Background and Insurance Structure

Wapiti Energy, LLC, a Texas oil and gas exploration and production company operating oil storage barges in Louisiana waterways, maintained a twelve-month insurance package from Clear Spring Property and Casualty Company covering four vessels, including the tank barge SMI 315 with an agreed hull value of $350,000. The package included both hull coverage (compensating for damage to the vessel) and protection and indemnity (P&I) coverage (compensating for harm the vessel causes to others), with the P&I policy providing a $1,000,000 limit per barge subject to a $10,000 deductible. The P&I policy specifically covered "[l]iability for costs or expense of, or incidental to, the removal of the wreck of the vessel ... when such a removal is compulsory by law."

Hurricane Ida and the Coverage Dispute

When Hurricane Ida made landfall in August 2021, the SMI 315 slipped its moorings and grounded on ConocoPhillips-owned marshland. Although the hull remained intact with no oil leakage or immediate threat thereof, Wapiti obtained salvage bids estimating $880,000 for removal and submitted a claim under the P&I wreck removal provision. Clear Spring denied the claim and offered only $265,000 under the hull policy, deeming the vessel a constructive total loss due to the disparity between salvage costs and hull value. Wapiti proceeded with removal at a total cost of $926,840.32, successfully refloating and towing the barge without incident.

Procedural History and Fifth Circuit Reversal

The district court initially dismissed Wapiti's claims in December 2022, ruling that removal was not "compulsory by law" as required by the P&I policy. The Fifth Circuit reversed in July 2024, establishing a three-part test for compulsory removal: (1) when criminal sanctions would be imposed for failure to remove; (2) when a government order mandates removal; or (3) when a cost-benefit analysis by a fully informed, reasonable owner demonstrates that the amount and likelihood of liability from failure to remove mandates removal. Critically, the Fifth Circuit held that

the Louisiana possessory action made removal of the SMI 315 compulsory by law

The 'Wreck' Definition Dispute

On remand, the parties contested whether the intact, successfully refloated barge qualified as a "wreck" triggering P&I coverage. The court examined maritime caselaw defining "wreck" as a vessel "damaged so extremely that it is unnavigable" or "rendered unnavigable," emphasizing that navigability refers to a vessel's capability to move and operate independently. Clear Spring argued the barge could not be a wreck because it was "floated free of the marsh and towed back to defendant's facility without any need for maintenance or repair." The court rejected this argument, finding that a vessel need not require maintenance or repair to be unnavigable—the critical question is whether the vessel can operate independently at the time of the incident, not whether it can be successfully salvaged later.

Implications for Energy Sector Marine Insurance

This decision provides crucial guidance for oil and gas operators with marine operations in hurricane-prone regions regarding the interplay between hull and P&I coverage for grounded vessels. The Fifth Circuit's recognition that state possessory action laws can create "compulsory by law" removal obligations significantly expands the scope of P&I wreck removal coverage beyond federal removal orders or criminal sanctions. Energy companies should review their marine insurance policies to understand whether wreck removal provisions will respond when vessels ground on private property, particularly given that removal costs often exceed hull values for older vessels. The case also clarifies that "wreck" status depends on navigability at the time of grounding, not the vessel's condition after successful salvage operations, potentially bringing more grounded-vessel scenarios within P&I coverage even when hulls remain structurally sound.