Oil Pollution Act of 1990 — Damage Limitations

Much has been reported over the last several weeks about the Oil Pollution Act of 1990 (OPA) and how it relates to the Deepwater Horizon oil spill. Discussion has mainly centered on the part of the law that might limit British Petroleum’s (BP) liability to $75 million. U.S. Senators, with the initial support of President Obama have even gone so far as to seek passage of a retroactive bill that would raise the liability cap to $10 billion. Senators on both sides of the aisle have blocked these efforts, showing concern that doing so may prevent smaller companies from operating offshore drilling rigs. Nevertheless, whether Congress is able to raise the level of liability may not matter, as certain provisions are likely to allow claimants to “break the cap.”

Under OPA, BP would be required to pay for all removal costs plus up to $75 million in damages. BP has already spent $1 billion in cleanup costs, and investors believe cleanup will likely total well over $10 billion. If OPA forces BP to pay for the entire cost of cleanup, the question then becomes whether they will be obligated to pay for damages sustained by those who live on the Gulf. The answer, perhaps somewhat surprisingly, is that BP’s actions on and prior to the April 20 explosion may make them liable for damages in excess of the $75 million cap.

In order to break the cap, claimants must show that the incident was proximately caused by,

• (A) gross negligence or willful misconduct of, or
• (B) the violation of an applicable Federal safety, construction, or operating regulation by,the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party. See 33 U.S.C. §2704(c).

With news that the Justice Department is opening both civil and criminal investigations and that President Obama has appointed a special commission, including former Florida Sen. Bob Graham and former EPA Administrator William Reilly, it appears as though some in Washington D.C. believe gross negligence or a violation of safety regulations did occur. In his testimony before the U.S. Coast Guard investigatory committee, Douglas Brown, the chief mechanic on the Deepwater Horizon, stated that BP cut corners while pushing workers to complete drilling at an even quicker pace. As if it wasn’t obvious, BP’s CEO has since admitted that their being unprepared for such a spill is “an entirely fair criticism.”

While it’s clear that BP was not prepared to handle such an event, whether their actions prior to and on April 20 rise to the level of gross negligence or a violation of Federal regulations will be left for a judge or jury to decide. If one of those exceptions can be proven, the $75 million dollar OPA cap should have no effect on what those devastated by the spill are able to recover.