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Who Pays for the BP Oil Spill?

Who is liable for the damage caused by the Gulf oil spill?

By
Adam Freedman
August 2, 2010

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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.

The podcast edition of this article was sponsored by Go to Meeting.  With this meeting service, you can hold your meetings over the Internet and give presentations, product demos and training sessions right from your PC. For a free, 45 day trial, visit GoToMeeting.com/podcast.

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.           

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