BATTEN
THE HATCHES—THE IMO SETS A STORMY COURSE
WITH A NEW ATHENS CONVENTION
(Published April 2003)
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| Large disasters involving passenger ferries, such as the sinking of the ESTONIA in 1994 and loss of 852 lives, prompted the IMO’s consideration of a new protocol for passenger vessels. |
On November 1, 2002 the International Maritime Organization ("IMO") officially adopted a new Protocol to the Athens Convention Relating To The Carriage of Passengers and Their Luggage By Sea, 1974, the culmination of more than five years of often-heated deliberations.
Kaye, Rose and Partners, as maritime counsel for the International Council of Cruise Lines ("ICCL"), has worked very closely with the cruise, ferry and marine insurance industries in formulating positions in response to the draft Protocol. The firm offered proposals and drafted position papers to meet industry-wide concerns, and ultimately addressed all attendees at the week-long final Diplomatic Conference as part of ICCL's delegation.
The Protocol, which enters into force and becomes effective 12 months after the requisite ten nations ratify it, incorporates sweeping changes to the liability, damages and insurance regimes governing the carriage of passengers on cruise ships and ferries worldwide. Many of these changes are imported into the personal injury compensation context for the first time in any international treaty, though some had been adopted by the IMO previously in the pollution context. The IMO will soon begin consideration of an international treaty governing seafarers on all ocean-going vessels, and the Protocol to the Athens Convention will undoubtedly be used as a blueprint for those deliberations. This article summarizes the final outcome of the new Protocol and provides an analysis of the practical implications of the most important provisions, along with the immense challenges now faced by operators and insurers.
Did You Know?
The Athens Convention is the passenger carrier liability and compensation scheme analogous to the Warsaw Convention for airlines. Both international treaties establish the standard of proof and damage limits applicable in injury and death cases, including mass disasters, and both have undergone dramatic changes in the last several years. International carriage by rail is also the subject of an international treaty, commonly referred to as the COTIF regime. A comparison of the various systems provides valuable insight.
Airline Regime: The Warsaw Convention was first adopted in 1929 and as a result of later protocols eventually set a damages cap of $75,000 per incident for each claimant (called a "per capita" limit) if negligence caused an accident during any international carriage. The U.S. became a signatory, so the cap applied to any travel between the U.S. and another country, but not to domestic flights. The cap could be broken if willful misconduct of the carrier was shown, in which case unlimited damages were available. Over the years there was so much disagreement about the damages cap that many nations started unilaterally increasing limits. There were several more recent protocols that received mixed support, and ultimately a voluntary written agreement on the part of most airlines to pay more than the cap to avoid government intervention.
The desire for worldwide uniformity eventually brought about the adoption of the Montreal Convention of 1999, which is now in the process of being ratified. Prior to the terrorist attacks of 9/11 and their devastating effects on the airline industry, indications were that the U.S. would ratify the new treaty. It imposes strict or "absolute" liability in any aviation accident, regardless of fault, up to a cap of 100,000 Special Drawing Rights ("SDRs"). (An SDR is an international monetary unit which fluctuates in value daily and is tied to several of the world's leading currencies. Today one SDR = approximately $1.30 U.S.) Under the Montreal Convention, an airline passenger can recover added unlimited damages unless the carrier proves the absence of fault (so-called "reverse-burden negligence"), or if there was recklessness by the airline. The only insurance provision in the Montreal Convention is found in Article 50, and provides that each State party may require carriers operating in their jurisdictions to provide evidence of adequate insuranceÑthere is no specification of how much and no provision for insurers to be sued directly by claimants.
Railway Regime: Although international carriage by rail is far more common in Europe than in the U.S., it is also the subject of an international treaty. The current limit for injury or death in the international carriage of rail passengers under the Convention relative aux transportes internationaux ferroviares ("COTIF") is SDR 70,000. The Vilnius Protocol of 1999 adopted a revised limit of SDR 175,000. No insurance requirements are specified, let alone any comparable to what has now been included in the new Athens Convention, discussed herein.
