Thursday, May 13, 2010

Oil Company Liability Hinges On 1851 Law Now Before Federal Judge

I am not at all ashamed to admit my inability as a non-lawyer to verify an Associated Press report that owners of the sunken Deepwater Horizons rig will invoke a 1851 maritime law that would limit its liability in the Gulf of Mexico oil leak to $27 million.

Transocean Ltd. is filing a petition with the federal court in Houston based on the March 3, 1851, law which the best I can determine is Chapter 43, Paragraphs 1-9, Statute 635,46 U.S.C. Paragraph 182, according to notes on the subject written by Abraham 1930 for the University of Pennsylvania Law Review.

I  could access only the first of eight pages of the legal notes. It hinted the new law set liability standards for sunken vessels.

"The purpose and effects of the acts combine either to limit the doctrine of respondeat superior, a fundamental concept of both the (English) common law and the (U.S.) maritime law, or totally to displace it with another liability."

So far the only reference to Transocean's use of the 159-year-old law to limit its out-of-pocket expenses is the AP story. I could be wrong. But this is criticial, because as AP explains it:

If successful, Transocean Ltd. would be left with as much as $533 million in insurance money from the failed venture (determined by the value the day the platform sank April 22.). That's almost enough to cover the revenue the company was expecting from a three-year contract with BP PLC. However, it has also estimated additional expenses from insurance deductibles, higher insurance premiums and legal fees at about $200 million.

Still, it is cheaper for Transocean than being judged liable for billions of dollars in damages in class action suits already filed against it and BP and Halliburton Inc. from potential victims damaged by the oil spill.

The gusher a mile below the Gulf of Mexico surface has been blowing out an estimated 210,000 gallons daily of natural gas and crude oil since April 20. Efforts to contain it have failed and the next attempt will not occur until sometime next week. The chemicals BP has bombarded the oil slick from the surface also has drawn concerns and protests from environmental advocacy groups.

According to the AP:

Karen McCarthy, a New Orleans lawyer who represents a group of Louisiana crab fishermen in one lawsuit, said she'll oppose the liability cap.
Transocean "will point fingers at BP, but they will also pursue every avenue available to them to limit the loss," she said.
Tim Howard, a Northeastern University law professor who has filed potential class-action lawsuits on behalf of numerous interests in the gulf, predicted Transocean's petition will ultimately fail, and the matter would eventually be merged along with dozens of other lawsuits.
Trying to cap liability is a smart thing to do "if you're Transocean," Howard said. "Because the evidence so far shows a tremendous amount of culpability on their part."

The House has introduced a bill amending a 1990 law as a result of the Exxon Valdez tanker spill in Alaska that capped liability for oil spills to $75 million. If passed, it would raise the limit to $10 billion beyond the cleanup costs.

A lot of good it will do for the plaintiffs even if they are successful. The cases will be tied up in court for the next two decades as was the situation with Exxon Valdez. We can only hope the leak will be capped before then.

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