INDEMNIFICATION OF OIL SPILL COOPERATIVES DURING THIRD PARTY SPILLS
ABSTRACT Oil spill cooperatives are generally organized under an agreement that requires a member company to indemnify all other members fully against liability arising from a member company's spill and response actions with cooperative resources. The cooperatives also require the same type of indemnification on the part of nonmembers and third parties. When a major third-party spill occurs in an area where the cooperative's equipment is required, the cooperative can find itself dealing with representatives of shipping companies who are unable or unwilling to commit to required indemnification. At the same time, it is likely to be in the interest of the cooperative (the oil and gas industry) to ensure an adequate response is made. Reverting to federal response under U. S. Cost Guard direction is an option (Section 311[k] Fund), but not preferred. The Coast Guard has been unwilling or unable to establish contractual arrangements before the fact with cooperatives, thus leading to instances of delayed payments, non-allowable costs, and disputes. Protection and indemnification (P&I) clubs, which underwrite the liability insurance of the vessels, are accustomed to dealing with marine disasters and have been asked to review the indemnification requirements of Clean Seas, which are similar to those of other industry cooperatives. The clubs are willing to work with the cooperatives’ requirements to eliminate an inordinate amount of time in contract negotiations during the early hours or days of a spill and to ensure parties do not have to rely upon a federal response. With the acceptance of these requirements by the clubs, it is hoped shipping companies and representatives will be able to enter into contracts or indemnification agreements with cooperatives with full support from the clubs.