This law is applicable to a wide range of corporations and individuals, including, but not limited to, owners, operators, and managers of vessels of all types and their employees. The law as amended is attached at Annex A.
The ICS, in cooperation with the International Group of P&I Clubs, initially made a direct representation to the Governor of California requesting that he veto the bill, but he opted not to exercise his veto and the bill was signed into law on 24 September 2020.
The new law has doubled the existing minimum and maximum fines for the specified violations. It has also introduced a new provision permitting the court at its discretion to impose a fine of up to $1,000 per gallon spilt in excess of 1,000 gallons of oil for certain violations. The latter fine is not statutorily capped. Most concerningly, the increased fines can be applied both to intentional violations and to violations resulting from what would be regarded as negligent or non-intentional actions. In practice, the amounts paid by those convicted of violations will be much higher as under California law the fines are subject to further “penalty assessments” (recently estimated at around 310% of the fine imposed). It is also noteworthy that the above fines can be imposed concurrently with any damages pursuant to the strict liability regime for civil pollution damages for oil spills in California.
As the new law makes it possible for very substantial fines to be issued against a polluter its introduction prompted the International Group of P&I Clubs to review the potential impact on cover provided for pollution risks.
Members will be aware that the International Group P&I Clubs currently provide cover for oil pollution damage of up to US$1 billion per ship per incident, which covers third party claims as well as fines where they fall under the Club Rules.
In December, the IG Clubs advised their members that following the review, they would not amend the existing limit of cover in response to the new law and noted that any such amendment would in any event be impossible to achieve within the current confines of the global reinsurance markets if sufficient cover were to be required to respond in full to the maximum level of fines that might potentially be levied by the Californian courts for accidental pollution. A copy of the International Group’s circulars is attached at Annex B.
Taking into account the above, as of 1 January 2021 shipowners face a significantly higher risk of exposure to financial liabilities exceeding the level of P&I cover that is currently available and, depending on the severity of the case, may be left with a large uninsured exposure.
Members whose vessels trade to California and neighbouring States are advised to ensure they are fully aware of the implications of the new law and are considering their risk and insurance profiles accordingly.
Members should be aware in particular that the increased/new fines may be imposed where the violator:
(1) Knowingly fails to follow the direction or orders of the administrator in connection with an oil spill.
(2) Knowingly fails to notify the Coast Guard that a vessel is disabled within one hour of the disability and the vessel, while disabled, causes a discharge of oil that enters marine waters.
(3) Knowingly engages in or causes the discharge or spill of oil into waters of the State, or a person who reasonably should have known that he or she was engaging in or causing the discharge or spill of oil into waters of the State.
(4) Knowingly fails to begin clean-up, abatement, or removal of spilled oil as required.
