In Norwegian Hull Club v. M/V HOS Beaufort, the U.S. District Court in New Orleans considered competing arguments over security and the release of an arrested vessel. The underlying claims in this matter arose out of the Beaufort alliding with the SSV Iolair on June 24, 2011 in international waters off the coast of Mexico in the Bay of Campeche. At the time of the incident, the SSV Iolair, a semi-submersible offshore construction support floatel platform, was stationary alongside another platform. The Beaufort, a United States flagged offshore supply vessel, was underway with her autopilot system engaged. The Beaufort’s first mate had fallen asleep on watch and was only awakened when the vessel was 50 feet away from the Iolair. The Beaufort was unable to avoid the allision.

In February 2014, the Beaufort entered United States waters for the first time since the allision. The owner, operator, and manager of the Iolair, Exeter Marine Limited, Cotemar S.A. de C.V., and Ocean Oil Construction and Services (the “Cotemar interests”), filed an action in rem against the Beaufort in the Eastern District of Louisiana (Civil Action No. 14-342). The District Court granted Cotemar’s motion for the issuance of an arrest warrant and the vessel was arrested under Rule C of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions. On April 15, 2014, Steamship Mutual Underwriting Association, Ltd., the insurer of the Beaufort, and the Cotemar interests entered into a LOU securing the release of the Beaufort. The LOU stated that it was entered into “in further consideration of [the Cotemar interests’] refraining from arresting or attaching or otherwise detaining or taking any other action to seize the Beaufort to recover for damages” related to the June 24, 2011, incident.

On September 30, 2015, Hornbeck Offshore Services, who appeared as the Beaufort’s claimant, filed a motion to dismiss Civil Action No. 14-342. Meanwhile, a dispute arose between the Cotemar interests and their insurer, Norwegian Hull Club (“NHC”) that caused the Cotemar interests to stop prosecution and file a motion to dismiss.[1]

NHC, seeking to recover from the Beaufort by subrogation, filed a motion to intervene that was granted. NHC opposed the Cotemar interests’ motion to dismiss because if Cotemar was dismissed and NHC was not added to the LOU, the LOU would be void and there would be no basis for in rem jurisdiction. To remedy this, the Cotemar interests assigned their rights in the LOU to NHC. NHC filed a motion for adequate security seeking to be added as a party to the LOU in Civil Action No. 14-342. Hornbeck opposed the motion.

To protect its interests, NHC filed a second suit in the Eastern District of Louisiana, Civil Action No. 15-5718, against the Beaufort, in rem. The vessel was seized and placed in custody. Hornbeck filed a motion to vacate the second arrest arguing that the arrest was improper because the underlying lien was released by the Cotemar interests in Civil Action No. 14-342 when they entered into the LOU. Hornbeck sought damages for the alleged wrongful arrest.

NHC argued that Hornbeck was taking inconsistent positions in the two cases. NHC reasoned that it must be subrogated to the Cotemar interest’s rights, which means that it must be a party to the LOU. NHC argued that if it was not subrogated to the Cotemar interests’ rights and was not a party to the LOU, it must be allowed to arrest the vessel in its own right.

The District Court essentially agreed with NHC. In Civil Action No. 15-5718, which NHC initiated to protect its rights, the Court found that the maritime lien on the Beaufort arising from the June 24, 2011 accident was transferred to the LOU and the Beaufort could not have been arrested for the same claim. The Court granted Hornbeck’s motion to vacate the arrest but denied Hornbeck’s request for damages, reasoning that Hornbeck did not prove that NHC acted in bad faith. The Court did not leave NHC without remedy. In Civil Action No. 14-342, the Court granted NHC’s motion to approve assignment of the LOU.

The Eastern District of Louisiana court used a practical and reasoned approach that, in our opinion, reached the correct result. However, the import for insurers and insureds is that seemingly simple, routine documents, like LOUs, should be drafted with care and consideration for future ramifications.