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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 defendants act or failure to act
must cause the harm, and the defendants 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 defendants 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 Ships 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 OBriens 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 ships technical manager. Hanjins 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
ships 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 Managements
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 ships 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 vessels progress, including the moment when the ship allided with the bridge pier (NTSB,
2009).
What is clear from the ships 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 Cotas 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 Cotas 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 governments investigation. Fleet Managements 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 vessels 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
defendants 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 Managements 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, Fleets representation alleged that the
U.S. Coast Guard was negligent in failing to properly supervise the Pilots 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. Fleets
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. Fleets representation contended
that given Cotas 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).
Fleets investigation determined that the San Francisco Bar Pilots Association, to which
Cota belonged, should have taken steps to suspend or revoke Cotas 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 ships equipment. The Pilots 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 Pilots Association. They also sued several doctors who
prescribed Cotas 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
Managements 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 ships
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 KongRegistered Containership M/V
Cosco Busan with the Delta Tower of the San FranciscoOakland 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>.