On March first, 2009 The National Transportation Safety Board released the following statement:

“On November 7, 2007, the Hong Kong-registered, 901-foot-long containership M/V Cosco Busan allided with the fendering system at the base of the Delta tower of the San Francisco-Oakland Bay Bridge. Contact with the bridge tower created a 212-foot-long by 10-foot-high by 8-foot-deep gash in the forward port side of the ship and breached the Nos. 3 and 4 port fuel tanks and the No. 2 port ballast tank. As a result of the breached fuel tanks, about 53,500 gallons of fuel oil were released into San Francisco Bay. No injuries or fatalities resulted from the accident, but the fuel spill contaminated about 26 miles of shoreline, killed more than 2,500 birds of about 50 species, temporarily closed a fishery on the bay, and delayed the start of the crab-fishing season. Total monetary damages were estimated to be $2.1 million for the ship, $1.5 million for the bridge, and more than $70 million for environmental cleanup. (NTSB, 2009)” All of the companies involved with the journey of the ship from berth 56 of the Port of

Oakland to Busan, Korea, immediately began to point fingers at each other as they faced a

deluge of tort lawsuits. The plaintiffs ranged from private companies and individuals to various

levels of government.

The federal government sued and threatened to seize the ship, claiming violations of

various federal laws including the National Marine Sanctuaries Act, the Migratory Bird Treaty

Act, the Park Systems Resource Protection Act, and the Clean Water Act, while also claiming

environmental damage and damage to government property (United States of America v. M/V

COSCO BUSAN).

Among the numerous private parties that sued were local fishermen, marina owners, fish

processing facilities, pleasure boat owners, and ship chandleries. The operating company, Fleet

Management Ltd of Hong Kong was held responsible for the spill and cleanup, and was initially

the primary target of the lawsuits. While the federal government initiated a criminal prosecution

against Fleet management and Captain Cota (for reasons that will be explained later), the case

was primarily a tort case and will be analyzed as such (NTSB, 2007).

This case falls under the category of Tort law because there was no pre-negotiation

among the parties involved. “Tort law concerns relationships among people for whom

transaction costs of private agreements are relatively high.”(Cooter and Ulen, 2012, pp. 189)

Although those involved with the international maritime industry have developed quick methods

to respond to disasters such as oil spills, the costs of pre-negotiating with all the injured parties of

every possible maritime disaster would be analogous to all drivers on the road entering into

contracts with every other driver regarding payments for damages in the event that anyone were

to crash into anyone else. These extremely high transaction costs that preclude the possibility of

Coasian bargaining, and the nature of the harm being a single accidental incident, distinguishes

tort law from contract law, property law, and criminal law. The harm caused to the plaintiffs

from the oil spill is a negative externality, as it was external to any market transaction. In this

case, the implementation of tort law will use the concept of strict liability to ensure that those

responsible for the harm will internalize the harm by monetarily compensating those claiming

damages.

For the plaintiff to recover any compensation, there must be the following three elements

present in the suit: the plaintiff must have suffered harm, the defendant’s act or failure to act

must cause the harm, and the defendant’s act or failure to act must constitute the breach of a duty

owed to the plaintiff by the defendant (Cooter and Ulen, 2012). In this case, local fishermen and

fish processing facilities claimed a loss of profits from the decreased population of fish used for

commercial fishing. Property owners along the shore of the bay claimed loss of value to their

beachfront property. Marina owners claimed lost profits from the decline in business they

suffered, and various pleasure-boat owners claimed harm from the loss in utility they suffered

from being denied the pleasure of boating in pristine waters (Hudson, 2012). Similarly, various

levels of government claimed harm to the local wildlife and the public areas that had to be closed

during cleanup.

