The Congress doesn’t have much alternative but to try to pin the blame for the oil spewing into the Gulf of Mexico on BP and the other oil companies that operate domestically:
WASHINGTON | Top executives from four oil companies Tuesday questioned the design and drilling strategy of BP’s ill-fated Deepwater Horizon well and told members of Congress that they would have drilled it differently.
But lawmakers fired back that the oil executives’ drilling plans and spill-response blueprints were “virtually identical†to the ones used by BP.
The executives, facing sharp questions before the House Energy and Commerce Committee, conceded that the entire industry was not equipped to deal with a major blowout a mile under water and that the emphasis in well-drilling must be on preventing such an accident.
The oil company leaders said they expected tougher standards and requirements on drilling and more government involvement in assuring that the rules were followed. They said they were accepting a moratorium on deepwater drilling, but hoped it could be lifted as soon as possible.
Rep. Henry Waxman, a California Democrat, chastised the industry for “cookie cutter†response plans and drilling strategies. The other companies “are no better prepared to deal with a major oil spill than was BP,†Waxman said.
Lawmakers expressed frustration at BP’s inability to stop oil gushing from its stricken well as the executives of Exxon Mobil, Chevron, ConocoPhillips, Shell and BPAmerica sat together at the witness table.
To do otherwise might be to focus unwelcome attention on Congress’s role in the disaster and how Congress’s fecklessness (not to mention corruption) will hamper the attempts of those harmed physically or economically by the spill and its aftermath for years to come. It was not the oil companies that limited their liability for an oil spill to $75 million dollars. That was effected by the Oil Pollution Act of 1990, enacted by a Congress with both houses controlled by Democrats and signed into law by former oil man George H. W. Bush, a Republican president.
The oil companies have responded to the incentives they have and those incentives are to drill, baby, drill, minimize expenses, and not to worry a great deal about oil spills. That BP and, no doubt, other oil companies self-insure for oil spills or other drilling accidents is directly related to the limitation of their liability.
If what to my eye is a pretty good review of the prospects for litigation over the catastrophe is accurate, Congress’s best recourse is to prove negligence which is clearly what they’re laying the groundwork for. Here’s the meat of that article:
The traditional maritime first line of defense is the Limitation of Liability Act of 1851, which Congress passed during the infancy of the shipping industry. Essentially, the Limitation of Liability Act limits the damages of an innocent spiller to the value of the wreck after the incident, which in most cases is nothing. Transocean Ltd. has filed a petition to limit liability. The other defendants probably won’t because it appears that OPA 90 rescinds the Liability Act for oil spills. So this defense goes nowhere.
The second line of defense will be the Robins Dry Dock doctrine, which is a rule established by the U.S. Supreme Court in Robins Dry Dock & Repair v. Flint (1927) that limits economic damages under maritime law, essentially allowing only fishermen and property owners whose property was oiled to recover. But claims brought under OPA 90, claims submitted to the OSLTF and state law claims are immune to this defense.
The third line of defense is causation: What damages were a direct result of the spill? BP will raise countless arguments to limit its liability: “It’s not our oil. There is no subsurface oil. There was already oil in the gulf. It was already a dying fishery. Global warming caused the damages to natural resources. The Gulf currents changed. Hurricanes caused the problems. There is no scientific connection between the oil and the reduced sea life.” BP will pay “experts” millions of dollars to raise these questions in and out of court. Enough said.
The best recourse for recovery may be under state law rather than federal law. Expect the suits to drag on for decades.
The caps don’t apply to cleanup costs. BP is strictly liable for the costs to stop the oil spill and remove the oil. How far they have to go to clean it up (the “how clean is clean” question) is going to depend on the limits of technology and an evaluation of the health risks. I’m not sure the linked article is clear on this point, and these are not entirely visible damage claims because BP is avoiding the liability to the government (or private parties) by doing this itself.
That leaves a few categories of damage to consider:
1. Damage to person or property. These are just common law torts that are not really intended to be addressed by environmental statutes. In fact, regulations and permitting are largely meant to obviate these types of damages from existing. Injured parties will have to prove negligence, just like in a personal injury case. There wouldn’t appear to me to be a lot of damages in this category.
2. Damage to natural resources. Once the oil is cleaned-up, the damage to wildlife needs to be assessed. The common law never recognized these as legitimate damage claims. The OPA of 1990 made these damages recoverable, but they are still controversial. There are significant valuation problems with pricing the cost of a damaged habitat, for which no marketplace values exist. It’s not difficult if the natural resource can be restored by planting some trees, but for the cost of damage to complex natural resources for which restoration is impossible or a marketplace doesn’t exist, plaintiffs have used “contingent valuation” methods that attempt to create values by surveying how much people would pay for the resource in an artificial market. Some state statutes ban or restrict use of “contingent valuation.” Opponents argue it’s junk science; proponents caution that such valuations must be done very carefully and with recognition of its limitations. One doesn’t need to prove negligence, but if there was egregious conduct or a violation of environmental laws and permits, the cap does not apply.