Evolution of the Athens Convention
The Athens Convention was first adopted in 1974 and amended by protocol in 1976, when a per capita limit of SDR 46,666 was established (approximately $61,000 U.S.). This was the limit on any passenger claim for injury or death in cases where the Convention applied, and the passenger had to prove fault to recover unless the casualty was caused by a "shipping incident" (shipwreck, sinking, collision, etc.) or "defect in the ship" (not defined). In those situations the burden shifted to the carrier to disprove fault (reverse-burden negligence), but the cap still applied. The only time the cap could be broken was when there was recklessness by the carrier, in which case recoverable damages were unlimited. There was no strict liability, but merely a rebuttable presumption of fault in shipping incidents or claims arising from "defects". The Athens Convention was silent about insurance. The U.S. never became a signatory because by the late '70s, Americans abhorred damage caps and U.S. maritime law specifically prohibited them (46 U.S.C. 183 et seq.). There was a 1990 Protocol which sought to increase the per capita limit to SDR 175,000 (about $228,000 U.S.), but it was never ratified by the requisite ten nations and never became effective. One reason was that the increased amount was deemed obsoletely low before the Protocol could become operative.
The effect of the Athens Convention prior to the new 2002 Protocol becoming operative is that it does not apply in any U.S. litigation to cruises which touch a U.S. port. However, there are at least four trial court decisions enforcing the SDR 46,666 cap of the 1976 Protocol in U.S. suits filed by U.S. passengers, if they buy their tickets here but travel abroad to take a cruise. Berman v. Royal Cruise Line, 1995 A.M.C. 1926 (Cal. Super. Ct. 1995); Kirman v. Compagnie Francais de Croisieres, 1994 A.M.C. 2848 (Cal. Super. Ct. 1993); Mills v. Renaissance Cruises, Inc., 1993 A.M.C. 131 (N.D. Cal. 1992), and Becantinos v. Cunard, 1991 W.L. 64187 (S.D.N.Y 1991). The first federal circuit court of appeals to rule on the issue, Wallis v. Princess Cruises, et al., 306 F.3d 827 (9th Cir. 2002), agreed with this proposition but declined to enforce the limit on the facts of the case because the ticket contract did not specifically recite the amount of the limit. The holding is nonetheless important in the U.S. because it will likely take a few years before the requisite number of nations ratify the new Protocol and it becomes effective. In the meantime, cruise lines can seek to enforce the limit of the 1976 Protocol for claims arising from foreign voyages.
In many nations that had adopted the 1976 Protocol, it has since been repudiated or the damage limits have been unilaterally increased, in some cases quite substantially. The European Union has adopted a "Tour Package Law" imposing strict liability against sellers of cruise tours for any shipboard casualty, with a very high potential recovery and right of recourse by the packager against the ocean carrier. Thus, suits filed in other nations (such as the U.K.) are often subject to a much higher limit than SDR 46,666 or even SDR 175,000.
Development of the 2002 Protocol
Over five years ago the IMO Legal Committee began consideration of a new protocol for passenger vessels, encompassing the nearly 1 billion estimated passengers who travel annually on cruise ships and ferries combined. The two original goals were simply to increase the damage limit to something most nations could accept, and to introduce a requirement for compulsory insurance. No one in the U.S. paid much attention to the deliberations, however, because it was widely assumed the U.S. would never sign a convention with a damage cap in the marine context, especially because unlimited recovery is already permitted by U.S. law and Congress has specifically prohibited limitations on liability in passage ticket contracts at sea. 46 U.S.C § 183.
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| British ferry HERALD OF FREE ENTERPRISE capsized after leaving the Belgian port of Zeebrugge in 1987, claiming the lives of 190. |
Everything changed in the fall of 2000, when the Japanese delegation to the IMO proposed several revolutionary concepts to attract more support: (1) strict liability for any "shipping incident" or "defect in the ship" up to "x" amount; (2) additional damages available for shipping incidents or vessel defects up to "y" amount, unless the carrier proves the incident occurred without fault (i.e. reverse-burden negligence); (3) liability up to "y" in all other cases based on reverse-burden negligence; (4) individual nations able to "opt out" of limits and adopt higher or unlimited damages in their courts; (5) compulsory insurance to cover "x" and "y" limits, with right of direct action by claimants against insurers up to those limits and all coverage defenses waived in advance; (6) expansion of available venues for suits against carriers and insurers; and (7) lengthening of statute of limitations up to ten years.
Suddenly the U.S. delegation became very interested because the U.S. could sign the Protocol, raising the bar for all U.S.-based lines with strict liability and presumed fault, and guarantee passenger recoveries in excess of existing Federal Maritime Commission levels via right of direct action against insurers. Solvent shipowners would also be liable for unlimited damages if the U.S. exercised the opt-out option as to the damage cap. With widespread support, these concepts were all included in a new draft Protocol.
