Marine Salvage & Recreational Boaters: Modern Concepts & Misconceptions
[tabby title="I. Introduction"]
Over the past several decades, the number of registered recreational vessels has steadily grown. The number of marinas has burgeoned to meet the almost insatiable demand for pleasure boat berths. During the same time period, the U.S. merchant marine continued its decline and, in many parts of the country, wharves, piers and commercial port facilities fell into disuse. As a result, the recreational boating industry has matured into a major component of the maritime economy of the United States.
With over $10 billion in annual recreational vessel sales, including related goods and services and over ten million registered pleasure boats, recreational boating has begun to exercise a major influence over many traditional spheres of maritime endeavor including admiralty and maritime law. Recreational vessels generate hundreds of millions of dollars of revenue in areas ranging from ship mortgages to marine insurance. Transactions involving recreational vessels and the tens of millions of American pleasure boaters who buy, sell, insure, mortgage, register, repair, collide, damage, salvage and operate these vessels have increasingly become a major source of revenue not only for maritime attorneys but for bankers and marine insurance brokers as well. The emerging concept of the "mega-yacht" has put some "recreational" vessels into a range of size, value, complexity and technological sophistication which equals or exceeds that of many large commercial vessels.
These changes have not occurred without controversy. One of the most difficult areas has been the handling of "traditional" admiralty claims when recreational vessels are involved. In many cases, the attorneys and adjusters who have been called upon to handle insurance claims involving recreational vessels have found themselves as uninformed as much of the boating public with regard to the differences between motor vessels and motor vehicles. This springs from several causes. First, historically, the recreational vessel was a small sailboat or outboard kept in the backyard, financed by the local savings and loan and insured under homeowner's policy through a local agent with the same carrier who insured the family dwelling. Thus, neither the agent nor the adjuster thought of the family boat as anything other than a type of vehicle just like the family car.
Second, there has been a growing trend, even among traditional marine insurers, to replace experienced marine insurance adjusters with individuals with a property and casualty background. While some carriers make the effort to educate and train the adjuster in the unique aspects of marine claims, most let the adjuster learn on the job. Thus, admiralty attorneys can no longer assume that the adjusters are familiar with all the unique substantive and procedural aspects of an admiralty claim.
Too often this is the case with opposing counsel as well, inasmuch as the carriers on homeowner policies which also happen to include a boat tend to assign defense of maritime claims to the same attorneys who defend their property and casualty or automobile cases. While this may sometimes work to the advantage of experienced admiralty counsel procedurally (automobile lawyers tend to overlook things like filing petitions for limitation of liability), it can be difficult to conduct meaningful settlement negotiations with an attorney who does not understand just how much of a liability exposure his client has because he does not know the applicable law himself.
One of the areas of traditional admiralty law receiving alot of attention lately in regard to the manner it is applied to recreational vessels is salvage. Until recently, salvage did not arise frequently in a recreational boating context because a recreational boater disabled, aground or in distress merely had to call the U.S. Coast Guard, which would render whatever salvage assistance might be necessary. This has all changed due to a major policy decision by the Coast Guard. Because of budget and manpower shortages, the press of other missions and other policy considerations, the Coast Guard decided several years ago that it would no longer provide "non-emergency" assistance when a source of commercial assistance is reasonably available. In essence, when the situation does not present an appreciable threat to the safety of persons on board the disabled vessel, the Coast Guard will not provide assistance but will only monitor the case if a source of commercial assistance is reasonably available.
As a result of the Coast Guard decision, a large number of small salvage companies have sprung up across the country with the objective of being a readily available source of commercial assistance for the recreational boater. Many of these companies work full time at recreational salvage and have made a significant investment in equipping well found vessels, manned by competent and experienced salvage personnel, with sufficient horsepower and all the proper salvage equipment that maybe required. Other enterprises, however, work on a seasonal or part-time, weekends-only, basis and/or consist of little more than an outboard with a length of rope.
Other than requiring that towing vessels be operated by licensed operators, the Coast guard does not regulate small commercial towing and salvage companies with regard to minimum equipment requirements, minimum competency in the seamanship of towing and salvage techniques, or anything else.1 While there have been some attempts by professional organizations such as the Committee for Private Offshore Rescue and Towing ("C-PORT") to establish minimum standards of competence and equipment requirements, these efforts are voluntary and the enforcement mechanism largely ineffective. Only one organization of salvors, Florida Marine Towers & Salvors, appears to provide ethical guidelines in the form of a mandatory code of conduct. As a result, the quality of towing and salvage services to which the public is subjected varies wildly and there is great potential for abuse.
Indeed, abuse has occurred in some cases. some towers and salvors have taken advantage of the ignorance and marginal seamanship of the boating public to grossly overcharge. However, sometimes the situation is greatly exacerbated by some insurance adjusters who, unfamiliar with the most rudimentary concepts of marine salvage, assume that any salvor who asks for more than what the adjuster considers to be a "reasonable charge" for services rendered is a thief or a pirate or worse and will not hesitate to say so. While this maybe true in some cases, such comments do not sit well with the majority of salvors who are both competent and honest. Even routine insurance company practices such as long, drawn out settlement negotiations followed by even longer periods before a draft is issued can cause difficulties to small "mom and pop" salvage companies whose cash flow does not allow them the luxury of waiting months to receive payment after settlement.
As a result of these and other problems, the relationship between the insurance industry and the small boat towing and salvage industry has been a rocky one. Accusations and recriminations have flown thick and fast. All too often, the boating public has been caught in the middle. Some adjusters, and even some lawyers, are laboring under fundamental misconceptions regarding salvage of recreational vessels. Some salvors also have inflated ideas as to both the value of the services and their "rights" with regard to savaged vessels.
This article will attempt to set the record straight on a number of common misconceptions regarding salvage of recreational vessels under which both insurance companies and salvors have labored. Some recent developments regarding salvage arbitration under the Lloyd's Open Form, compensation of salvors for protecting the environment and direct liability of insurers for salvage awards will also be discussed. First, however, it is important to understand the background and development of the "traditional" admiralty concept of salvage in order to understand its modern application to recreational vessels.
