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BP’s Liability Could Be Capped at $75 Million

Gersowitz Libo & Korek, P.C.The Deepwater Horizon explosion and oil spill has resulted in several people reconsidering statutory caps on liability. Along with extensive environmental damage to the Gulf of Mexico region and potential health issues for the people in the area, the Deepwater Horizon spill is expected to result in billions of dollars in economic damages. A federal statute however would limit BP’s liability for the spill. According to the Oil Pollution Act of 1990 (OPA), the liability for each oil spill incident from an offshore facility is the removal costs plus $75 million. The statute only provides an exception to the limit for cases of gross negligence, willful conduct, or violations of applicable federal safety, construction or operating regulations.

The magnitude of the Deepwater Horizon spill has prompted several environmental, consumer, campus and public interest groups to send a letter to the U.S. Senate requesting passage of the Big Oil Bailout Prevention Liability Act of 2010. The proposed legislation would raise the cap on liability for offshore spills retroactively from $75 million to $10 billion. In conjunction to this legislation, the groups have also called for the passage of the Big Oil Bailout Prevention Trust Fund Act of 2010, which would eliminate the $1 billion per incident cap on claims against the Oil Spill Liability Trust Fund.

The groups provided several reasons for the proposed legislation. First, it would allow those with economic losses to be compensated in a timely manner. Second, raising the limit on liability would reduce the need to tap into the Oil Spill Liability Trust Fund. This would force responsible parties to internalize more of the costs from an oil spill instead of shifting the burden to taxpayers. And third, the proposed legislation would compel oil companies to prioritize the environment and worker safety. The groups feel that raising the cap would provide the financial incentive for oil companies to change their behavior and hopefully deter future oil spills.

The OPA is just one of several liability capping statutes in place in the United States. Over half of the states have enacted statutes that place limits on non-economic damages. Several states have also promulgated statutes that limit punitive damages, or in some cases, ban them. The Deepwater Horizon spill has not only highlighted problems with the OPA, but with statutory caps in general. Caps prevent tort victims from getting fully compensated for their losses, just like oil spill victims under the OPA. And just as oil companies lack the incentive to modify their actions in order to prevent future oil spills, limits on damages also fail to provide tortfeasors the necessary financial incentives to change their behavior in order to prevent future torts. While it is yet to be seen how Congress will deal with the OPA, the Deepwater Horizon oil spill has certainly added extra perspective to the debate over capped liability and tort reform.

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