Supreme Court Rules CITGO Subsidiary Must Cover Oil Spill Costs

March 30, 2020 Updated: March 30, 2020

An oil refining company has to cover cleanup costs that the owner of a vessel it was using incurred for a 2004 oil spill in the Delaware River, the Supreme Court found March 30.

The ruling in the case, cited as CITGO Asphalt Refining Co. (CARCO) v. Frescati Shipping Co. Ltd., clarifies liability for spills and other maritime accidents in the future, clearing up a disagreement over contract boilerplate.

CARCO was supposed to ensure the safe arrival of a tanker it chartered to deliver crude oil from Venezuela to the company’s refinery near Philadelphia, the court determined. Because CARCO failed to do what it was required to do, it must cover the cleanup expenses of Frescati Shipping Co., the owner of the vessel that rammed an obstacle near the refinery and spewed crude oil into the river.

Justice Sonia Sotomayor wrote the 7–2 majority opinion for the court. Justice Clarence Thomas wrote a dissenting opinion, which Justice Samuel Alito joined.

CARCO sub-chartered the oil tanker from tanker operator Star Tankers, which had chartered the vessel from respondent Frescati Shipping Co., according to a court-provided summary. A standard industry form contract was signed that used language from a template known as the ASBATANKVOY form, which was named after the Association of Ship Brokers and Agents (USA) Inc., the trade association that publishes it.

In the last leg of the tanker’s journey from Venezuela to New Jersey, an abandoned ship anchor punctured the 748-foot-long hull of the tanker Athos I, which caused 264,000 gallons of heavy crude oil to spill into the Delaware River.

The federal Oil Pollution Act required the vessel’s owner, Frescati, to cover the cleanup costs in the first instance. The law limited Frescati’s liability to $45 million, and the Oil Spill Liability Trust Fund reimbursed Frescati an extra $88 million for cleanup costs. The fund is run by the federal government, which is one of the respondents in the litigation.

Frescati and the United States then sued CARCO to recover what they spent on the cleanup. Both claimed CARCO was at fault because the company had breached a contractual “safe-berth clause” in the subcharter agreement between CARCO and Star Tankers. That clause obligated CARCO to choose a “safe” berth that would permit the tanker to come and go “always safely afloat,” and was tantamount to a warranty regarding the safety of the selected berth.

“The question before us is whether the safe-berth clause is a warranty of safety, imposing liability for an unsafe berth regardless of CARCO’s diligence in selecting the berth,” Sotomayor wrote. “We hold that it is.”

The litigants disagreed over part of the contract that required CARCO to “designate and procure” a safe place to dock the ship. The disagreement centered on whether that wording constituted a guarantee of safety, or was merely a promise of due diligence. CARCO’s attorneys had said during oral arguments last November that “any rule that would expose a defendant to limitless liability” would interfere with maritime commerce.

The 3rd Circuit Court of Appeals ruled for Frescati, finding the language should be seen as a guarantee of safety.

“Given the unqualified language of the safe-berth clause, it is similarly plain that this acknowledged duty is absolute,” Sotomayor wrote, agreeing with the 3rd Circuit.

Thomas wrote in his dissent that the court majority’s interpretation of the disputed contractual language is “wrong” and “finds no basis in the contract’s plain text.”