[tabby title="II. Background & Development of Salvage Law"]
II. Background & Development of Salvage Law
The legal concept that a marine salvor is entitled to a reward for the saving of imperiled marine property has been a recognized part of the admiralty law for more than 3,000 years. The origins of the concept may be traced from antiquity, as set forth in the Edicts of Rhodes, through the laws of the Romans, as set forth in the Justinian Digest, to the Medieval Laws of Oleron, the Code of the Hanseatic League down to the founding of the Republic. The original concept, as it has come down from the Romans, is that an individual who risks himself and his property voluntarily to successfully rescue the property of another from peril at sea and restore it to him has bestowed a benefit on the owner and should be rewarded by the owner commensurate with the magnitude of the benefit bestowed. The concept has a sound policy basis, descending as it does from an era when the distinction between pirates and freebooters on the one hand and honest seaman and salvors on the other was often only one of motivation and expectation. While both were on the lookout for a generous reward for their efforts, at least the latter hoped to come by it honestly. The purpose was to encourage honesty by generously rewarding those who restored property safely to the owner. Of course, many modern marine insurance adjusters would argue that the distinction between freebooter and salvor continues to be a vague one. There is still, however, a sound policy basis for the concept today. The interest of maritime safety and commerce as well as the marine environment are better served by encouraging salvors to prevent losses of vessels and cargo.
From the earliest days of this country, admiralty law has followed a liberal approach to salvage. The United States rejected the English maritime salvage system based as it was on the rights of the Crown and the lord of the manor to wrecks and salvage, in favor of a system which rewarded the individual for his efforts. It has always been the well entrenched admiralty law of the United States that, as set forth by Chief Justice Marshall in 1804, if property of an individual is exposed to peril or hazard at sea and is saved by the voluntary exertion of any persons whatsoever "[a] very ample reward will be bestowed in the courts of justice."
It is the fundamental public policy of the United States to encourage seamen to render prompt aid to vessels and property in peril at sea. As discussed by Justice Clifford in The CLARITA , "[p]ublic policy encourages the hearty and industrious mariner to engage in these laborious and sometimes dangerous enterprises, and with a ieiw to withdraw from him every temptation to dishonesty the law allows him, in case he is successful, a liberal compensation."
It is the well-settled view of the U.S. admiralty courts that "[c]ompensation as salvage is not viewed by the admiralty courts merely as pay, on the principle of a quantum meruit, or as a remuneration pro opere et labore , but as a reward given for perilous services, voluntarily rendered."
The admiralty and maritime law of the United States has long recognized that the law of salvage rewards the voluntary salvor for his successful rescue of life or property imperiled at sea. The purpose of this policy is to promote not only humanitarian rescue of life and property, but maritime commerce as well.
Justice Story summarized it well, as he so often did:
In cases of salvage, the measure of reward has never been adjusted by a mere estimate of the labor and services performed by the salvors. These, to be sure, are very important ingredients; and are greatly enhanced in value, when they have been accompanied by personal peril and gallantry, by prompt and hardy enterprise, and by severe and long-continued exposure to the inclemencies of the winds and waves. But an enlarged policy, looking to the safety and interest of the commercial world, decrees a liberal recompense, with a view to stimulate ambition, by holding out what may be deemed an honorable reward.
Indeed, the law of salvage is so well settled that it is sometimes said to be the jus gentium or the international law of the sea. Under this well settled doctrine of international law, salvage service is one which is rendered voluntarily to a vessel which needs assistance and which is designed to relieve her from some distress of danger either present or to be reasonably apprehended. As set forth by the U.S. Supreme Court:
Salvage is the compensation allowed to persons by whose voluntary assistance of a ship at sea or her cargo or both have been saved in whole or in part from impending sea peril, or in recovering such property from actual peril or loss, as in cases of ship wreck, derelict, or recapture.
It is necessary to draw the distinction between a salvage service and a salvage award. In order to have a valid salvage claim and be entitled to a liberal salvage award, a salvor must first establish that the services rendered were, in fact, salvage services. In order to establish a valid claim to have rendered salvage services, a salvor must establish three elements: (1) marine peril; (2) services voluntarily rendered; and (3) success, in whole or in part, with contribution to such success by the service rendered by the salvor.
Of these elements, the first, that of peril, is the most misunderstood and the most frequent source of debate. Anyone who seeks to understand the American law of salvage must first comprehend the American concept of marine peril. The concept is a broad one, liberally applied.
[tabby title="III. The Concept of Peril"]
III. The Concept of Peril
It is well settled that the peril necessary to constitute a salvage service need not be one of "imminent and absolute danger." It is enough that the property is in danger, either presently or to be reasonably apprehended. It is important to note that it is not the degree of peril which makes for salvage service. If distress or peril is present then, accompanied by voluntary service and success, a valid salvage service has been performed, entitling the salvor to a salvage award. The degree of peril, whether slight, moderate, or severe, affects only the amount of the award, but not the entitlement of the salvor to a salvage award.
It is also the well settled admiralty law of the United States that a vessel driven aground, on rocks, on shoals, or on reefs, must be considered to be in a state of peril. In such a situation, the vessel is exposed to the vagaries of wind, weather and waves, and it does not require extensive seagoing experience or contemplation to consider that so long as the vessel remains in that helpless situation, without further assistance, she is subject to further damage and eventual breaking up or sinking. This proposition was well-stated by the court in De Aldamiz v. Thomas Skogland & Sons , to the effect that "[i]t is idle to argue that a ship aground in shallow water on a sea beach, exposed to wind and waves in the hurricane season, is in a safe place."
The U.S. district Court for the Western District of Washington summarized what constitutes a maritime peril very nicely in the case of McNabb v. O.S. BOWFIN , as follows:
To constitute a maritime peril, it is not necessary that the danger be actual or imminent; it is sufficient if, at the time assistance was rendered, the vessel was stranded so that it was subject to the potential danger of damage or destruction. A vessel driven aground on a beach in the area involved must be considered as in a state of peril. Exposed as she is to wind, weather, and waves, it does not require extensive reflection to realize that so long as she remains in such a hapless position, further damage and eventual breaking up may ensue.
It is not necessary that the danger or peril to the vessel be immediate, imminent or absolute. In order to justify a salvage award for salvage services, it is sufficient that if, when such service is rendered, the vessel has encountered danger, misfortune, peril or other circumstances which might expose her to damage or destruction if the services were not rendered. "A situation of actual apprehension, though not of actual danger, is sufficient." Similarly, in the JAMES T. ABBOTT , speaking of a vessel which had been driven ashore, the court stated, "[a] vessel in that situation cannot be considered as not in some unusual peril, not wholly exposed, yet not so safe as she would have been in a harbor."
