In the shipping industry, the management of risk is an everyday concern. Shipping companies attempt to minimise risk by maintaining seaworthy vessels, properly training crews, entering into agreements that allocate risk and buying insurance. Despite best attempts to minimise exposure, events occur that are beyond their control and that could cause damage for which they may be responsible. These events are often referred to as 'acts of God'. They are important for two reasons:
- When they occur, they often trigger contractual provisions pertaining to such situations; and
- When damage is caused by a vessel or equipment during the event, the vessel owner can, in certain situations, assert an act of God defence to avoid liability for such damage.
Some advance planning and an analysis of hurricane procedures could protect shipping companies from future liability.
An 'act of God' has been defined as an accident that is caused directly and exclusively by natural causes without human intervention, which could not reasonably have been expected or prevented. The federal courts have expanded on this definition and defined an 'act of God' as:
"a disturbance... of such unanticipated force and severity as would fairly preclude charging a [defendant] with responsibility for damage occasioned by [the defendant's] failure to guard against it in the protection of property committed to its custody."
The courts have expanded this concept by including similar defences such as force majeure and peril of the sea to the mix. A 'peril of the sea' is said to occur when conditions "are of an extraordinary nature or arise from irresistible force or overwhelming power, and... cannot be guarded against by the ordinary exertions of human skill and prudence".
The courts have also expanded on the no-fault concept and used the term 'inevitable accident' to describe certain accidents, whether or not caused by an act of God, where all reasonable precautions had been taken and the accident occurred anyway. An inevitable accident, unlike an act of God, can start with human action or originate with a natural force.
The burden of proving an act of God defence rests on the party asserting it and includes the added burden of establishing a lack of fault in order to be exonerated from liability for damage caused to another's property. Thus, if a vessel causes damage due to an act of God, the vessel owner has a duty to prove that the event caused the damage and that it is free from fault in preventing the damage from occurring. Essentially, the vessel owner must prove that the force of the storm or other natural event was truly overpowering and that all reasonable precautions had been taken.
Vessel owners have been attempting to use act of God as a defence for a long time. As one court explained:
"[T]he federal courts' 'weathered' experience with [the act of God] defense has produced one crucial principle: if a defendant has sufficient warning and reasonable means to take proper action to guard against, prevent, or mitigate the dangers posed by the hurricane but fails to do so, then the defendant is responsible for the loss; however, if there were insufficient warnings or insufficient means available to the defendant to protect the cargo from the Act of God, then they are not responsible for the loss."
The original cases simply required that the vessel owner have taken reasonable precautions under the circumstances to avail itself of the defence. However, in practice, the courts often require that the vessel owner affirmatively prove that it did everything in its power to avoid the casualty. Essentially, the courts have found that a casualty cannot be considered an act of God if it results from – or is contributed to by – a vessel owner's negligence.
When damage occurs due to a natural event, the first question to be answered is whether the event is an act of God. The weather is a natural event that seriously affects the shipping industry. Storms that are usual for the region and the time of year are not acts of God. For example, high winds or waves in the Gulf of Mexico during January or February or violent summer thunderstorms are normal and would not be considered acts of God because they are reasonably expected. On the other hand, although they can be expected, courts generally consider hurricanes to be acts of God because a hurricane causes unexpected and unforeseeable devastation with unprecedented wind velocity, tidal rise and upriver tidal surge. In addition, forecasting the path, speed and tidal surges of a hurricane is one of the most challenging and difficult tasks undertaken by meteorologists; and despite aircraft, land and shipboard reconnaissance, weather satellites and other data sources, exact hurricane paths and associated flooding are rarely predicted with precision. As such, even though hurricanes can be reasonably expected, they are usually considered to be acts of God, providing some insulation from liability.
Once it is determined that damage originated with an act of God, the next step is to determine whether the vessel owner took reasonable precautions to prevent the damage from occurring. Determining liability for loss resulting from an act of God is highly fact specific and determined on a case-by-case basis. In a nutshell, the vessel owner must prove that it took all reasonable precautions to prevent the harm.
Using a hurricane as an example, if an owner chooses to moor its vessel in a port that is within the path of a hurricane and the vessel breaks free of the moorings and causes damage, the owner could be found liable for the damage because a reasonable precaution could have been taken to prevent the damage. The owner could easily have moved the vessel further inland or selected a port that was out of harm's way. As such, the courts would not allow the owner to use the act of God defence because its hurricane precautions were not reasonable. Although this is a simple example, these determinations are usually much more complex.
When evaluating pre-hurricane procedures, a vessel owner must look at its plan in great detail and ensure that it is taking all reasonable precautions considering the size and scope of a potential hurricane. Unfortunately, what may seem reasonable to a vessel owner as a storm approaches may not seem reasonable in hindsight when tested by a claimant that suffered damage as a result of the vessel.
Although evaluating the potential ability to use an act of God defence long before a natural disaster occurs may seem like a waste of resources, it may reap a vessel owner significant rewards if and when such an event occurs. Like so many elements in the marine business, a little time spent on the front end can save quite a bit of time and resources later.
For further information please contact Lawrence R DeMarcay or Michael Harowski at Fowler Rodriguez by telephone (+1 504 523 2600) or email ([email protected] or [email protected]). The Fowler Rodriguez website can be accessed at www.frfirm.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.