I posted a note the other day on the $75 million liability limit for economic damages under the Oil Pollution Act of 1990. There are two situations that may blow up that limit and allow unlimited recovery that, recent developments suggest, might apply to the Deepwater Horizon spill in the Gulf of Mexico. I’ll discuss these here.
One is if the incident was caused by gross negligence or reckless behavior. These two terms mean basically the same thing. We all know what ordinary negligence is: you back your car into a pole that you didn’t see. If you race another driver at triple-digit speeds in the rain on a curvy mountain road, that’s grossly negligent or reckless behavior.
We don’t yet know what caused the Deepwater Horizon blowout, so what I’m about to say is speculation. One potential cause that is under discussion is a failure in the cementing process by which the well casing is cemented in place in the bore hole. The contractor for that job on the Deepwater Horizon project was Halliburton, which has a long history of working in the “oil patch.” The Deepwater Horizon “patch,” though, was under 5,000 feet of water. In 2009, an underwater well blew out off the coast of Australia; the investigation, which is not yet complete, has focused on the cementing process. The contractor there was Halliburton. If it turns out that Halliburton had a known problem with its deepwater cementing process and didn’t correct it, a judge or jury might find that to be grossly negligent conduct.
Another potential avenue to a finding of gross negligence is the decision of the owner and operator of the Deepwater Horizon rig, Transocean Ltd., not to have a backup blowout preventer installed. This redundant system is required in the North Sea and off Brazil, but not (yet) in the United States. There is some history of blowout preventers failing. There have also been comments that Transocean should have had a backup acoustic trigger for the blowout preventer – basically a mechanism, not on the rig, that would send a loud noise down to the blowout preventer which would trigger it to close. Depending on what the findings on causation turn out to be, a judge or jury could find gross negligence for failure to use these backup systems.
The second theory for busting through the liability cap is to show that the incident was caused by the violation of an applicable Federal safety, construction, or operating regulation by BP or its agents. Because we don’t know yet what caused the blowout, it’s impossible to say whether this theory will apply. Nonetheless, it is important for policy purposes to keep in mind that the federal Minerals Management Service (“MMS”), which is tasked with regulating facilities such as the Deepwater Horizon rig, has been viewed by many as being far too cozy with industry in terms of safety and operating regulations. That needs to stop, now.
Another thing that needs to stop is the sloppy analysis in environmental documents about the low probability of serious oil spills in the Gulf of Mexico. The environmental review for the group of federal oil leases that includes the site of the Deepwater Horizon blowout assumed, as a worst case, one oil tanker spill totaling 14,600 barrels of oil in the 40-year period beginning in 2007. BP blew through that number in three days. And for offshore oil rigs, the same environmental analysis assumed, worst case, less than one spill per year, totaling 1,500 barrels. That number was exceeded on Day 1.
The bottom line for BP is that it didn’t have a plan in place for a serious oil spill from the Deepwater Horizon. That is exactly why BP now seems to be making it up as they go along. Whether that behavior is gross negligence, or violates federal safety, operating or construction laws may be a question that, one day, a jury may be asked to answer.