At this juncture the cruise industry became actively involved in the IMO's deliberations through the ICCL, the industry's trade association based in Arlington, Virginia. The ICCL circulated numerous position papers throughout 2001, both in the U.S. and abroad, arguing against such an onerous regime. The Association of Trial Lawyers of America ("ATLA") took up the other side, as did some EU nations, particularly Norway, whose Professor Rosaeg was the Chairman of the Athens Convention Subcommittee of the IMO Legal Committee.
The debate culminated in an IMO Legal Committee meeting attended by more than 60 nations in October, 2001, at which the ICCL, in collaboration with the International Chamber of Shipping ("ICS"), played a pivotal role. The International Group of P&I Clubs also weighed into the debate and individual lines began lobbying their flag states concerning the many serious practical problems raised by the draft Protocol, some of which had been entirely overlooked by the IMO Legal Committee.
These efforts resulted in many positive revisions to the draft Protocol at the October 2001 IMO Legal Committee meeting. The debate concerning the precise limits of strict liability, overall recovery and direct actions against insurers continued until the fall of 2002, when a final Diplomatic Conference was convened and by majority vote, more than 400 delegates from 71 nations adopted the new Protocol. If and when it becomes effective, the Protocol will become known as the Athens Convention Relating to the Carriage of Passengers and Their Luggage by Sea, 2002.
Summary of Final Provisions
The new Convention becomes effective 12 months after ten nations ratify the Protocol. For the first time in an international treaty, a "Regional Economic Integration Organization" of States, such as the EU, may ratify the Protocol on behalf of its members, so that the new regime may become effective sooner rather than later. At last count the EU consists of 15 States.
Under Article 2, the Convention applies to any international carriage if the ship is registered in, the contract of carriage is made in, or the place of embarkation or disembarkation is in a signatory nation. The new Convention will completely supersede existing U.S. laws governing the carriage of passengers on international itineraries if the U.S. ratifies the Protocol and Congress codifies it as part of U.S. law. If not, lawsuits brought in U.S. courts should be unaffected for the most part by the Protocol, unless courts decide to apply foreign law under U.S. maritime choice of law principles. According to most existing choice of law precedents, however, application of U.S. law is generally required if the plaintiff is a U.S. citizen, the shipowner's base of operations is in the U.S. and the ship sailed from a U.S. port. More difficult choice of law questions arise if the passenger is a citizen of a nation that has ratified the Protocol, especially if the ship is registered, the passage contract is issued, and/or the ship embarks or disembarks in such a nation.
The New Athens Protocol at a Glance:
Assuming the new Protocol becomes effective and applies to a given case, these are the salient provisions:
Carriers are strictly liable for "shipping incidents" (shipwreck, collision, stranding, explosion, or fire) and vessel "defects" for the first 250,000 SDRs of each passenger's provable damages (approximately $325,000 U.S. at current exchange rate).
"Defect" is now defined to include only marine or marine safety-related problems, as opposed to alleged hotel or other defects, such as slippery decks, lighting, medical care, etc. A "defect" is "any malfunction, failure or non-compliance with applicable safety regulations in respect of any part of the ship or its equipment when used for the escape, evacuation, embarkation and disembarkation of passengers; or when used for the propulsion, steering, safe navigation, mooring, anchoring, arriving at or leaving berth or anchorage, or damage control after flooding; or when used for the launching of life saving appliances."
Recovery for shipping incidents or defects is offset by comparative fault of the passenger, but not the negligence of third parties. Shipowner merely retains right of recourse against third parties (i.e. component part manufacturers, other ships, etc.) for their degree of fault.
Nations cannot "opt out" of strict liability limit of SDR 250,000, so passengers are precluded from seeking more than this limit for shipping incidents or defects unless carrier was negligent.
Higher damages available for shipping incidents or defects up to an overall maximum of SDR 400,000 (approximately $520,000 U.S.), if shipowner fails to show an absence of negligence; otherwise no recovery possible above strict liability limit.
For all other casualties passenger can recover only if he proves fault, and recovery subject to offset by percentage of fault attributable to passenger and/or third parties, with total damages limited to SDR 400,000. This limit can be increased or abolished altogether if the nation where suit is brought has exercised "opt-out" option on recoveries in that jurisdiction.