The second requirement for compensation recovery: the defendant’s act or failure to act

must cause the harm, is trickier to demonstrate in this case. Fleet Management Ltd. was the

defendant in the majority of tort cases filed. They and Regal Stone Ltd were sued for a collective

total of $160,000,000 in civil claims with an additional $44,000,000 in natural resource damages,

including public loss of use of those resources. However, the extent to which Fleet Management

was actually responsible for the accident was (and is still) highly contested. Fleet Management

recruited the crew of the ship and was responsible for training and the overall operation and

maintenance of the ship from the U.S. port to Korea. Fleet management was under contractual

obligation to fulfill these duties with the Ship’s owner, Regal Stone Ltd. Fleet management was

also the actor responsible for holding vessel response plans on the ship. Vessel response plans

are a code of conduct that must be immediately implemented in the event of an oil spill (under

the Oil Pollution Act of 1990, OPA). Provisions in a VRP include immediately contacting the

designated “qualified individual,” which is a company that manages the clean up. In this case,

the qualified individual was a company called O’Briens Environmental. Besides Fleet

Management, the actors involved included Regal Stone, and Hanjin Shipping Co. Ltd. of Seoul,

South Korea. Out of these companies, Fleet Management was seen as the most responsible for

clean up and damages because the company was most directly responsible for operating the ship

on a day-to-day basis. Regal Stone technically owned the ship, but contractually designated Fleet

Management as the ship’s “technical manager.” Hanjin’s role was to simply book the cargo to be

placed on the ship, establish a route for the ship to follow in loading and discharging containers

of cargo, and to purchase the fuel for the ship (NTSB, 2009).

Out of these three companies, Fleet Management, being responsible for executing the

ship’s daily affairs during the journey, was the most directly connected to the accident. It was the

company that could spread the risk of spilling oil at least cost, and thus should have been the

company held liable, based on economic theory. This is why Fleet was designated the

“responsible party” for cleanup by the U.S. Coast Guard. Since the operating company can

spread the risk of an oil spill at least cost, it is automatically held liable for an oil spill under

OPA. However, upon further investigation by the law firm representing Fleet Management, The

Coast Guard, two congressional investigations, and one by the Hong Kong Authority (Hong

Kong was the flag state of the ship), it was found that the American Pilot, working not under

Fleet Management, but under the San Francisco Bar Pilots Association, was the primary actor

responsible for the allision with the bridge (NTSB, 2009).

John Cota, age 59, had been a pilot for 26 years. Cota was a pilot in good standing that

had regularly clean results from all tests for illegal drugs he had undertaken working for the SF

Bar Pilots Association. He had been a recovering alcoholic in sobriety since 1999. At the time of

the accident, he was, however, taking a number of prescription drugs for sleep apnea, kidney

stones, pancreatic disease, headaches, depression, abdominal pain, and back pain. In the sixty

days preceding the accident, the pilot filled the following prescriptions: 180 lorazepam56 1 mg

tablets, 120 diazepam57 5 mg tablets, 50 prochlorperazine58 10 mg tablets, 190 propoxyphene59

65 mg tablets, 200 hydrocodone60/acetaminophen61 10/325 mg tablets, 50

pentazocine62/naloxone63 tablets, 100 diphenoxylate64/atropine65 2.5/0.025 mg tablets, 27

sumatriptan66 50 mg tablets, 90 modafinil67 200 mg tablets, and 90 sertraline68 50 mg tablets

(NTSB, 2009). Most of these drugs come with a warning against operating heavy machinery

(such as a ship) while under their influence. Further, Cota was using a continuous positive

airway pressure (CPAP) machine for the treatment of sleep apnea. CPAP use was documented

for more than 6 hours on each of the 2 nights preceding the accident, and modafinil was

prescribed to support alertness during shift work. The pilot estimated that he received about 7

hours of sleep the night before the accident (NTSB, 2009).

In his post-accident interview, the pilot claimed that the onboard radars became

distorted. The Pilot made those allegations to the press through his attorney.  Fleet

Management’s hired attorneys were able to disprove those claims by testing the radar.  Shortly

after the incident, they had a qualified technician test the radar, which was found to be working

properly. The technician concluded that the radar would not have misled the Pilot or anybody

else using it (Giffin, 2012).  The ship’s computer also recorded the radar display. The

investigation led by Fleet Management replayed the radar display many times and the radar

picture clearly showed the vessel’s progress, including the moment when the ship allided with

the bridge pier (NTSB, 2009). 