It should be clear from the foregoing discussion that the concept of peril is very broadly and liberally interpreted. However, peril figures as an element in both the entitlement of a salvor to an award as well as the amount of the award. This often leads to confusion on the part of the inexperienced. The presence of peril in any degree,whether imminent or potential, whether the vessel's damage is slight or non-existent, will support a claim for salvage services. However, the degree of peril, its imminence, and its extent, figure very largely in the amount of the salvage award. Thus, the uninitiated will often argue that because the vessel was not in imminent danger of sinking and suffered no damage that the services rendered were not salvage services. These misconceptions most frequently arise in the context of disabled vessels which are towed into port and when recreational vessels are removed from a grounding.
[tabby title="IV. Towage Versus Salvage"]
IV. Towage Versus Salvage
The argument that services rendered by a salvor which brings in a disabled vessel at the end of a hawser were "simple towage" is one frequently heard. Often, insurance companies make such arguments because while they are liable to pay a claim for salvage, in many cases, the insurance companies are not liable for claims for towage and payment of such claims is the owner's responsibility. However, the admiralty courts of the United States have addressed the difference between "simple towage" and salvage services on numerous occasions and have made it abundantly clear that, in most such situations, the services rendered are salvage. Indeed, one leading admiralty treatise has described the act of rescuing a ship at sea by towing her to a place of safety as the "prototypical" act of salvage. This does not necessarily mean, however, as will be discussed infra, that the salvor will be entitled to a huge reward for such services.
As previously discussed, a salvage service implies that there was some degree of danger or some need of extraordinary assistance to the vessel which characterizes a salvage service. Although a marine peril to the salved property is a necessary ingredient of a valid salvage claim, the peril required in a salvage service does not need to be one that is necessarily imminent or an absolute danger. It is sufficient if the property is in danger, either presently or reasonably to be apprehended.
Simple towage, on the other hand, is a service that is based on the employment of one vessel to expedite the voyage of another when nothing more is required than the acceleration of her progress. Simple towage is regarded as having taken place when a tow is called for or taken by a sound vessel as a mere means of saving time, or for considerations of convenience.
The hallmark of "towage" is the absence of peril. The motivation for the towing service is convenience not safety. An example would be where a sailboat, proceeding under sail in light airs without difficulty, requests towing assistance from a power vessel to expedite the vessel's return to her mooring in order to allow the passengers to meet an appointment.
In many cases of salvage, there is no generic difference between the physical acts of towage and salvage, where towage may be a salvage service when it is rendered to property actually in danger or where danger is reasonably to be apprehended. Some courts have designated the term as either "salvage towage" or as "extraordinary towage" where salvage service has been recognized. A typical case would arise when a power vessel has run out of fuel or is disabled and adrift at sea but the only assistance required is a tow to a safe mooring. In such cases, the level of salvage services would be extremely low when the service is rendered in harbor or close to shore, in calm weather and when numerous other vessels or towboats were available to render the same service.
Indeed, because of the relatively low order of salvage in such cases, coupled with the ready availability of numerous other companies to render such services on fixed price hourly rates, it is the almost universal practice of salvors to provide such services on a fixed price basis or hourly rate. However, the services remain salvage services albeit rendered on a fixed price basis. The distinction is important because if the good weather and calm seas are replaced with high seas and an approaching hurricane, if the locale is moved many miles offshore where no other assistance is available, the entire context of the services, and their value, changes radically.
Context is very important in determining both the nature of services and the amount of compensation. Another issue of "context" which often leads to confusion with regard to the nature of the services involved is that of the recreational vessel which is aground.
[tabby title="V. Peril in Groundings"]
V. Peril in Groundings
Groundings in shallow water pose additional questions with regard to the existence of a "marine peril." As previously stated, the admiralty courts of the Untied States have universally held that a vessel which is aground is presumed to be in a condition of peril exposed as she is to wind, weather and waves. However, some parties have difficulty in understanding this concept inasmuch as they feel that if a vessel is aground, she is not in any danger of sinking. The uninitiated do not appreciate the dangers and perils inherent in a grounding situation.
First, the underwater body or hull of a vessel is designed by a naval architect to be supported by the hydrostatic forces of the water. When vessels are not supported by such hydrostatic forces, as when the vessel is placed in dry dock, great care must be taken to insure that the hull of the vessel is properly supported at places designated for support by the naval architect. If support in stresses are not placed at pre-designed locations, the hull can fracture or cause the vessel to break her keel. This is especially true of larger yachts and so-called "mega-yachts," while smaller, trailer-size vessels are much more capable of sustaining a "soft" grounding without any hull damage.
Hull stress peril is especially significant in the case of a large (45' or larger) vessel in a grounding situation. In a typical grounding, the bow of the vessel is hard aground. As the vessel attempts to back off the grounding, the propeller washes the bottom material away from underneath the hull between the propellers and the bow. When the vessel's efforts to free herself with her propellers are unsuccessful, the vessel then settles onto the propellers, struts, afterkeel and rudders. Frequently, the efforts to free the vessel result in a condition where the bow and the stern are aground, with a depression under the center of the hull as a result of the prop wash. Such a condition is extremely dangerous to a vessel and may result in the vessel sagging and breaking her back. Experienced salvors are aware of this possibility and move quickly to place air bags under the hull in order to provide support.
Similarly, in many grounding situations, although the vessel does not possess sufficient reserve buoyancy to float itself off the strand, there can be enough buoyancy that the vessel, when acted upon by wind and waves, will momentarily be lifted completely or partially off the strand and then come back into contact with the bottom as the influence of the swell or wind withdraws from the vessel. This condition is commonly referred to as "pounding" and it is a significant danger to any vessel in a grounding situation.
Under such conditions, the hull of the vessel may be brought into violent contact with portions of the reef, rocks or hardpan shoal. Pounding conditions are especially common towards the stern, including propellers and rudders, since this is usually the last portion of the vessel to ground and is usually in deeper water than the bow.
