent with the National Contingency Plan or directed by its representative.”

           The burden is undoubtedly on the responsible party to provide evidence that frames the circumstances of the relevant incident in order for the NPFC to make a reasonable determination regarding the cause and contributing factors of the incident, but is there a standard to be met (i.e., clear and convincing, preponderance of the evidence)? This may be the source of the NPFC’s confusion in the Great Am. Ins. Co. case, in addition to the use of the preponderance standard in an adjacent statute: 33 U.S.C. § 2703: Defenses to Liability.[4]

           Further, because the court in Water Quality Ins. Syndicate primed its discussion on the NPFC’s misapplication of the gross negligent standard, it was unclear as to anything else regarding the burden on the claimant.

 [1] Water Quality Ins. Syndicate v. United States, 225 F. Supp. 3d 41 (D.D.C. 2016).

[2] Great Am. Ins. Co. v. United States, 55 F. Supp. 3d 105 (N.D. Ill. 2014).

[3] Water Quality Ins. Syndicate, 225 F. Supp. at 49 (quoting Smith Prop. Holdings, 4411 Conn. L.L.C. v. United States, 311 F. Supp. 2d 69, 71 (D.D.C. 2004)).

[4] Id. at 41 at n.13. “Finally, the denial of the limitation on liability due to the gross negligence exception, under 33 U.S.C. 2704(c)(1)(A), rests on a legal conclusion of the agency and, as the plaintiff points out, shifting the burden to the claimant "to prove the incident was not caused by gross negligence" would be "anomal[ous]" and require the claimant "to disprove the ex post facto opinions of the NPFC," which is "illogical, particularly since the NPFC keeps moving the target once [the plaintiff] hits it." Pl.'s Reply at 17. This final point confuses the different standards applicable to administrative review of a claim and judicial review of the agency's action. In sum, while the OPA places the burden squarely on the claimant to show entitlement to the limitation on liability before the NPFC, the NPFC must base denial of the claim on substantial evidence in the record to withstand review under the APA.”