What is clear from the ship’s vessel data recorder (VDR), and the electronic chart

display and information system (ECDIS), is that the Pilot, who was accustomed to using radar

and not well trained in using ECDIS, stopped looking at the radar screen and moved about two

feet to his left and was navigating the ship in the dense fog by only watching the ECDIS display. 

He became confused by some of the chart symbols on the ECDIS display and misread two red

triangles to indicate the center of the span when actually they indicated buoys, which marked the

bridge pier.  Because of this confusion, the pilot steered the ship straight for the bridge pier

instead of through the middle of the span (NTSB, 2009). 

In light of the information regarding Cota’s drug use, his apparent confusion divulged

through his post-accident interviews, and recorded conversations with the captain during the

accident, Cota was deemed unfit to operate the ship and was sentenced to ten months in federal

prison and a small punitive fine as the primary actor behind the spill following a criminal

investigation and federal prosecution (NTSB, 2009).

Despite Cota’s apparent guilt, and because he had nowhere near the amount necessary to

pay for damages, Fleet Management was still considered primarily responsible, even though

Cota did not work for Fleet Management. The federal government claimed that crewmembers

operating under Fleet made false statements to the Coast Guard investigators and also altered

documents to obstruct the government’s investigation.  Fleet Management’s representation

countered that those acts were relatively minor because the alterations were minor and not

intended to mislead the government. They argued further that these alterations had nothing to do

with the spill. Federal government prosecutors nevertheless prosecuted the company for making

those changes, alleging that they constituted false statements and obstruction of justice.  For

example, the Coast Guard alleged that the crew had improperly completed check off lists before

the vessel’s departure, checking off boxes on the list that had not actually been completed when

the ship sailed.  Fleet management argued that none of those tasks were a factor in the

incident. Under these accusations, and because Fleet Management was the ultimate actor

responsible for the quick deployment of the oil spill response plan (required by law to have on

board under the Oil Pollution Act of 1990), it bore most of the costs of clean-up and damages

paid to victims (Giffin, 2012).

The fact that liability rested on the party that claimed to be mostly innocent calls into

question the third determinant of compensation recovery in tort law mentioned above: the

defendant’s act or failure to act must constitute the breach of a duty owed to the plaintiff by the

defendant. In this case, Fleet Management is the primary defendant and is held strictly liable.

Liability for oil spills is determined by three primary principles outlined by OPA: strict liability,

liability channeling, and liability limits (Richardson, 2012). Strict liability ensures that the party

deemed responsible for the oil spill is strictly liable for damages caused, and negligence on the

part of the responsible party does not have to be proven by the plaintiff. The concept of strict

liability significantly reduces the costs of litigation because the plaintiffs do not have to endure

the extra costs of proving that the guilty party was negligent (which they would under a

negligence rule). This is economically efficient because, aside from the reduction in litigation

costs, the liability falls strictly on the party who can undoubtedly spread the risk of the harm at

least cost (in this case Fleet Management). It would be incredibly difficult to determine whether

a plaintiff in an oil spill liability suit was partially at fault under a contributory or comparative

negligence rule. This would almost never be the case as most plaintiffs can do very little to

prevent an oil spill from harming them.

The “channeling” aspect of OPA dictates that the owner/operator of the vessel is the

responsible party. In this way, strict liability is automatically “channeled” to the operator, in this

case, Fleet Management Ltd. As mentioned earlier, this rule is economically efficient because it

channels the blame to the party who can implement an immediate emergency clean-up response

to the spill at soon as it happens, and who can spread the risk at least cost. If the liability were

vague, then the question of who would pay would severely hinder the quick response necessary

to control an oil spill. The operating company is also the most likely potential injurer (being the

company that provides the crew in control of the ship during the journey). Strict liability

channeled to the operating company therefore provides the incentive for the operating company

(the company most likely to injure) to take the greatest precaution, especially since those harmed

by an oil spill are extremely unlikely in most cases to be a contributor. The operating company

has more information than anyone else involved with the ships passage, and can thus take

precaution at lowest cost. Thus, OPA dictates that all operating companies are required to carry

on board an oil spill response plan, and are the responsible party for immediate implementation

of a response. This is mostly why, even though most parties involved agreed that captain John

Cota (working for The SF Bar Pilots Association) was most at fault for the accident, Fleet

Management was in the best position (i.e. the position of least cost) to implement an immediate

response to the spill. This ex-ante regulation by law enforcement administrators theoretically

enables the most likely potential injurers to correct a hazard before an accident occurs in order to

hopefully cut down on ex-post enforcement by victims. The channeling clause in the OPA statute

precludes any concepts of negligence in oil spill litigation, but allows the strictly responsible

party to sue any parties that it finds contributory/responsible in order to recoup some of the

damage costs.

