Officials Back Higher Liability Cap for Spills

WASHINGTON (CN) - Administration officials supported raising the $75 million liability cap for economic damages on oil companies for future spills, but said it won't be raised for BP for the Deepwater Horizon crisis, though they promised that no taxpayer dollars would pay for the spill.

"We are committed to recovering every dime from BP," U.S. Associate Attorney General Thomas Perrelli said in a congressional hearing Tuesday. But senators were skeptical, including Bernie Sanders, I-Vermont, who told Perrelli, "You may be the only one left that believes BP."

More than one month after an explosion on a BP drilling rig in the Gulf of Mexico killed 11 workers and started gushing oil into surrounding waters, the Senate Energy and Natural Resources Committee met to examine liability and financial issues surrounding the spill. Committee members expressed mounting dissatisfaction that there was no legal guarantee BP would keep its promise to pay for all economic damages related to the spill.

BP is only legally required to pay up to $75 million for economic damages stemming from the spill unless it is found grossly negligent, in which case the cap is removed. BP has promised to pay all "legitimate claims" surrounding the spill and ignore the $75 million cap.

But senators seemed doubtful that BP would hold up its end of the bargain and were seeking legal assurance.

"Is their representation legally binding in any way?" Sen. Byron Dorgan, D-N.D., asked Perrelli.

"I don't want to make a judgment," Perrelli said. "They have certainly made that claim very publicly."

Perrelli said administration officials are committed to recovering every penny of taxpayer funds "whether it is in a court of law or elsewhere."

"Our focus is to recover from every responsible party every dime from the taxpayer," he said.

Senators were also perturbed by Transocean's announcement that it was paying out $1 billion in profits to its shareholders at a time when the company could be facing massive liability. Transocean, which was leasing the well from BP to perform drilling operations at the time of the explosion, is seeking to limit its liability for the spill to $26 million.

"What Transocean is attempting to do there is inappropriate," Perrelli said. He said the company is drawing on a statute that is "best known for being used by the owners of the Titanic." Perrelli assured the room -- the same hearing room where Congress examined the sinking of the Titanic -- that Transocean would still be liable under the Oil Pollution Act and numerous state statutes.

"The current penalties and liability system is inadequate," said Sen. Sheldon Whitehouse, D-R.I., who is proposing legislation to increase current penalty and liability caps. BP's skyrocketing profits make penalties "inconsequential," Sheldon said. BP earned $5.6 billion in the first quarter of 2010.

Sanders asked Perrelli, "Should we eliminate the cap completely and hold BP 100 percent responsible?"

"Our proposal to lift the cap is focused on the future," Perrelli said. "We also think that we would have strong arguments in Congress --"

"That's not a good answer," Sanders said, cutting him off. "You may be the only person left in America that believes what BP said. ... Do we lift the cap or do we not?"

"As I indicated," Perrelli said, "our proposal to lift the cap is focused on the future."

"Your proposal is that we do not lift the cap on BP for this spill," Sanders said, agitated. "You may be the only one left that believes BP," Sanders said.

"It's not a question of belief here," Perrelli responded. "We do think we will be able to recover -- regardless of BP's commitment -- every dime paid by taxpayers."

Perrelli said the administration will "track every bit of cost incurred" from damages to individuals, communities and the environment arising from the spill and will recover it in or outside the courtroom. Then the administration will focus on changing the current liability regime, he said.

"We need to change the legal framework to make sure that there is no arbitrary cap," Perrelli said. "Our fundamental starting point is that the polluter should pay. A similar major oil spill should not have a cap on liability."

But Perrelli emphasized that the new liability regime would be "for the future," reiterating that there would be no liability change for the current crisis.

Deputy Secretary of the Interior Department David Hayes said that as part of new liability rules, the administration is "absolutely open" to amending the Outer Continental Shelf Lands Act, which outlines civil and criminal penalties for oil spills. Penalty amounts have only inched up since the law was created in 1978, when the max penalty was $10,000 per violation per day. The cap is currently set at $35,000 per violation per day. Sheldon's proposed legislation could raise it to $10 million per day.

"Twenty years of inflation have been ignored," committee chair Sen. Jeff Bingaman, D-N.M., said, pointing out that the Interior Secretary is required to adjust penalties for safety violations every three years to reflect increases in the Consumer Price Index, but the penalty amount has not increased since 1990.

"We have a system in dire need of repair," Bingaman said.

BP reported Monday it has spent $760 million cleaning up the spill and has paid out $28 million in claims, mostly to out-of-work fishermen. The company says it has taken in 25,000 claims and is currently seeing claims come in at a rate of 2,000 per day. BP said it can accept 6,000 claims per day and is prepared to ramp up its staff of claims adjusters to handle up to 15,000 new claims per day. A flood of new claims is expected as oil continues to hit shore.

The federal government has spent an estimated $72.4 million on the spill so far, including funding Coast Guard response, and has directed $7 million to state response efforts. Craig Bennett, director of the Coast Guard's National Pollution Funds Center, said that with the "emerging scale" of the crisis, the government is "burning through those funds" and may exhaust the set-aside funds as early as June 5, earlier than anticipated.

Hayes told the committee that BP was doing last-minute preparations to ready the wellhead for a dynamic kill attempt -- a method of plugging the spill that calls for injecting multisized particulates into the gushing wellhead. The company will make the final call Tuesday night or early Wednesday morning about whether or not it can proceed.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit