Does Transocean really expect to pay only 2% of the bill?
The complicated web of liability stemming from the April 22 Deepwater Horizon oil spill poses some complicated legal questions; but one of the most pressing to many affected by the spill is who is responsible for the bill?
Possible contenders obviously include the giant oil conglomerate BP, but they also include its many contractors, the US government and the owner of the rig Transocean Ltd.. BP is expected to carry the majority of the load, but the other companies involved are already trying to place strict caps on their liability.
Transocean has submitted an application to the courts to limit its liability to only $27million based on the “Shipowners’ Limitation of Liability Act of 1851” (SLLA). With recent estimates of expected damages surpassing $1.25 billion, this calculation seems ludicrous to many.
However, it is important to note that under the SLLA, the $27 million figure only relates to personal injury and wrongful death suits, and due to the passing of the Oil Pollution Act (OPA) in 1990, does not restrict suits with respect to oil pollution damages. A Transocean spokesman has asserted that the company never intended to include oil pollution damages in that calculation.
But where does this calculation even come from? Eleven workers are presumed dead and 151 of their comrades were injured in the explosion and subsequent sinking of the rig. Transocean is worth approximately $23 billion and are expected to receive an estimated $560 million in insurance payouts stemming from the incident. In fact, despite the devastation wreaked across the gulf, Transocean actually expects to see a profit of $270 million based on those insurance payouts. Can their losses really be limited to such a proportionally trivial sum?
The calculation is based on the SLLA provision that liability is limited to the value of the ship, post disaster. Before April 22nd, the rig was worth approximately $650 million, but today the value of the hunk of junk sitting at the bottom of the sea, is ZERO. So where does the $27 million come from? It mainly refers to the rent money BP still owed Transocean for the rig’s lease as of April 28.
The SLLA cap can be lifted if the plaintiffs can prove that the owner was complicit in the negligence that caused the accident. This is an unlikely result because the owners in Transocean were the high-level officers sitting in their offices oceans away from the site of the spill.
In regard to the oil pollution damages, the OPA made any parties deemed responsible for the spill automatically liable for the cost of the cleanup as well as damages to natural resources, property and revenue. However, it places a cap on this liability: $75 million for vessels and $350 million for offshore facilities. This also poses an issue because it is not completely settled which category the Deep Horizon rig falls into since rigs are often tied to the ocean floor or part of artificial islands, while this rig floats and is mobile, not stationary.
Once the amount owed by the responsible parties is exhausted, the US government is then responsible for up to $1 billion per spill; paid from the Oil Spill Liability Trust Fund. The fund is financed by the tax on both imported and domestically produced petroleum.
The Exxon Valdez disaster of 1989 took 20 years to work its way through US courts and that occurred in Alaska and as such had far fewer litigants and nowhere near the jurisdictional issues that the Deep Horizon spill will face. Undoubtedly, even with the streamlined payments enforced by the OPA as a direct result of the 1989 disaster, the resulting legal mess could take even longer than 20 years to clean up.
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