Pounding conditions in the vicinity of a vessel's stern are especially dangerous regardless of the size of the vessel. Propellers which pound across the bottom can be bent to the point where they cannot be repaired. Pounding stresses on propellers can bend fragile propeller shafts and damage expensive stern tubes. Pounding forces can also cause significant bending and damage to rudders and struts. In some cases, pounding can also drive propeller struts and rudders up through the bottom of the vessel, resulting in flooding of the interior hull and/or release of bilge water, fuel and other contaminants, resulting in marine pollution. In the case of gasoline vessel's, driving propeller struts or rudders into fuel tanks can result in fire and explosion. Pounding, therefore is a significant marine peril which is inherent in any grounding situation. It has been said that a vessel that is pounding is in great peril and successful deliverance from such a situation commends the salvors for a liberal salvage reward.
Even if the vessel does not pound under normal or moderate weather conditions, most vessels will pound when tropical thunderstorms, squalls and weather fronts move through the area. In the tropics, particularly, it is well known that benign, calm and sunny conditions can quickly deteriorate in a matter of hours into violent winds and seas as the result of a passing tropical thunderstorm. From the end of April until the beginning of November, severe tropical thunderstorms are an almost daily occurrence. As lines of thunderstorms or thunder cells pass through the area, winds will suddenly increase to 30 to 40 mph and quickly generate seas of four to six feet even in shallow bay areas. The threat of such storms has been found by the Fifth Circuit to be sufficient peril to justify a salvage award.
Vessels which are grounded in shallow water in such circumstances face not only the peril of pounding but, unless the vessels are properly secured and monitored, the fierce winds and wind-driven seas have been known to drive them off the strand and shore on other reefs in an uncontrolled manner, resulting in significant additional damage. Similarly, a vessel aground under such conditions is also exposed to a high degree of peril as a result of the lightning which often accompanies such storms. A grounded vessel under such circumstances which receives a lightning strike will, at a minimum, suffer severe damage to her electronics and electrical system and, in many cases, undergo a resultant fire.
It must be remembered that the marine peril to vessels under such circumstances increases with the passage of time. Passage of time not only increases the probability of additional damage through severe weather, wind, waves or lightning, but also increases the duration of the period during which other natural forces are at work on the vessel. In bays and inlets, there are many currents which are affected both by tide, water and wind. These currents set up hydraulic forces on the vessel which can result in damage or which can significantly impair recovery of the vessel. In some cases, hydraulic currents will deposit bottom material and siltation against the hull of the vessel creating a suction effect which makes it increasingly difficult to free the vessel from the bottom. Again, this threat is directly proportional to the size of the vessel and can be a very real problem in the case of larger yachts. Unless prompt action is taken to remove the vessel, future recovery operations may require that fuel, bilge water, water and other consumables be pumped off the vessel and that the vessel be stripped of electronics, furnishings and other equipment in order to lighten it. Such operations are not only time consuming and expensive, but also significantly increase the possibility of marine pollution and damage to the vessel and its contents. Hydraulic currents have also been known to scour bottom material from partial areas beneath the hull, thus setting up an increase probability of stress fractures to the hull or sagging. In areas of soft sand bottoms, there is a likelihood of the vessel working herself into the bottom and becoming embedded in the sand. In such a case, if the vessel is not removed promptly, the stranding becomes permanent and the vessel breaks up or sinks.
Aside from the danger inherent to the vessel in a grounding situation, there is also inherent danger to the people involved in attempting to remove the vessel from the strand. Undeniably, a certain amount of danger is inherent in any salvage operation. Since braided nylon lines are used to pull and tow grounded vessels, the strain placed upon these lines creates a significant risk of injury to salvage crews should the line part or a hull fitting on the salvaged vessel give way. The larger the vessel being pulled, the greater the strain. When a nylon line under strain parts, the resulting whiplash effect is capable of taking off limbs and has been known to kill salvage crew members. Should cleats or hull fittings on the salvaged vessel give way, they become missiles which have killed and maimed crew members on the towing vessel. Because of the extremely shallow water around the vessel, the salvage vessels involved are in constant danger of going aground and causing damage to their own hulls, propellers and rudders. Additionally, when operating in shallow water, the possibility of ingesting bottom material causing damage to engines and pumps is also a constant threat to salvage vessels.
From the foregoing, it should be obvious to even the most lubberly that the concept of a "simple grounding" of which the uninformed speak with such ease is far from "simple." Varying degrees of peril to both the vessel and the salvor are almost always present. There are, however, some circumstances when a vessel aground is not in peril and the services involved in removing her from the grounding are, in fact, towage rather than salvage.
Vessels can and do intentionally safely ground themselves on soft bottoms for a variety of reasons. This is particularly true of smaller recreational vessels whose hulls and running gear are not unduly stressed by the forces of such a situation. Similarly, when the vessel is undamaged, aground on a soft bottom and capable of freeing herself without assistance at the next tide, the service of towing her off before the tide, to safe strain on the vessel's engines or to avoid the necessity of the persons on board getting out and pushing may be more of a convenience than a necessity.
Each such case must be decided on its own facts. The issue is whether the services were necessitated by the peril or provided as a matter of convenience. Generally, the better practice, and one followed by many pleasure boat salvors in such situations, is the "one boat, one hour" concept which is treated as a convenience tow and billed on a fixed rate, hourly basis. In other words, if they can get the vessel off using one boat within an hour, it is a "convenience" to the owner and not treated as salvage.
It must be remembered, however, that when the vessel is hard aground, pounding on a reef, disabled, seriously damaged or otherwise in appreciable peril, the concept does not apply regardless of the number of vessels or the amount of time involved. In each case, the presence of peril and the degree of that peril must be determined based on the circumstances applicable to that case. There are few 'rules of thumb" or inviolate principles that can be applied to every case.
[tabby title="VI. Popular Salvage Myths and Misconceptions"]
VI. Popular Salvage Myths and Misconceptions
A number of other issues frequently arise in the context of salvage of pleasure boats which are misunderstood by both sides. These include questions of whether the vessel owner must affirmatively assent to salvage of his vessel, whether the salvor may retain the vessel until paid and whether the salvor becomes the owner of an "abandoned" vessel.
