Fortune Magazine's Roger Parloff, with assistence from insurance specialist Christopher Kende, provides a good rundown on liability for the Deepwater Horizon oil spill in the Gulf. One important thing I took away from this review, though not explicitly mentioned in the article: even though accidents are an inevitable part of trying to do very difficult things, the liability rules to address damages remain (a) fiendishly complex and the domain of specialized experts; and (b) are full of gray areas such that many of the actual payments are not predictable in advance, and years (and sometimes decades) of litigation is the norm to resolve disagreements. We can, and should, do better.
Useful findings from the Parloff and Kende primer include:
- There are enough openings to waive the $75 million cap on oil spill liability set by the Oil Pollution Act (OPA) of 1990 that BP is unlikely to be limited to this level of payouts. Rather, their payouts for a spill of this magnitude are likely to be much higher, and more in line with the actual damages the spill is causing. These openings include the fact that there is include no cap on reimbursing state and federal cleanup costs, and that caps are waived in the case of gross negligence or non-compliance with the existing health and safety laws by any of the parties involved with the rig explosion.
- Current liability laws do allow for recovery of indirect damages, such as from lost tourism revenue, or associated tax collections from tourists. The delineation of how far removed impacts can be before no compensation is paid is not particularly clear, and will likely be resovled via litigation over the coming years.
- The Limitation of Liability Act of 1851, invoked by Transocean (the rig operator) to cap their own liability at $27 million (see earlier blog posting on this issue), will not cap the firm's liability for oil spill pollution damages. According to Kende, this portion of liability was superceded by the rules of the 1990 Oil Pollution Act. However, the antiquated law will probably limit Trans Ocean's liability for personal liability and wrongful death, as the exemptions for negligence threshold under this law would be quite difficult to prove. Given that 11 workers were killed in the blast and many more injured, the Transocean cap could well either result in quite low payouts to harmed parties, or shift the liability to other companies involved with the disaster but which are not protected by the 1851 law because they don't operate vessels.
One final point not addressed in the Fortune article: though the US liability laws leave much to be desired, they tend to be far better than what exists in other parts of the world.