The Bisso Doctrine

By Jim Shirley, from the December 2010 edition of MarineNews

The Bisso Doctrine takes its name from the 1955 U.S. Supreme Court case, Bisso v. Inland Waterways Corp., in which it was established in a majority opinion of the Court that exculpatory clauses in towing contracts are invalid as a matter of public policy. That decision has had serious impact on the United States towing industry, and has affected decisions on whether to make U.S. choice of law and forum applicable to towing contracts where there were other options. It nonetheless remains the law of the land. What follows is a general description of the Bisso Doctrine and some highlights showing how the towing industry and the courts of the United States have adapted to it over the last fifty-five years.

The Bisso case arose because a tug towing an unmanned barge caused the barge to collide with a bridge pier. The towing contract included provisions making the tug crew “borrowed servants” of the tow, and stating that the towing services were to be performed at the sole risk of the tow. This, in effect, exculpated the tug owner from the consequences of its own negligence and that of its crew. The holding of the Bisso Court was that it was against the public policy of the United States to include in a towage contract a clause exculpating the tug owner from liability for tug negligence. The Supreme Court believed this was necessary in order “(1) to discourage negligence by making wrongdoers pay damages, and (2) to protect those in need of goods or services from being overreached by others who have power to drive hard bargains.”

The impact of this decision on freedom of contract was immediately obvious, and that was strongly argued in the dissenting opinion of one of the justices on the Bisso Court. Although the decision is arguably in line with the common law principle that a person may not contract against his own negligence, freedom of contract is also a long-standing common law principle. In fact, towing contracts subject to the law of England, the mother country of the common law, routinely incorporate the United Kingdom Towing Conditions which include even stronger exculpatory language than that in the Bisso contract. Also, the BIMCO contract forms for towage are subject to English law and they contain “knock for knock” provisions that have the same effect by making each party to the contract liable for its own equipment and personnel irrespective of fault. It is not surprising, therefore, that affected parties, particularly those who provided towing services, began looking for ways to avoid running afoul of the Bisso Doctrine.

In 1959, in Southwestern Sugar & Molasses Co., Inc. v. River Terminals Corp., the Supreme Court distinguished Bisso from a situation where the provisions of the towage contract were subject to regulation by the Interstate Commerce Commission (ICC), noting that the Bisso Doctrine might not be appropriate where there are particular hazards involved in the towage. In 1962, the Fifth Circuit Court of Appeals seized upon this distinction and held that where peculiar hazards were involved in the tow and there was equal bargaining strength between the parties and no overreaching to drive a hard bargain, it was permissible for the tow owner to agree to indemnify the tug owner against third-party claims based upon tug negligence and to afford the tug owner the benefit of the tow owner’s liability insurance. That case reached the Supreme Court as Dixilyn Drilling Corp. v. Crescent Towing and Service Corp., and the Supreme Court found that holding to be “squarely in conflict” with the decision in Bisso. It found the appellate court to have wrongly decided that the case fell within the ambit of the Southwestern Sugar decision, which it explained was only meant to give the ICC an opportunity to rule on an exculpatory clause that was part of a tariff filed with the ICC. The appellate court’s judgment was, therefore, reversed.

As for the Supreme Court, the Bisso Doctrine is still the law. Of course, that has not stopped efforts by towage operators and their legal counsel to find alternatives to exculpatory clauses to achieve similar results, and some of their efforts have found favor in various federal courts of appeal and federal district courts. In the early and mid-1970s several appellate court decisions found language in towing contracts that required each party to fully insure its own vessel with a waiver of subrogation against the other party, and to name the other party as an additional insured, i.e. “mutual benefit of insurance” provisions, not to be exculpatory clauses of the type invalidated in Bisso and Dixilyn. One of the earliest of these “mutual benefit of insurance” decisions was the subject of a petition for certiorari made to the Supreme Court. That is a process required for cases that the Supreme Court is not, as a matter of either party’s right, required to hear, but one of the parties nonetheless wants it to do so. In that case, certiorari was denied, so the issue of mutual benefit of insurance clauses in towage contracts was not addressed on its merits by the Supreme Court.

A mutual benefit of insurance clause has been upheld by an appellate court even where the barge owner failed to procure the waiver of subrogation or to name the tug as an additional insured (Twenty Grand Offshore. Inc. v. West India Carriers, Inc). Such a clause has also been implied by an appellate court to exist in a U.S. Government towing contract containing an agreement that the tug owner would not be liable for damage to the barge customarily covered by insurance, and in which the tug owner had agreed not to insure or to include in the towage price any charge for insurance covering loss to Government property.  That court held not only that the fear of overreaching by tug owners did not apply when the tow was owned by the U.S. Government, but also that the Government’s “self-insurance program and the prohibition against the contractor’s [tug owner] procuring insurance for ‘excepted perils’ were part of an agreement as to who should procure insurance.  Because the government elected to be self-insured, its waiver of the contractor’s liability was analytically identical to, and served the same function as, an agreement of one party to waive subrogation rights against the other party.” (Gulf & Midlands Barge Line, Inc.)

In 1983, in Dillingham Tug & Barge Corporation v. Collier Carbon & Chemical Corporation, the Ninth Circuit Court of Appeals held that benefit of insurance provisions could be valid notwithstanding the fact that they were not mutual. The towage contract in that case provided only that the owner of the tow was to insure his vessel and name the tug owner as an additional assured with a waiver of the right of subrogation. Furthermore, the tow owner was not allowed to collect from the tug owner the amount of the insurance deductible because the contract had required that he fully insure the barge. More recently, in 2002, The District Court for the Northern District of California (which is within the Ninth Circuit) found as valid a clause in a contract for towage limiting the tug owner’s liability to $250,000. The court noted that “Bisso does not address clauses which seek to limit, rather than completely exculpate, a party’s liability for its own negligence.” It distinguished similar cases that purported to limit the tug owner’s liability to de minimus amounts, and cited to Sixth Circuit Court of Appeals authority that Bisso does not invalidate all limitations of liability. The court also found support in the Dillingham decision because, “[a]though the instant case does not involve an insurance provision, Dillingham is significant in that it recognized that limiting provisions which differ from exculpatory provisions can and should be treated differently where appropriate.” (Gaida Shipping Corporation v. Tug S/R MARE ISLAND and Seariver Maritime, Inc.)

At least one commentator has suggested that it appears from the foregoing analysis of Bisso and its progeny, which includes a number of additional cases, that the law is moving away from Bisso without discrediting it. That is important, because the Bisso Doctrine remains “good law.” It is also important to note that not every effort to avoid running afoul of the Bisso Doctrine, either by trying to carve out an exception to it or by creating a provision that is arguably not covered by it but affords a similar result, has succeeded. In determining what will likely achieve the desired result and what will not, it will be important for the tug operator and his legal counsel to consider all the cases, arguments, and decisions, especially those within the judicial districts in which he will be operating or whose law is applicable to his contracts.

Jim Shirley is a Master Mariner, a former salvage master and retired maritime lawyer who specializes in maritime casualty and salvage matters, and now serves as legal counsel to the American Salvage Association and as Principal Consultant in JTS Marine LLC. Contact him at [email protected] or (609) 883-3522.