Several Democrats have put forward a bill to get rid of the liability cap
By Kent Garber, U.S. News & World Report, June 15, 2010
BP says that it's already spent $1.5 billion on its response effort to the Gulf of Mexico spill, and it's repeatedly promised to pay "all legitimate claims" related to the disaster. But that promise has done little to calm fears that it will try to fight tooth and nail, much as Exxon did after the terrible Valdez tanker spill, to limit how much it has to pay out in the future.. [See which members of Congress get the most from the oil industry.]
Those fears have prompted a burst of activity on Capitol Hill, much of it focused on raising—or eliminating—what's known as the "liability cap." According to the Oil Pollution Act of 1990, if a spill occurs, the responsible company has to pay for all cleanup costs, no exceptions. But, in most cases, a company's liability is limited to $75 million for the long-term damage to the local economy, natural resources, and people's livelihoods. The cost of the Gulf spill will vastly exceed that number. [See photos of the Gulf oil spill.]
Last week, the White House voiced support for chucking the cap, saying it wants to make sure BP pays to help states rebuild their coasts and to allow fishermen and businesses to recover. Several Democratic senators agree and have put forward a bill that would get rid of the cap. Over in the House, Speaker Nancy Pelosi says she also favors the cap's removal and wants her chamber to produce legislation by July 4. On a separate track, the White House is now pushing BP to create an escrow account that would cover environmental and economic damages.
But striking the cap, it turns out, isn't going to be a slam-dunk, even amid the populist anger against BP. Several Republicans have argued that removing the cap altogether—which is to say, making oil companies fully liable for the entire cost of a spill—would make it close to impossible for all but the biggest oil companies to drill offshore because the potential financial risks from an accident would be too great. "It would appear to me that if we were to take the cap off altogether, it would institute a de facto ban on offshore drilling," Sen. Jim Inhofe, the Oklahoma Republican, said recently.
Democrats say their goal is not to stop offshore drilling but to make it safer. As Minnesota Democratic Sen. Amy Klobuchar noted, a $75 million cap seems pretty minor compared to the billions in profits oil companies make each year. "How is that an incentive to take safety measures?" she asked in a recent hearing.
In the current situation, these arguments may matter only so much. According to the 1990 law, the $75 million cap doesn't apply if the company is found guilty of "gross negligence or willful misconduct" or of violating "federal safety, construction, or operating regulations." No formal charges of wrongdoing have been leveled against BP yet, but the Justice Department has launched both civil and criminal investigations. With the Exxon Valdez incident, says Lloyd Miller, a lead plaintiffs' attorney in that case, the criminal charges hinged on being able to show that upper management was aware that the skipper of the vessel had a history of drinking on the job. "Once you have the upper management aware," Miller says, the court "can hold the company responsible."
BP, for its part, says that it's acting as if the cap isn't there. Testifying before a House committee this morning, BP America CEO Lamar McKay noted that BP expects to far exceed--and in fact already has exceeded--the cap. But that's providing little reassurance. Exxon has fought the penalties against it for much of the past two decades, and BP may do the same. The Obama administration is clearly hoping otherwise and is having the Coast Guard pressure BP to process claims from fishermen and affected businesses more quickly. That might bring some temporary relief. But the question of how much BP is going to have to pay surely is going to be around for years, if not decades, to come.
* See photos of the Gulf oil spill disaster.
* Check out our editorial cartoons on the Gulf oil spill.
* See who gets the most from the oil industry.