by Adam Freedman
Today’s topic: The Gulf oil spill--who pays?
And now, your daily dose of legalese: This article does not create an attorney-client relationship with any reader. In other words, although I am a lawyer, I’m not your lawyer. In fact, we barely know each other. If you need personalized legal advice, contact an attorney in your community.
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Who Pays for the BP Oil Spill?
The April 20th explosion of an off-shore oil rig operated by BP (the company formerly known as “British Petroleum”) in the Gulf of Mexico has turned out to be a massive tragedy for the entire region. As you know, when tragedy strikes, the lawyers are never far behind. That’s certainly the case here, as the legal questions have been gushing to the surface almost as quickly as the oil: Who’s liable for the damage caused by the spill? How much will they have to pay? Can Congress change the liability limits retroactively? Can the federal government ban deepwater drilling in the Gulf?
The quick and dirty answer is that BP is primarily liable, but other companies may be on the hook for portions of the damage. In some cases there are legal limits on the companies’ liability, but Congress may be able to lift those limits. And finally, the federal government can ban deepwater drilling but it has to convince the courts that such an action is necessary.
Liability for Deaths and Injury May be Limited by an 1851 Law…
When the Deepwater Horizon rig blew up on April 20th, eleven workers were killed and many of the remaining 115 workers sustained injuries. Although the rig was leased by BP, it is owned by a Swiss company called Transocean. Transocean has already asserted that its liability for any personal injury or wrongful death claims arising from the explosion is limited to $26.7 million under a law known as the Limitation of Liability Act.
Oddly enough, that law was passed by Congress in 1851--at a time when there was no oil drilling--in fact, at a time when whale oil was the nation’s primary fuel. Nonetheless the law is still on the books and it applies to all oceangoing “vessels” and an offshore oil rig counts as a vessel.
… Or by a 1920 Law
As for BP, its liability for the workers’ deaths is even more severely capped under a 1920 law known as the “Death on the High Seas Act”--and yes, the Deepwater rig qualifies as “the High Seas” because it was more than three nautical miles from shore. Under this law, BP’s liability would be limited to the workers’ funeral costs and a portion of their wages--according to one estimate that would work out to about $1,000 per worker.
The House of Representatives recently passed legislation to repeal these two laws--the Limitation of Liability Act and the Death on the High Seas Act--retroactively to April 20. Now, if a little voice inside you is asking: Wait, isn’t that unconstitutional?, then you get an “A” for effort. The Constitution does prohibit retroactive laws, known as ex post facto laws, but that prohibition only applies to criminal laws. It does not apply to laws that deal only with civil liability.
Economic Damages Are Legally Capped
Many people have also been economically hurt by the disaster: Think of all the idle shrimp boats and the empty beach hotels around the Gulf. Under the 1989 Oil Pollution Act, liability for economic damages arising from a spill is capped at $75 million. Beyond that amount, people who have been hurt by the spill can submit a claim for reimbursement to the Oil Spill Liability Trust Fund, a $1 billion dollar fund administered by the government. That Trust Fund, incidentally, is funded by civil fines that are imposed on oil spillers under the Clean Water Act. It is certainly possible that the Department of Justice will go after BP to collect those fines.
BP has already announced that it will not rely on the $75 million limit in the Oil Pollution Act, and according to news reports, it has agreed to set up its own $20 billion reimbursement fund. Perhaps that deal will stop the Department of Justice from trying to collect Clean Water Act fines, but there’s no guarantee. And even if it turns out to be irrelevant in this case, some members of Congress are pushing to lift the $75 million cap.
Who Pays to Clean Up the Mess?
When it comes to the environmental damage caused by the spill, there are many companies that might end up paying some part of the price tag. However, because BP is the federally-licensed operator of the oil well that has been leaking, so as far as US federal law goes, BP is 100% responsible for clean-up costs.
“Clean Up” for these purposes, means removing the oil. It doesn’t necessarily mean returning the Gulf to a pristine state. But even removing the oil will prove to be a very expensive proposition. Although BP is primarily on the hook, it can seek partial reimbursement from other players, including its co-investors in the oil well, and its contractors such as Transocean and Halliburton.
Can the Government Halt All Drilling in the Gulf?
On May 28, the Department of the Interior imposed a six-month moratorium on all offshore drilling operations at all deepwater oil wells. The government does have the authority to do this under the Outer Continental Shelf Lands Act-- however, that authority can only be used to prevent a threat of “serious, irreparable, or immediate harm” to life, property, minerals, or the environment.
On June 22, 2010, a federal court held that the Department of the Interior had failed to demonstrate that such a threat exists. According to the judge, the moratorium was “arbitrary and capricious”--he compared it to banning all air travel because of one crash. An appeals court refused to reinstate the ban while the Obama administration appeals the ruling, so in the meantime, the Interior Department has implemented restrictions on any new deepwater drilling in the Gulf. Stay tuned!
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