A frequent complaint heard by salvors from both vessel owners and their insurers is that the salvor did not obtain permission prior to beginning salvage operations and thus became a trespasser or officious inter-meddler. There is no question but that salvage services cannot be thrust upon an unwilling vessel master or owner who refuses them. However, it is not necessary that the vessel master or owner affirmatively agree to the rendering of salvage services if, under the circumstances, a prudent man would have accepted. Thus, it will be a question of fact as to whether the vessel master or owner took affirmative steps to decline salvage services or implicitly agreed to them. When a vessel is exposed to a marine peril and no one is aboard to refuse or accept the salvage services (whether it is derelict, abandoned or has simply been temporarily left), it is not necessary for the salvor to attempt to locate the owner or to obtain permission prior to undertaking salvage operations. Under such circumstances, the salvor is not a trespasser but may proceed to assist the vessel and make a claim for a salvage award.
With regard to the salvor's right to retain possession of the vessel, the answer is less clear. The salvor who has earned the right to a salvage award through successful, voluntary salvage services to a vessel in peril has a high-priority possessory, preferred maritime lien on the vessel. A salvor in possession of a vessel is not bound to surrender it on demand to the owner until reasonable security has been provided for his claim. On the other hand, the salvor must move with all deliberate speed to either arrange for the posting of security or bring an action in rem against the vessel to foreclose his lien. However, it is improper for the salvor to deny the owner or his agents access to his vessel or property to inspect or preserve it. Thus, the general rule is that the salvor may retain possession of a vessel until either the owner posts adequate security or it is established that he will not. The salvor must, in the former case, release the vessel to the owner or, in the latter case, turn the vessel over to the U.S. Marshal and proceed to foreclose his lien. When the salvor is not in possession of the vessel, such as when he tows a vessel with its crew still aboard off a strand and it then can proceed on its own, there is little that the salvor can do when the vessel throws off the towline and departs. The salvor must rely on his lien and seek enforcement by an action against the vessel or its owner. The question of ownership of "abandoned" vessels is a thorny one which is much given to both litigation and misunderstanding. Indeed, even the concept of what constitutes an "abandoned" vessel is confusing to many because the law uses the term "abandoned" variously for different purposes. One of the most popular myths associated with salvage is that a derelict vessel found adrift or abandoned becomes the property of the finder.
Technically, an "abandoned" vessel, more properly called by the proper nautical term "derelict", is one which was left by its crew without intention to return and without hope of recovery. Such a vessel may also be properly called a wreck. Previously, whether or not a vessel had been "abandoned" and becomes a derelict was extremely significant because the customary award in such cases was a moiety (half) of the vessel's value. However, that practice has long since been abandoned. Today, such circumstances affect the salvage award only in the degree of peril from which the vessel was saved.
Even when a vessel is "abandoned" and left without intention to return or hope of recovery, the vessel remains the property of her owner absent some affirmative act by the owner which clearly and convincingly establishes a positive intent on the part of the owner to part with ownership. The salvor who finds such a vessel obtains a possessory lien on the vessel but not ownership. The salvor must care for the vessel and make reasonable efforts to identify and locate the owner. The salvor may, of course, file an in rem action to foreclose his salvage lien and, if the owner fails to appear or make suitable arrangements to pay the salvage award, the salvor may bid his judgment at the marshal's sale and obtain clear title to the vessel.
[tabby title="VII. Salvage Contracts"]
VII. Salvage Contracts
There are many sound reasons why a salvor would want the vessel master or owner to sign a salvage contract or agreement. Such a document would clearly establish that the vessel accepted the salvage services. Similarly, the contract may address issues such as security, arbitration, interest, attorney's fees or other terms. The contract may or may not specify the compensation to be paid in the event of success. If the contract predates the services, rather than being executed contemporaneously with or after the services, the services are not salvage services because the services are not rendered voluntarily but as the result of a preexisting legal duty.
Not every salvage contract results in contract salvage. If the contract provides that the contractor will be paid regardless of success, the services become contract salvage services. The contract salvor retains a lien on the vessel but not a high priority salvage lien.
Importantly, if the contract provides that the salvor will be paid only in the event of success, whether or not the contract fixes the amount of compensation the salvor retains his status as a "pure" salvor and retains also his salvage lien. Such contracts are called "no cure-no pay" salvage contracts.
If the contract fixes the compensation to be paid to the salvor but only in the event of success, it is a fixed price, "no cure-no pay" salvage contract. Under such a contract, the salvor loses his right to a discretionary salvage award and can only be awarded the agreed amount.
If the contract does not contain an agreement to pay a given sum or to pay without regard to success but only provides that the salvor will be entitled to an award in the event of success on a "no cure-no pay" basis, the services do not become contract salvage but retain their status as "pure salvage services".
While some use is made of contract salvage for recreational vessels, primarily in the context of wreck removal, most salvage contracts presented to recreational vessel operators and owners are "no cure-no pay". The use of fixed price contracts is uncommon except in cases of raising vessels sunk at their berths in shallow water or in the salvage of vessels of relatively low value.
A number of questions arise even with regard to "no cure-no pay" contracts calling for a discretionary salvage award. On one of the first inquiries raised, assuming that the owner did not execute the agreement, is whether the person executing the contract on behalf of the owner had, or needed, the authority of the owner to sign the agreement. It is well settled that when a vessel requires salvage services, the vessel's master has the authority to sign a salvage agreement without special authority from the owner who is bound by the actions of the master. However, the signing of a salvage agreement by the master after the vessel has been assisted requires authorization by the vessel owner.
Next, the insurer presented with a salvage agreement signed by the insured or his agent will often argue that the agreement is void because it was signed as the result of duress or coercion. Of course, if the agreement was signed after the services were rendered, any duress or coercion created by the exigent circumstances is no longer a factor. Just because the contract was signed under exigent circumstances, however, does not automatically mean that it is unenforceable as a result of duress. A certain amount of duress is inevitably present when the master or owner is under the pressure of the peril threatening his vessel. Duress of that nature does not, however, automatically void the salvage agreement. An admiralty court will closely scrutinize the agreement for any sign of overreaching, improper coercion or over charging by the salvor, and will set aside the contract if it finds that the salvor took advantage of the situation to impose unconscionable or inequitable contract terms on the vessel.
Extortionate demands forced by a salvor upon the master of a vessel in extremis will not only void the contract but often results in a salvage award that is less than it would otherwise be. If, however, the terms of the contract are reasonable and not oppressive, the contract will be upheld without regard to pressures created by the emergency faced by the vessel.