Given Fleet Management’s proclaimed innocence, the company immediately launched a

number of cross-claims against various entities, contending that the conduct of these other

entities was the actual cause of the accident.  For example, Fleet’s representation alleged that the

U.S. Coast Guard was negligent in failing to properly supervise the Pilot’s Coast Guard license. 

Vessel masters, including pilots, are required to take and pass an annual physical.  They are also

required to complete a Coast Guard form, which reports all medications they are taking.  Captain

Cota completed such a form in early 2007, but did not fully disclose all of the medications he

was taking (listed above), and was thus accused of fraud by Fleet Management.  Fleet’s

investigation of Cota also found that he was obtaining double doses of these medications by

going to multiple doctors who would prescribe the same medication.  Again, one or more of

those medications contain warnings that they should not be taken while operating heavy

machinery, for which a 65,000-ton vessel certainly qualifies. Fleet’s representation contended

that given Cota’s report that he was taking at least some of those medications to the Coast Guard,

the Coast Guard should have suspended his license based on the reported information.  In fact,

based on only the reported information, his license was, in fact, suspended (Giffin, 2012).

Fleet also contended that the Coast Guard vessel traffic system (VTS), which monitors

traffic in the Bay Area should have warned the pilot and the Master of the COSCO BUSAN that

the vessel was approaching the bridge pier.  The VTS, located on the top of Treasure Island,

tracks all vessels in the Bay.  The COSCO BUSAN was clearly off track and the Coast Guard

personnel on duty contacted Cota and asked him his intentions.  He told him that he was

planning to pass through the Delta Echo passage of the Bay Bridge but it was clear from their

radar that he was not on track to do so.  Knowing that the vessel was off track, they said nothing.

Their defense was they do not control the ship, they merely provide information. Fleet argued

that information they should have provided was that the ship was about to run into the bridge

(Giffin, 2012).

Fleet’s investigation determined that the San Francisco Bar Pilot’s Association, to which

Cota belonged, should have taken steps to suspend or revoke Cota’s license because they were

aware that he was taking medications that might affect his cognition. They were also aware that

he had a previous conviction for driving under the influence of alcohol, that he had grounded a

Canadian ship about a year earlier, and that he had a recent episode on a U.S. Navy ship in which

he had become irate and began damaging ship’s equipment.  The Pilot’s Association treated

those episodes as “medical issues” but did nothing (Giffin, 2012). 

Fleet made the same claim against the California State Board of Pilot Commissioners

who monitors the pilots’ state licenses. Fleet contended that knowing all of this, the Board of

Pilot Commissioners should have moved to revoke or suspend his license.  Fleet actively sued

the State of California and the Pilot’s Association.  They also sued several doctors who

prescribed Cota’s medications and found him fit to work as a pilot, and pharmacists who issued

multiple prescriptions to Cota. All of those claims have not been resolved, but to date, Fleet

Management has recovered approximately $20,000,000 from those various entities, which

accepted a small offset against its claim for environmental damages. Despite the small dent in the

damages owed by Fleet, there remained a huge liability cost of about $180,000,000 to be paid

out by parties claiming injury (Giffin, 2012).

There were two classes of those claiming injury: private parties, and the various levels of

government suing for damages to public goods such as protected wildlife under The Public Trust

Doctrine. The Public Trust Doctrine is essentially the concept that certain resources like wildlife,

public recreational areas, and protected ecosystems must be preserved for reasonable public use,

and that the government is responsible for their protection. Caltrans (California Transportation

agency) also sued for damage to the bridge.

Computing damage awards to private parties is relatively easy. Hudson Marine was the

designated insurance agency that handled all the claims brought against Fleet Management.

