Benjamin C. Wolf
June 11, 2010
This past Saturday, BP announced that operation “Top Kill” failed to plug the leak in its “Deepwater Horizon” Gulf of Mexico oil well. Some administration officials are exploring whether BP should be held criminally liable for alleged misrepresentations to the government. Others are debating whether a $75 million cap on oil companies’ civil liability for (non-cleanup) economic damage caused by oil spills 1 should be raised or even eliminated. BP could also be subject to a Clean Water Act (CWA) unlimited fine at the rate of $1,100 to $4,300 per barrel spilled. 2 The CWA could obligate BP to pay $25,000 per day for negligent pollution and $50,000 for knowing pollution violations.3
No one knows at this point when the oil will stop spilling into the Gulf of Mexico at the rate of at least 5,000 barrels per day. But it is certain there will be many victims, including the environment, fishermen and tourism-related Gulf Coast businesses. The question is what BP’s liability for this damage will be.
Putting aside any criminal liability or monetary obligations to the government, there are two types of liability for which BP may be responsible — compensatory damages and punitive damages. Compensatory damages are awarded for actual monetary damage negligently caused by another party, like medical bills, lost wages, and pain and suffering. Punitive damages may be levied against a person or company whose conduct is especially egregious in order to discourage that party or others from engaging in similarly blameworthy conduct.
In order to predict what BP’s possible compensatory or punitive liability will be, it is instructive to look at the current state of the law with regard to those two types of damage, as it related to the oil spill caused by the Exxon Valdez tanker in 1989. In that case, fishermen, landowners and others brought an environmental lawsuit against Exxon for damage to the Prince William Sound caused by the Valdez oil spill.4 The district court there found that the actual economic damages were about $507 million and set punitive damages at about $5 billion. 5
Ruling on an appeal by Exxon 19 years after the incident, the U.S. Supreme Court indicated in 2008 that, even where punitive damages are appropriate, they should be limited to an amount equal to the economic damages.6 It is therefore unlikely we will see a repeat of the sky-high punitive damages award that we saw in the Exxon case. The Court affirmed, however, that punitive damages do have a place in maritime oil spill cases. It reaffirmed that position in another case the following year.7
BP may therefore be subject to a number of different types of liability. Assuming a daily fine of $4,300 and an oil spillage rate of 12,000 barrels per day, BP is already liable for a CWA fine of more than $1.8 billion. If the spill was caused by negligence, the company would also be liable for $25,000 per day in fines according to another CWA provision. 8Its obligation to clean up the oil itself is unlimited. 9 According to some estimates, it has taken BP’s Gulf of Mexico oil spill only three weeks to surpass the amount of oil spilled from the Valdez tanker. If Exxon caused $507 million in economic damages, and the BP spill has already leaked about twice as much oil as the Valdez, with no end in sight, BP’s compensatory damage obligation should significantly eclipse Exxon’s liability.
With regard to the possibility of punitive damages, though, it is unlikely that BP will face the kind of punitive damages Exxon was obligated to pay. The captain of the Valdez left the bridge during a critical maneuver, had an alcohol problem (which Exxon knew about) and may have been drunk at the time the Valdez ran into ice. There does not seem to be any similarly egregious conduct on BP’s part. Although some are accusing it of unfairly exempting itself from certain regulations or possibly misleading the government about its ability to clean up oil spills, it seems less likely that BP will face the kind of relatively hefty punitive damages award Exxon was faced with, absent revelations of more sinister conduct on BP’s part.
133 U.S.C. § 2704(a)(3) (instituted in the aftermath of the Exxon Valdez spill in the Oil Pollution Act of 1990).
233 U.S.C. 1321(b)(7)(A)-(D).
333 U.S.C. §§ 1319(c)(1)-(2).
4In re Exxon Valdez, 236 F.Supp.2d 1043, 1043 (D.Alaska, 2002).
5Id. at 1066.
6Exxon Shipping Company, et al. v. Grant Baker et al, 128 S.Ct. 2605, 2633 (2008).
7 Atl. Sounding Co. v. Townsend, 496 F.3d 1282 (11th Cir. 2007), cert. granted, 129 S. Ct. 490 (2008) (No. 08-214), aff’d, 129 S. Ct. 2561 (2009) (No. 08-214).
833 U.S.C. §§ 1319(c)(1)-(2).
933 U.S.C. § 2704(a)(3).
Benjamin C. Wolf