Many of the same factors that will void a contract under common law such as fraud, collusion, mutual mistake, misrepresentation or suppression of material facts or compulsion will also void a salvage contract. There are few reported cases involving recreational vessels where a salvage agreement has been found to be void because of duress, fraud or coercion. In one case, however, the arbitrator found an agreement to salvage a recreational vessel to be unenforceable, not because the provisions with regard to compensation were unconscionable, but because they were incomprehensible. The arbitrator found, however, no misconduct on the part of the salvor and went on to award $8,500 for the salvage of a motorboat worth $41,500.
[tabby title="VIII. Salvage Arbitration"]
VIII. Salvage Arbitration
Many salvage contracts include a provision under which disputes regarding to the salvor's compensation will be submitted to binding arbitration. The most widespread of these is Lloyd's Open Form Salvage Agreement ("LOF") which is used worldwide. The LOF provides for the provision of salvage services on a "no cure-no pay" basis. Most of the agreement is taken up with detailed provisions for arbitration of the salvage award at Lloyd's of London under English law. The concept of a standard form of salvage agreement calling for London arbitration has been in use since the 1890's when England not only had the world's largest navy and merchant marine but controlled much of the world's trade. Originally, the motiviation was to protect vessel owners and their insurers, both usually English, from exorbitant salvage awards in what was viewed as the backwaters of the world. However, the system of knowledgeable arbitrators deciding salvage cases on written submissions and affidavits worked so well that it not only survived the decline and fall of the British Empire but it became the standard forum for resolving salvage disputes involving professional salvors and vessels of every nation. Indeed, the use of arbitration as the preferred method of resolving salvage disputes became so widespread that reported salvage cases became few and far between.
With the large increase in numbers of professional salvors serving recreational vessels, it is not surprising that they would adopt and use the LOF given its status as the world standard. However, the expansion of the recreational vessel population has brought new insurance carriers into the maritime market: carriers who were uncomfortable with the unfamiliar concepts of salvage and arbitration; carriers who were even more uncomfortable with having their interests decided in London at what they viewed as great expense by English barristers and solicitors. The situation was exacerbated by some salvors who used the threat of compelling London arbitration as a club in settlement negotiations. Threatened with increasing numbers of London arbitration, some carriers have challenged the enforceabiltiy of the London arbitration clause which is the heart of the LOF.
To the great surprise of many admiralty counsel, the challenge to the enforceability of London arbitration under the LOF has met with some success. The attack came from an unsuspected quarter. In the recreational boating context, the LOF at issue was almost always an agreement between two U.S. citizens involving services to be provided to a U.S. vessel in U.S. waters. Thus, the argument was successfully made that under the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the court could neither compel arbitration in London under the LOF nor enforce an arbitration award should one be entered. Without the provision for enforcing binding London arbitration, the LOF is useless to a salvor.
The core of the argument is that the statute, implementing the Convention, provides that when an arbitration agreement or award arises from a relationship that is entirely between citizens of the United States, the agreement or award is deemed not to fall within the convention (and thus foreign arbitration can be neither enforced nor compelled) unless the relationship involves property located abroad, envisages performance abroad, envisages enforcement abroad or has some other reasonable relationship with a foreign state. Despite arguments that an agreement between U.S. citizens to arbitrate at Lloyd's clearly assumes both performance and enforcement abroad, some courts have found that arbitration in London under the LOF can be neither compelled nor enforced. This has been the case even when the vessel insurer signed a separate letter of undertaking incorporating the LOF and promising to pay the arbitration award.
These decisions have potentially sounded the death knell for use of the LOF by salvors of recreational vessels in the United States. However, the identical issue has recently been litigated in the District Court of New York, where both the decisions in Brier and Reinholts were criticized.
The court notes that both decisions were determined by magistrate judges, who "gave too little recognition to the content of the LOF's and the precise language of Secition 202" of the Convention.60 In the Jones suit both parties were U.S. citizens, the vessel was located in the United States, and the only connection with a foreign forum was the LOF. The court held that in selecting the LOF the intent of the contract was the use of English law and the enforcement of the salvage award in Great Britain. Therefore, the court determined that the salvage contract did not violate the convention, because it clearly "envisaged enforcement abroad".
Whether the insurance companies will enjoy any long term benefit remains to be seen. Certainly, there will be more litigation with regard to salvage awards. Both the Society of Marine Arbitrators of New York and the Maritime Arbitration Board of Miami are scrambling to put panels of salvage experienced arbitrators into place to fill the potential void left by the demise of the LOF. Boat Owners Association of the U.S. has established an arbitration system to deal with such cases and incorporated a term calling for binding local arbitration in their salvage agreements.
[tabby title="IX. Salvage & Insurance Companies"]
IX. Salvage & Insurance Companies
Yet another area of frequent misunderstanding is the liability exposure of the hull underwriters in salvage situations. In cases of disabled vessels and groundings where the salvors performed so well that the vessel suffered no damage whatsoever, it is frequently argued that there can be no loss without damage and, thus, no liability on the part of the insurance company. Indeed, one company has argued that its hull policy provided no coverage for salvage claims whatsoever and it has no duty to provide a defense for its insured against an action brought by a salvor.
Such attitudes reflect a basic misunderstanding of the nature of salvage. Aetna was quickly disabused of its ill-conceived position by the Connecticut Superior Court which invited Aetna's attention to the well settled admiralty law that salvage claims are a covered loss. Indeed, the court correctly pointed out that the true beneficiary of the salvor's services was Aetna not the vessel owner. Thus, Aetna was not only required to provide a defense but to pay an award to the salvor.
Indeed, hull insurers are not only required to pay salvage claims and provide a defense to the insured but may be sued directly themselves for the amount of the salvage award. It has long been established that any party receiving a direct pecuniary benefit as a result of the salvor's services is liable to pay a salvage award. This includes the hull insurers and such actions are not barred by statutory prohibitions of direct actions against insurers under insurance policies.
The Cresci decision has proven very useful to salvors. With an insurance company as a co-defendant, it is usually not necessary to take the vessel into the custody of the U.S. Marshal. This expedites the case and avoids the posting of bonds as well as significantly reducing the costs of litigation and paperwork involved. It also obviates the necessity of conducting a sale of the vessel to collect the judgment and eliminates the risk that the proceeds of the sale will not cover the judgment. Indeed, the concept of a direct salvage claim against the hull underwriters provides a sort of self-executing letter of undertaking to the salvor. The better practice, however, is still to obtain a waiver of seizure from the vessel owner to preserve the lien in the event that the insurer becomes insolvent.