Those represented in the class action lawsuits included mostly fishermen, plus the auxiliary

businesses that provided for them, like fish, tackle, and bait suppliers, fish processing plants, etc.

The numerous small private claims included restaurant owners located by the shores, and other

miscellaneous recreational businesses that relied on the bay. Those that presented a good claim

assertion received damages. The claim assertion consisted of proving harm and proving the harm

was caused by the spill. This usually entailed something like average profits before the spill and

profits after the spill, and some aspect of the business that Hudson Marine could use to reliably

determine that the spill was the cause of the decline in business profits. Once the claimant

provided all the necessary information, the insurance company reviewed it for accuracy,

reasonability, comparability to others with similar damages, and veracity of the submission

(altered documents, etc). In every instance, Hudson Marine determined what the appropriate

settlement would be. The damage was adjusted given both the information provided from the

claimant, and investigation into other factors like historic industry information, scientific

information, etc. (Hudson, 2012).

Computing damages to the government for harming environmental resources without

intrinsic monetary exchange value is much less clear and subject to great contention among the

economic community. Estimating the value of things like plant and wildlife is imperative,

however, since there was undoubtedly significant damage to these valuable resources, and the

State of California sued Fleet to recover damages under the National Marine Sanctuaries Act, the

Migratory Bird Act, the Park Systems Resource Protection Act, and the Clean Water Act.

There are two dominant methods of estimating the costs of marine oil pollution. The first

is simply the cost of replacing the damaged plant and wildlife populations. This method often

falls short of the costs involved with the cumulative chain reaction of damage when one aspect of

a fragile ecosystem is compromised, thus this method can grossly underestimate the actual losses

from an oil spill (Boyd, 2010).

Economists can also estimate the value of these resources through research into

“revealed preferences,” i.e. indirect ways of knowing the monetary value of things with no

obvious monetary value. For example, waterfront property and property located in beautiful

natural surroundings tends to be more expensive than urban or inland property. Economists can

also use more direct techniques of “stated preference” or “contingent valuation,” which are

methods of polling in which individuals are asked how much they would be willing to pay or

willing to accept in compensation for gains or losses of non-market goods or services, like

healthy ecosystems, biodiversity, etc. Economists essentially try to create a missing market for

these items to assess their approximate “passive use value.” This method of damage assessment

became much more popular in economic literature in 1989 after the disastrous Exxon Valdez Oil

Spill in the Prince William Sound of Alaska (Carson et al. 2003). This last method of evaluation

tends to incur extremely high administrative costs, however, and economists are still unsure as to

how accurate these evaluations are, in light of the fact that they rest on cognitive human biases

(Boyd, 2010).

In the case of the Cosco Busan, damages were awarded to the State via the first method

of evaluation. Fleet management paid for the cost of the clean-up and the replacement of the

resources damaged, which after stringent assessment from various experts hired by Fleet,

amounted to the following: Creation of grebe nesting habitat at Tule Lake National Wildlife

Refuge, creation of over-wintering duck and grebe habitat at the South Bay Salt Ponds, creation

of nesting and roosting habitat for cormorants, pelicans, and shorebirds at the Berkeley Pier,

creation of nesting habitat for seabirds at the Farallon Islands, creation of a grant project to

benefit Surf Scoters, restoration of Marbled Murrelets in California, restoration of eelgrass at

several sites inside the Bay, to benefit both eelgrass and herring, restoration of sandy beach

habitats at Muir Beach and Albany Beach, restoration of salt marsh and mudflat habitats at

Aramburu Island, restoration of native oysters and rockweed at several sites inside the Bay to

benefit rocky intertidal communities, and creation of a process to fund a wide variety of human

recreational use projects at impacted sites across the spill zone. These measures theoretically left

the City of San Francisco and the State of California indifferent between the spill and not having

the spill, as it offered compensation for both lost use of public leisure sites, and the loss of the

various plant and animal life (CADFG, 2012).