3. Pure economic loss. People who make their living in reliance upon natural resources they don’t own do not have recognized damage claims under the common law. The distinction btw/ this category and category 1 is that if the oil damages a ship and/or harms the health of a fisherman, the fisherman can recover economic losses stemming from the damage to himself or his property such as lost income, but the fisherman (nor the condo) owns the sea or its denizens. The OPA of 1990 made the oil industry strictly liable for these losses, but capped them (and actually categorize them with) natural resources damages.
There are also civil penalties and criminal laws.
Anyway, I don’t agree with the notion that the oil companies limited their liability; they limited the expansion of their liability for damages that most people don’t face. Their liabilities an losses are large enough without the cap to assume that they don’t have incentives to blow up oil rigs.
The way I read the tea leaves excessive rhetorical attention is being devoted to #1 and #3 on your list. That’s what everybody seems to be talking about WRT an “escrow fund”. As the cleanup costs as such mount, in all likelihood into the billions, BP will undoubtedly resist these all the more vigorously. And as I read things they may well have the law on their side. There will be a lot of disappointed people.
Fortunately for the White House, President Obama will be long out of office by the time this is all settled.
Nice summation PD. Yes, this will take 20 years to resolve in court, resulting in justice delayed. I am not so sanguine about there being enough motivation for BP to avoid both a spill AND be prepared to handle a spill should it occur. Had a long delay on a case and my patient was an engineering professor. His sense was that we really had nothing prepared for the eventuality of a spill. It may not be possible to do much with caps, domes or whatever. Only relief wells may work with our current level of tech. (Funny guy who really had no respect for petroleum engineers.) At any rate, trying to design a fix after the spill is much like studying for an exam after the test.
Steve
My impression is people just want to see BP pay.
I think there are going to be some unexpected downsides from early payments from the Fund, particularly in the tourist destinations. Only those businesses that lost income in a natural -resource – based business can receive category 3 damages, which _probably_ means fishing and beachside resorts. To the extent the beachside resorts can get lost profits advanced, they don’t have much incentive to invest in advertising or capital improvements. They certainly don’t have any disincentive to layoff workers. There is a potential for economic waste and lack of benefit to the larger economy. It’s not clear to me that restaurants, laundromats, construction get “category 3” damages, because they’re parasitical to the primary users of the natural resources that have been damaged.
BP apparently is reimbursing Condo renters any fees they’ve had for cancelling a booked vacation. The Condo owners are wondering about their share, but their financial loss framework is longer than any individual transaction. And it’s quite possible that the Condo owners/renters live in Chicago, Illinois, for which the checks won’t keep a gulf coast brake repair shop in business.
I’m starting to think that the Gulf Coast just needs a stimulus package, but the place is overbuilt. Last weekend a friend was asking about the downsides to buying a Ft. Meyers condo unit he’s had his eye on. The price will go down as the oil gets close, he figures, and he might be able to get some government money to boot.
I hate to be the BP appologist (I’ve got my own policy recriminations against the Louisiana offshore oil industry), but I really don’t find this stuff cut and dried as many do.
steve,
would you think doctors would have more motivation to avoid malpractice if (a) they were liable for injuries to their patients regardless of whether the doctor met the standard of care (strict liability); (b) they were liable for the patient’s _employer’s_ business losses for replacing them (purely economic damages), or (c) they were liable for the theoretical value of a life lost which is derived at by surveys of what people spend to extend life (contingent value claims).
I think (c) is valid in some states as hedonic damages. I think most people believe that the loss of life is of greater magnitude than permanent injury, but generally someone who has been injured can prove up more damages because they can produce more bills and estimates of future expenses. And you might have died last year from that smoking habit or the next hurricane. Hedonic damages, like contingent natural resources damages, seek to create the market place where values can be generated for that which no market place exists. I think some of these wetland habitats are irreplaceable, just like life, but the only constant in the universe is change; we don’t know what the future holds.
Anyway, I’ve drank Dixie beer w/ many a Bubba working on an oil platform, just as I’ve had fine scotch w/ doctor friends. I don’t think they respond to _magnitudes_ of civil liability.
Under a, b and c no one could afford to practice. For sure, no one would do trauma care, mind you I have mixed feelings on that as I would get lots more sleep (J/K).
“I think there are going to be some unexpected downsides from early payments from the Fund, particularly in the tourist destinations.”
Perhaps, but how does that weigh against delayed payouts if we go entirely through a court system? How many courts do we have in Louisiana? Compare the quality of legal representation that a $40,000 a year litigant will obtain compared with a $100 billion corporation. Who is harmed by delays? Suppose you were 55 and looking at 15-20 years for settlement. It looks to me like either system has issues.
Steve