16 January 2012

NOTICE: Palmer on 'The Great Spill in the Gulf . . . and a Sea of Pure Economic Loss'

Vernon Valentine Palmer has recently published 'The Great Spill in the Gulf . . . and a Sea of Pure Economic Loss: Reflections on the Boundaries of Civil Liability' in the (2011) 116 Penn State Law Review 105. It begins:

What has been called the greatest oil spill in history, and certainly the largest in United States history, began with an explosion on April 20, 2010, some 41 miles off the Louisiana coast. The accident occurred during the drilling of an exploratory well by the Deepwater Horizon, a mobile offshore drilling unit (MODU) under lease to BP (formerly British Petroleum) and owned by Transocean. The well-head blowout resulted in 11 dead, 17 injured, and oil spewing from the seabed 5,000 ft. below at an estimated rate of 25,000-30,000 barrels per day.

The Deepwater Horizon is technically described as “a massive floating, dynamically positioned drilling rig” capable of operating in waters 8,000 ft. deep. In maritime law, such a rig qualifies as a vessel; yet, as a MODU, the rig also qualifies as an offshore facility that may attract higher liability limits under the Oil Pollution Act of 1990 (OPA). Under these provisions the double designation as vessel and/or MODU potentially raises the liability limits to as much as $75 million. The operator and principal developer of this well is BP, which owns a 65% interest. Various attempts at stemming the initial flow of oil failed. The oil spread on the surface and in the depths over a very wide area, killing marine life and water birds, entering estuaries, and polluting shores. The National Oceanic and Atmospheric Administration closed commercial and recreational fishing in a very wide area of the Gulf, and the federal government declared a moratorium on exploratory drilling for six months, thus idling about 33 drilling operations in progress. Meantime, BP, after meeting with President Obama, agreed to establish a $20 billion compensation fund, which would be independently administered by a nongovernmental agency led by Kenneth Feinberg. BP carried very little or no third party liability insurance and reportedly operated on a self-insured basis. Given the minimal insurance, questions arise as to whether BP’s pockets are deep enough to meet its overall liabilities which, in addition to the compensation fund already discussed, may include $21 billion further in civil fines under the Clean Water Act (CWA). The compensation fund, after an initial $5 billion deposit in 2010, would receive quarterly installments of $1.25 billion until the full amount is reached in mid-2013. The fund would pay for damage to natural resources, state and local response costs, and individual economic losses (whether in the form of civil judgments or settlements with the fund), but it will not be used to cover any fines and penalties incurred by BP. The right of individuals to seek compensation through the courts instead of the Fund remains open.

The flow of oil was finally arrested on July 15, 2010, 87 days after the blowout. By then more than 200 million gallons of oil had poured into the Gulf, which was nearly 20 times more than the Exxon Valdez emptied into Prince William Sound (11 million gallons) and 60 million gallons more than the Ixtoc I disaster in the Bay of Campeche (140 million gallons). The environmental, economic, and social impacts of the spill are staggering, and long-term effects will be unknown for much time to come.

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