Tag Archives: Deepwater Horizon

Raising Liability Limits

Should Federal offshore oil spill liability limits be raised or eliminated? That’s the question being debated on Capitol Hill following the Deepwater Horizon oil spill.

At Tuesday’s hearing before the Senate Energy and Natural Resources Committee, a U.S. Department of Justice official said Congress would be on solid constitutional ground if it wanted to retroactively raise the $75 million liability cap on BP to pay for economic damages from the spill. He also said that in future the cap should be eliminated. Check out a Greenwire story via the New York Times for more on the hearing.

Under the Oil Pollution Act of 1990 (OPA), responsible parties for offshore facilities are liable for up to $75 million per spill for economic damages, plus removal costs. The liability cap does not apply if the incident was caused by gross negligence, willful misconduct or violation of Federal regulations.

OPA also created the national Oil Spill Liability Trust Fund (OSLTF), which can provide up to $1 billion for any one pollution incident and is used for costs not directly paid by the polluter.

In this incident BP has already said it will assume liability for all legitimate claims caused by the oil spill. Meanwhile, legislation has been introduced in Congress seeking to raise the liability limit to $10 billion.

In case you were wondering what the Oil Pollution Act of 1990 says on the subject of raising liability limits, here’s the text:

The President shall, within 6 months after August 18, 1990, and from time to time thereafter, report to the Congress on the desirability of adjusting the limits of liability specified in subsection (a) of this section.

and

The President, by regulations issued not later than 3 years after July 11, 2006, and not less than every 3 years thereafter, shall adjust the limits on liability specified in subsection (a) to reflect significant increases in the Consumer Price Index.”

AÂ  growing issue of concern is how raising the liability limits might affect insurance costs. In a letter to U.S. Senator Robert Menendez earlier this month, broker Lloyd & Partners said that any significant increase in the liability limit will cause insureds operating in U.S. waters to face the prospect of significant self insurance.

Check out further I.I.I. information on the liability system and on offshore energy facilities and insurance considerations.

Offshore Loss: Environmental Impact

Concerns are rising about the potential environmental impact after the sinking of the Deepwater Horizon oil rig in the Gulf of Mexico about 50 miles off the coast of Louisiana. Eleven workers are  feared dead  and 17 others were injured following an explosion and fire that ripped through the rig late Tuesday. The rig, which is owned by offshore drilling contractor Transocean Ltd, was under contract to oil giant BP, according to media reports. Check out a Guy Carpenter risk report for more on this story. An article in the New York Times notes that the potential for environmental disaster from the spill would be greatest if the oil were to reach the Louisiana coast. BP was reported to be dispatching a flotilla of more than 30 vessels capable of skimming more than 170,000 barrels of oil a day to protect sea lanes and wildlife in the area of the sunken platform. A Reuters report focuses on the financial impact of the loss of the rig for Transocean Ltd, noting analysts’ comments that the cost of the rig will be largely covered by insurance. The comments underscore the point that insurance provides support to many different industries, including energy. Check out a recent presentation by I.I.I. president Dr. Robert Hartwig for information on the impact of the global financial crisis on the energy sector and trends and challenges in energy markets.