National laws continue to govern proper venue within each nation, so in countries that permit forum selection clauses, such as the U.S., passage contracts can continue to specify where within those nations suit must be filed (consistent with Supreme Court's holding in Shute v. Carnival Cruise Lines, 490 U.S. 585 (1991).
Punitive damages excluded.
National laws continue to govern types of compensatory damages allowed in suits brought within that nation, so that in the U.S., for example, restrictions of federal Death on the High Seas Act and prohibition on emotional distress damages absent actual or threatened physical injury are maintained.
Statute of limitations for lawsuits remains two years as in original 1974 Convention, but national laws govern the length of time period may be tolled (i.e. in cases involving death, minors or mental incapacity to sue) - not to exceed three years from when claimant should have known of injury, or five years from date of disembarkation, whichever is shorter. (In the U.S. maximum tolling period is three years by federal statute (46 U.S.C.§183).) Passage contracts may not specify time limit for suit shorter than two years.
Carriers required to carry compulsory insurance of SDR 250,000 per passenger according to each ship's documented capacity, with right of passenger to sue insurer directly, in addition to carrier, according to same burdens, defenses, time limits and venue rules applicable to claim against carrier. The only coverage defense an insurer may raise to passenger's direct action is carrier's willful misconduct in causing casualty.
Liability of carrier for lost or damaged cabin luggage increased to SDR 2,250 (approximately $2,925 U.S.) per passenger. Limit for lost or damaged other luggage limited to SDR 3,375 (approximately $4,387 U.S.) per passenger. The Protocol allows carrier and passenger to agree to a deductible not to exceed SDR 149 (approximately $193 U.S.) per passenger. No "opt-out" provision allowing nations to increase property limits.
Analysis and Commentary
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| Passenger liner SCANDINAVIAN STAR caught fire in Swedish waters in 1990, killing 152. |
The three most significant and controversial changes to the Athens Convention are (1) the adoption of strict liability for certain casualties; (2) an "opt-out" clause allowing nations to set their own higher limits on damagesÑ or even unlimited recoveryÑ in cases of negligence; and (3) the right of every passenger to sue vessel insurers directly for every mishap, with the insurer divested of almost every coverage defense. None of these provisions has ever before been applied in the marine casualty arena, except in property damage cases involving environmental hazards. The latter two changes (the "opt-out" clause and right of direct action) have never in history been applied in any international personal injury compensation regime for any mode of transportation.
Problems with Strict Liability: For shipping incidents and vessel defects, a carrier may only absolve itself of liability if it proves the casualty was caused by "an act of war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; or results from an act or omission done with the intent to cause the incident by a third party." Such defenses appear limited to those traditional situations in which the carrier should not be found liable. But in other cases when the carrier may be completely blameless, the Protocol requires the carrier and its insurer to pay all provable damages of each passenger, regardless of fault, up to the first $325,000 per guest. For example, in a collision between a freighter and ferry carrying 3,000 passengers, the ferry operator and its insurer would be automatically liable for up to $975 million even if the freighter was solely at fault.
Although airlines are strictly liable under the Montreal Convention, statistics readily demonstrate most aviation disasters involve pilot error, operational neglect or deficient maintenance. Sadly, the inevitable consequence in airline casualties is usually the death of most or all passengers on board. Given the myriad mishaps which can occur at sea, and the countless trivial incidents which arise in the same manner as in any theme park, resort, restaurant or hotel on land, there seems to be much less justification for strict or "absolute" liability on passenger ships.
Fortunately, the passenger vessel industry was successful in lobbying for an appropriate definition of "defect in the ship" so that only purely maritime casualties will be subject to the strict liability standard. Also, should the U.S. adopt the Convention, claims of sexual assault, which are now governed by a strict liability standard in Florida and California and thus often the subject of abuse, would only lead to recovery if the shipowner was negligent in the hiring, retention or supervision of the alleged assailant. An alleged assault would not qualify as either a "shipping incident" or "defect in the ship" as specified in the Convention. This approach is consistent with the laws of most jurisdictions in land-side contexts.