The concept also can significantly increase the amount of the salvage award. A salvage award against a vessel owner is usually based on the post-salvage, pre-repair market value of the vessel as the measure of the benefit bestowed by the salvage services on the owner. This is logical since market value is what the vessel is worth to the owner. Such a measure can be difficult, however. There will be arguments over depreciation, whether the market is high or low, etc. Market value can be an illusive concept.
With regard to the hull insurer, however, the benefit is much more easily calculated. If the vessel was at risk of becoming an actual or constructive total loss, the benefit bestowed on the insurer is the insured value of the vessel under the policy (since that is what the insurer would have had to pay) less the actual cost of repairs. If the vessel was not at risk of loss, the measure of benefit is what the cost of repairs would have been but for the actions of the salvors less the actual cost of repairs. Many times, the insured value far exceeds the market value. The cost of yacht repairs is also usually a high figure.
[tabby title="X. Salvage Awards"]
X. Salvage Awards
We turn next to the determination of the amount of the salvage award. Computation of the salvage award has traditionally followed the long standing guidance provided by the Supreme Court more than a century ago.
In The BLACKWALL , Justice Clifford set out the six factors to be considered in determining the amount of the salvage award. The Second Circuit has arranged them in descending order of importance as follows:
1. The degree of danger from which the vessel was rescued;
2. The post-casualty value of the property saved;
3. The risk incurred in saving the property from impending peril;
4. The promptitude, skill and energy displayed in rendering the service and salving the property;
5. The value of the property employed by the salvors and the danger to which it was exposed;
6. The costs in terms of labor and materials expended by the salvors in rendering the salvage service.
In considering its award, the court must not only consider the peril immediately faced by the vessel but the dangers presented by the situation that might have forseeably developed but for the actions of the salvors.
The value of a vessel to her owner is what he can obtain for her in an arm's length, negotiated sale in the open market. Thus, the value of the benefit bestowed by salvors on the vessel owner is a vessel's market value after the salvage service but before repair compared to what her market value would have been had the salvors not intervened to relieve her from her peril. However, the amount of a salvage award is not based on a precise or exact valuation of the salved property particularly when that value is high.
Counsel for vessel owners and their insurers sometimes argue that had the vessel sunk, she would have lost as much as one-third of her market value as "damaged goods" not because of the physical damage to the vessel but as the result of the damage to the vessel's reputation. Thus, they argue, a lesser salvage award should be made for preventing the vessel from sinking because the vessel would have been worth less had she sunk.
However, care must be taken with such arguments. A savvy salvor's counsel will argue in return that, as a result of the salvor's efforts, the vessel owner was able to substantially avoid any significant loss of market value from the stigma of becoming known as "damaged goods". Accordingly, the successful efforts of the salvor saved the vessel's owner a loss of market valued above and beyond the cost of additional repairs and damage prevented by its actions and the award should be even greater.
The salved value is the post-casualty value of the property, in her damaged state, at the time of the salvage or after the vessel is brought into safe harbor. Deducting the actual cost of repairs from the value of the vessel after repairs is an acceptable measure of the vessel's value after salvage or salved value.
Another area of frequent dispute is the interplay between promptness and labor in determining the salvage award. It will often be argued that since the salvors had the fire out or the flooding under control in a relatively short time, that the salvage award should be reduced accordingly because no significant labor was involved. This is, of course, ridiculous. Salvors should not be encouraged to prolong their labors to enhance their award anymore than they should be penalized because the damage to the vessel was minimal. Any diminution of the salvage award based on such factors would be contrary to public policy inasmuch as they would encourage salvors to take their time and to allow further damage to the vessel.
Indeed, in cases of fire or flooding, rapid action is far more important than the amount of labor expended since the expenditure of too much time in such situations will only serve to worsen the damage. When time is of the essence, the shortness of time spent in rescuing the vessel does not lessen the merit of the service. For example, in the seminal salvage case of The BLACKWALL , the fire-fighting services rendered took less than one hour.
In considering the size of the salvage award to which the salvor is entitled, it is important to remember that the amount of the salvage award is not based on work and labor performed on an hourly or fixed rate basis, but is given as a reward to ensure safety of property and life at sea. There is a strong public policy in favor of encouraging salvors to save and restore property to its owners and to encourage others to venture out and save distressed property. Public policy is that salvage awards should be liberal in the form of a "reward", not quantum meruit.
Public policy dictates that a salvor's award should be such as to encourage others to aid vessels in distress. "Public policy requires that such a promise of reward should be held out, in case of success, that all those in a situation and competent to render relief, shall be eager to do so from the mere hope of gain." The salvage award should be neither too much nor too little. It must be sufficiently liberal to encourage salvors but not so high as to discourage vessel owners from seeking assistance.
[tabby title="XI. Professional Salvors"]
XI. Professional Salvors
Exactly what constitutes a professional salvor has not been precisely defined. However, The LAMINGTON set out some factors as to what constitutes a professional salvor, including machinery, skills and appliances being ready for instant service even if only called for occasionally. Another case, Bindon v. Jones, indicates that a part-time professional salvor can exist. Furthermore, the Second Circuit has indicated that "exclusive devotion of a company's resources to salvage is not a condition precedent to recognition of a professional salvor's favored status". Most recently it was noted that part-time professional salvors, although called upon to perform salvage operations, deserve an increment due to their availability to persons in distress. In most cases, the salvors involved have devoted a significant amount of capital, time and energy in furtherance of the services they provide. Although they may not engage in salvage operations seven days a week, they are available to do so should the need arise. For this reason and the reasons cited above, the Court should find that the salvors involved are appropriately considered as professional salvors and are entitled to an equitable uplift in the salvage award because of their professional status.
Public policy also provides that, in order to encourage professional salvors to relieve the taxpayers from the necessity of buying, equipping and maintaining salvage vessels as well as training and maintaining their crews, professional salvors are entitled not only to compensation for services rendered, but to a so-called equitable uplift or incentive bonus to induce both small and large salvors to remain in business, prepared to respond to the next mayday. A professional salvor is entitled to claim a special bonus award for a successful salvage. The concept that professional salvors are entitled to premium pay for successful completion of their services has been long standing and is widespread. There is strong public policy that a professional salvor is entitled to a more liberal award than an amateur in order to encourage professional salvors to maintain salvage equipment and expertise.