In many cases, after the response to the spill is over, and the designated Responsible

Party has paid for everything, the responsible party may submit an application to the National

Pollution Fund Center (which is part of the Coast Guard) for reimbursement. If the RP can show

that neither it nor any of it's contractors violated a statute that caused the spill, that it was not

grossly negligent and that it complied with all Coast Guard orders in cleaning up the spill, it may

then recover many of its costs from a fund of money called the Oil Spill Liability Trust fund,

administered by the NPFC. The money in the Fund comes from a 5 cent per barrel tax on

imported oil and was established by OPA. Fleet Management was not eligible for reimbursement

in this case, however, because of the accusations from the federal government that Fleet

Management’s crew had been providing false information to the coast guard investigators. This

violated the stipulation that the responsible party must comply with all Coast Guard orders

during the spill cleanup in order to receive compensation.

Although the event of the spill occurred in 2007, the case is still active today in 2012.

Fleet Management is still pursuing compensation from the various parties the company believes

are at fault, and, as mentioned above, has thus far collected about $20,000,000 of the

$200,000,000 it had to pay out in damages. Although Fleet Management claims relative

innocence in this case, they acquiesce under OPA to be the liable party for the cleanup and

damages. This strict liability stipulation is arguable the most economically efficient distribution

of liability because the Operating company is in the position of least cost to respond and

compensate for an oil spill immediately. On a surface level, the strict liability clause and

channeling clause of OPA may seem to provide perverse incentives for other companies

involved in the shipping process. For example, a pilot might be less careful piloting the ship, or

the ship’s owner (in this case Regal Stone Ltd.) might be less careful when making sure that the

ship in good condition, knowing their company would not be liable for an oil spill resulting from

a mechanical problem with the ship. However, allowing the responsible party to sue other parties

reduces the possibility of such perverse incentives, albeit with considerable litigation costs. The

most economically efficient outcome would involve somehow ensuring that those who are truly

guilty would immediately implement a cleanup response and pay damages proportional to the

degree of harm each guilty party had caused. This is quite obviously unrealistic, however, since

investigations proving who is liable take a lot of time, and oil spills must be cleaned up

immediately. Thus, it seems that channeling strict liability to the party that can spread the risk of

oil spills at least cause, while allowing that party to sue other parties for recovery is the most

economically efficient outcome.

Sources

1.) National Transportation Safety Board. Allision of Hong Kong‐Registered Containership M/V

Cosco Busan with the Delta Tower of the San Francisco–Oakland Bay Bridge San Francisco,

California November 7, 2007. 1 Mar. 2009. Web. Mar. 2012.

<http://www.ntsb.gov/doclib/reports/2009/mar0901.pdf>.

2.) United States vs. M/V COSCO BUSAN. LexisNexis Academic. United States District Court for the Northern District of California. 17 Nov. 2008. Print.

3.) Cooter, Robert. Ulen, Thomas. "Chapter 7." Law and Economics. 6th ed. Boston: Pearson Education, 2012. 189-99. Print.

4.) Hudson, Cynthia. "Interview with CEO of Hudson Marine Insurance." Telephone interview. 2 Apr. 2012.

5.) Giffin, John. "Interview with Senior Maritime Lawyer for SF office of Keesal, Young, & Logan." Telephone interview. 29, March. 2012.

6.) Richardson, Nathan. "Deepwater Horizon and the Patchwork of Oil Spill Liability Law." Rff.org. Resources for the Future, May 2010. Web. 2 Apr. 2012. <http://www.rff.org/RFF/Documents/RFF-BCK-Richardson-OilLiability_update.pdf>.

7.) Boyd, James W. "How Do You Put a Price on Marine Oil Pollution Damages?" Rff.org. Resources for the Future, June 2010. Web. 2 Apr. 2012. <http://www.rff.org/rff/documents/resources-175_marinedamages.pdf>.

8.) Carson, Richard T., Robert C. Mitchell, Michael Hanemann, Raymond J. Kopp, Stanley Presser and Paul A. Ruud. 2003. “Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill.” Environmental and Resource Economics 25: 257-286.

9.) California Department of Fish and Game. Cosco Busan Oil Spill, Final Damage Assessment and Restoration Plan/Environmental Assessment. Nrm.dga.gov. Feb. 2012. Web. 6 Apr. 2012. <http://nrm.dfg.ca.gov/FileHandler.ashx?DocumentID=42442&inline=true>.