Problems with "Opt-Out" Clause: The very cornerstone of international law is to establish uniformity among the nations of the world in the legal treatment of a given situation. A compensation regime for recovery of damages for personal injury and death should not allow for differing measures of damages depending on the nation where suit is brought, or there might as well not be any convention at all. While the "opt-out" clause may attract more signatures on the document and satisfy some delegates' desires to declare "success" in reaching consensus, the consensus is illusory. The "opt-out" clause encourages the worst kind of forum shopping, resulting in passengers from different jurisdictions involved in the same catastrophe recovering different sums based on where their claims are filed. Inevitably, as only some nations will exercise the "opt-out" clause, and the U.S. will likely only adopt the Convention on that basis, those nations will become the "courthouses of the world" as litigants flock to their courts to pursue recovery. An "opt-out" clause may be appropriate in a treaty governing property or environmental damage from marine pollution or the carriage of hazardous substances. In those cases legal recourse is consolidated in the jurisdiction where the incident occurred, the government is often the principle claimant, and the extent of damage is largely verifiable. But to permit ad hoc determinations of recoverable damages by personal injury claimants seeking recourse for such things as pain, suffering and emotional distress is clearly ill-conceived.
Problems with Direct Action: Undoubtedly the most serious problem with the new Protocol is the right of claimants to name the carrier's insurer in every lawsuit arising from a shipboard mishap, large or small. In this way the Protocol sets a standard for passenger vessels far beyond any comparable industry, including railways and airlines, where no such right exists. The cumulative effect of strict liability, and "opt-out" clause on damages, and direct actions against insurers has caused considerable concern in the marine insurance industry, especially among the International Group of P&I Clubs. The majority of the Clubs' members are non-passenger operators who will be expected to mutually insure the Protocol's regime. They believe the direct action component, in particular, creates a disproportionate concentration of risk in the passenger ship sector. Club Boards and the International Group as a whole have therefore been forced to consider restricting the level of insurance their members will make available to passenger vessels. This backlash raises serious questions of adequate capacity in the insurance market to fulfill the Protocol's requirements.
This is a sad result indeed. As stated by one of the world's leading brokers, Willis, during the IMO debate:
"The International Group of P&I Clubs offers the highest limits currently readily available to any transport industry . . . which equates to between U.S. $4.25 and $4.5 billion . . . . The additional capacity is provided essentially by the world shipping industry . . . . The International Group reinsurance program is the largest single marine contract currently in the market."
On the largest ships carrying 3,500 passengers and 1,000 crew, existing Club cover therefore already equates to at least U.S. $1million per person aboard in the worst possible casualty. Statistics demonstrate that the average cost of shipboard claims is magnitudes lower than this amount, and much less than the average cost of airline claims where most accidents are fatal. Despite the higher cost of airline claims, the Montreal Convention does not contain any requirement for direct action nor waiver of any policy coverage defenses. Although direct action under the Athens Convention has been limited to SDR 250,000, a shipowner also faces unlimited liability under the "opt-out" clause in jurisdictions such as the U.S. This added liability would be indemnified by existing P&I coverage to an enormously higher limit than the insurance purchased by airlines or railways. These discrepancies place vessel operators at a substantial competitive disadvantage without any apparent justification.
Even within the maritime arena, none of the conventions governing the operations of tankers or chemical carriers combine the stringent liability standards and high limits with the insurance requirements found in the Athens Convention, even though a disaster involving such ships in any major port likely creates far greater catastrophic exposure. The new Athens Convention will likely spawn a potentially unlimited volume of claims in virtually all jurisdictions, tied to the estimated one billion passengers carried each year. Mishaps in shipboard restaurants, casinos, lounges, showrooms and recreation areas will all give rise to direct action, even though shoreside claims arising in these contexts do not. Naming insurers as parties in every single lawsuit, large or small, will create a superfluous administrative burden, subjecting underwriters to all the typical litigation pitfalls (answering pleadings, depositions and subpoenas; attending court hearings around the globe; etc.). Legal proceedings will become unnecessarily complex and costly and will draw on judicial resources without a rational basis. A claimant's ability to sue multiple parties for every alleged mishap will certainly encourage abuse.
Though the IMO's intention was to create greater protection for consumers, ironically the unprecedented insurance requirements will likely have the unintended consequence of restricting the high coverage now available for passenger vessel claims. Despite repeated warnings from the ICCL, International Group and other industry delegations, the IMO steadfastly refused to consider limiting direct actions to "shipping incidents" or cases where the carrier was insolvent or unwilling to answer a claim. The result may well be a compensation system that looks great on paper but cannot possibly work in practice.