[tabby title="XII. The Environmental Factor"]
XII. The Environmental Factor
One of the most interesting developments in salvage law has been the growing attention paid to the environment. Ironically, the 1990 revision to the Lloyd's Open Form has helped significantly in this regard.
With increasing government intervention into salvage situations which posed a threat to the environment, salvors found themselves faced with problems ranging from denial of access to ports to decisions to bomb the vessel into splinters. Salvors became increasingly reluctant to expend time and money on salving a vessel with little hope of receiving a reward.
In 1981, discussions were first held in Montreal to resolve the problem. A draft convention on salvage was adopted to address this issue. The 1980 revision to the LOF provided the unsuccessful salvor who attempted to salve a "tanker laden or partly laden with a cargo of oil" with his expenses plus fifteen per cent as a reward if he attempted to prevent or mitigate damage to the environment.
Subsequently, the International Convention on Salvage was adopted and ratified by the United States. The 1990 revision to the LOF incorporates articles 1, 8, 13 and 14 of 1989 Salvage Convention, and provides that the unsuccessful salvor can receive, as a reward for his efforts to prevent or mitigate damage to the environment, his expenses plus up to 200% of his expenses. Additionally, the successful salvor can have his award enhanced as a result of efforts to protect the environment. This concept shifts burden of costs of prevention and mitigation efforts from public to vessel owners and insurers. Availability of a reward for environmental efforts should encourage salvors to outfit vessels for environmental efforts and spare taxpayers costs of vessels, personnel, training and standby. Special compensation encourages salvors to "roll the dice" and undertake both salvage and environmental protection when the probability of success of salvage is slim.
The overall concept encourages environmental protection as a whole. Several courts have found this argument persuasive and enhanced a salvor's award for efforts to protect the environment. To obtain such an award, the salvor must prove by a preponderance of evidence that damage to the environment would have occurred but for salvage efforts. Potential problems exist with regard to the definition of "substantial physical damage" to the environment, especially in cases where no damage occurs, as well as with the definition of "major" incidents. Other definitions within the treaty will also require judicial interpretation. Valuation of marine resources is also a problem. Another problem will be the fact that the hull underwriters usually pay salvage awards while Protection and Indemnity ("P & I") underwriters pay for clean-up costs and environmental damage. Under the Cresci doctrine, this may result in P & I underwriters becoming directly liable for the environmental portion of the salvage award. While the concept will probably require much litigation and interpretation, it should prove useful for both salvors and the environment.
[tabby title="XIII. The Amount of the Award"]
XIII. The Amount of the Award
Salvage awards are not based on any fixed percentage of the vessel's value. Historically, the practice in ancient times was to award a fixed percentage of the vessel's salved value in all salvage cases of similar circumstances. From this ancient usage, the practice of awarding a fixed percentage of the salved value based on the order of salvage became customary and widespread. To this day, many salvors assume that such is still the practice. However, this is not correct. While some awards are still expressed in terms of a percentage, this practice is becoming increasingly rare. Each award, whether expressed in terms of a percentage of salved value or a quantum, must be based on the peculiar circumstances of each case taking into consideration all the BLACKWALL factors. The use of a fixed percentage award to be applied to all salvage cases of similar circumstances is no longer valid.
Similarly, awards in other salvage cases cannot serve as an absolute precedent because each case must be judged based on its own circumstances. However, awards in similar cases may be used, if not as precedent, as guidance. This is especially true, where the vessel salved is a yacht rather than a "blue water" vessel. While a salvor of a $60 million tanker may be more than adequately compensated by a very small percentage of the vessel's value (1%-2%), the salvor of a yacht may not be reasonably compensated on the same percentage basis.
Frequently, the value of the vessel and equipment put at risk by the salvor equals or exceeds the value of the vessel assisted. It is almost certainly a more significant percentage then when large ocean going vessels are assisted. The public policy component of providing incentive to salvors by having those who use their services contribute so that they remain available for other boaters who might need them is also more significant in the recreational vessel context. Thus, salvage awards reported in cases involving large commercial vessels in a blue water context provide little guidance with regard to the size of an appropriate reward. An examination of recent salvage cases involving yachts may prove instructive, however, as to the typical range of awards in such cases.
For example, in one of a series of recreational salvage cases referred to binding arbitration by Judge Pettine of the U.S. District Court for the District of Rhode Island, awards of $3,000 and $13,000 were made for saving yachts with a value of $12,000 and $48,000 respectively.
The total time expended by the salvor was just under one hour. However, the vessels were saved, at some risk to the salvor, from being driven aground and suffering serious damage or total destruction. The salvor, running a business virtually identical to those of the salvors in this case, was also found to be entitled to an enhancement of 5% of the salved value to the award as a professional salvor. Similarly, in a recreational salvage arbitration in Boston, an award of $8,500 was made for the salvage of a grounded motorboat with a value of $41,500 involving moderate peril not involving serious risk of loss.
Judge Marcus of the Southern District of Florida recently awarded $8,000 to the salvor of a recreational boat with a salved value of $16,100 where the vessel was saved from sinking in deep water. The salvor plugged a leak and de-watered the vessel using his own pumps and a Coast Guard pump.
Merely because the value of the vessel is high, it does not follow that the award must also be high. However, large valuation of the vessel or benefit does frequently result in more liberal awards because it enables the court to confer a reward large enough to encourage salvors without casting too heavy a burden on property large enough to bear it. Thus, the combination of high values and highly meritorious services should result in a high award.
[tabby title="XIV. Conclusion"]
The ongoing struggle between insurers and salvors is unfortunate. While there have been some instances of abuse by salvors, as a whole, the salvage industry provides a valuable service which inures to the benefit of insurers. Insurers should be more willing to pay generous salvage rewards and thus avoid not only wreck removal expenses but the loss as well. One of the best alternatives is to have pre-negotiated fixed price salvage contracts in place for defined geographic areas even before the losses occur. Salvors also need to open better lines of communication with insurers, provide more information and purge their ranks of "pirates and freebooters".