March 30, 2020

Supreme Court Decides CITGO Asphalt Refining Co. v. Frescati Shipping Co., No. 18-565

On March 30, 2020, the U.S. Supreme Court decided CITGO Asphalt Refining Co. v. Frescati Shipping Co., No. 18-565, construing a safe-berth clause in a widely used charter contract as a warranty of safety, and not simply a due diligence requirement.

Frescati owned an oil tanker called the Athos I. Star Tankers chartered, or hired out, the Athos I for a period of time. CITGO and several other companies (collectively CARCO) sub-chartered the Athos I for a voyage from Venezuela to CARCO’s oil refinery in New Jersey, using a standard form contract called the ASBATANKVOY form. A safe-berth clause in this contract provided that “[t]he vessel shall load and discharge at any safe place or wharf, . . . which shall be designated and procured by [CARCO], provided the Vessel can proceed thereto, lie at, and depart therefrom always safely afloat.” The Athos I was within 900 feet of its destination when it struck a submerged anchor in the Delaware River, piercing its hull, and spilling 264,000 gallons of oil into the Delaware River. Frescati and the U.S. government paid the initial costs of the cleanup and then sought to recover their costs from CARCO.

A decade and a half of litigation ensued. Frescati and the U.S. government argued that (i) Frescati was an implied third-party beneficiary of the safe-berth clause in the charter contract between CARCO and Star Tankers, (ii) this clause was an express warranty of safety by CARCO, and (iii) CARCO breached this clause by failing to designate a safe berth for the Athos I. CARCO argued that the safe-berth clause merely imposed a “duty of due diligence” in its selection of the Athos I’s berth. The U.S. Court of Appeals for the Third Circuit disagreed, and found CARCO liable for breaching the express warranty contained in the safe-berth clause.

The Supreme Court affirmed, grounding its decision in the plain language of the safe-berth clause. “Safe” means “free from harm or risk,” the Court held, and “always” means “at all times.” The safe-berth clause was not subject to any qualifications or conditions. And nothing in the clause referred to “due diligence” or any similar concept of fault. The clause therefore established an express warranty of safety.

The Court rejected CARCO’s argument that a “general exceptions clause” in the contract exempted it from liability for losses due to “perils of the seas.” By its terms, the “general exceptions clause” did not apply where (as here) liability was “otherwise . . . expressly provided” in the contract. CARCO also pointed to a contract clause that required Star Tankers to obtain oil-pollution insurance as evidence that the parties intended to relieve CARCO of liability for oil spills. The Court rejected that argument, noting that the oil-pollution insurance covered more than just the risks of an unsafe berth. CARCO also offered an alternative interpretation of the safe-berth clause that focused on the vessel master’s right to refuse entry into an unsafe berth. The Court held that, even if true, that interpretation did not relieve CARCO of its liability for selecting an unsafe berth. Finally, CARCO cited a leading admiralty treatise and several cases in support of its position that the safe-berth clause should not be read as a warranty of safety. The Court distinguished those authorities or explained why it found them unpersuasive.

Justice Sotomayor authored the opinion of the Court, in which Chief Justice Roberts and Justices Ginsburg, Breyer, Kagan, Gorsuch, and Kavanaugh joined. Justice Thomas authored a dissenting opinion, which was joined by Justice Alito.

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