Senate Dems seek several changes to 'perverse' liability laws

Several Senate Democrats said yesterday that oil companies should "stay the hell out of the business" if they can't pay for the impacts of offshore drilling accidents like the one that caused the still-widening spill in the Gulf of Mexico.

Judiciary Chairman Patrick Leahy (D-Vt.) and Sen. Sheldon Whitehouse (D-R.I.) are pushing legislation that would eliminate restrictions on punitive damages and compensation for noneconomic losses. A pair of bills sponsored by the senators, distinct from proposals to raise the $75 million cap for economic damages related to an oil spill, would respond to worries that the legal framework for offshore drilling has encouraged risk-taking in the industry, Leahy said.

"We cannot let big oil companies play roulette with our economic and environmental resources," Leahy said at a Judiciary Committee hearing.

One bill, introduced last year but given newfound momentum by the Deepwater Horizon accident, would trump the precedent set by the Supreme Court's decision to knock down punitive damages from $2.5 billion to $500 million in the Exxon Valdez case. While the court's 2008 ruling in Exxon Shipping Co. v. Baker established that punitive damages cannot exceed economic losses in oil spill cases, the Leahy-Whitehouse bill (S. 3345) would say there is no such limit.

With lawsuits continuing to pile up and the Justice Department conducting a criminal investigation of the Deepwater Horizon accident, a change to the law governing punitive damages could raise BP PLC's bill for the spill by billions of dollars. The company "absolutely" broke the law, Whitehouse, the former attorney general of Rhode Island, said in an interview with CNBC yesterday.


"It's pretty much agreed they did that. It's only a misdemeanor statute, but it provides for at least the avenue of criminal prosecution and that leads to potential criminal fines, potential criminal restitution to individual parties who are harmed," he said. "So I think it's almost a lay-down hand as a criminal case at this point and the issue really is going to be about penalties and damages."

Another bill Leahy and Whitehouse introduced yesterday would revise maritime law to let the families of accident victims -- including the 11 workers killed on the Deepwater Horizon rig -- sue for damages such as the loss of a loved one.

"The current legal structure tempts corporations to devalue human life in their calculus of profitability," said Leahy, who is also considering legislation that would prevent corporations from deducting punitive damage awards from their taxes. "No one's life should become an asterisk in someone's cost-benefit analysis."

Transocean Ltd., the owner of the Deepwater Horizon rig, has asked a federal court in Houston to limit its liability to $27 million, citing a 160-year-old statute that says liability cannot exceed the value of the vessel. For legal purposes, the sunken drilling rig counts as a vessel under the statute.

Whitehouse said during the hearing that it is unfair for families to have a harder time getting compensation because an accident takes place at sea. BP has paid more than $1.6 billion to the families of victims of the 2005 explosion at its Texas City Refinery, which killed 15 workers and injured more than 170, and those families faced no restriction on noneconomic claims, he said.

"They want their liability limited to the value of what is now a piece of junk sitting a mile below the surface," Leahy said of Transocean. "That is perverse."

Turning back the clock

BP has said it would ignore the $75 million cap for economic damages related to oil spills and pay "all legitimate claims," but many congressional Democrats worry that the company will renege on its vow once it leaves the spotlight. Senate Majority Whip Dick Durbin (D-Ill.) said yesterday that Congress should ensure that taxpayers never have to foot the bill.

"If you're engaged in drilling and can create this level of damage, it carries with it a responsibility that you accept liability for damage," Durbin said. "If you cannot accept that liability, stay the hell out of the business" (E&ENews PM, June 8).

Punishing BP is politically popular, but there is disagreement over how high to raise the liability limit and whether the higher cap should be imposed retroactively. Republicans worry that raising the cap to $10 billion or removing it entirely would send insurance costs through the roof and push small-to-midsize companies out of the offshore drilling business.

While Sen. Robert Menendez (D-N.J.) has proposed raising the limit to $10 billion and other Democrats have called for unlimited liability, Sen. David Vitter (R-La.) has suggested eliminating the cap for the Deepwater Horizon spill but leaving it at $75 million for future accidents.

"They are the responsible party," said Sen. Jeff Sessions (R-Ala.), who co-sponsored Vitter's bill, at yesterday's hearing. "They are liable for the damages up to the extent of their very financial existence, and they are not too big to fail."

But Sessions, the Judiciary Committee's ranking member, said he is skeptical about the constitutionality of imposing a new liability limit on all offshore drilling leases.

Doing so could expose the government to $10 billion in breach-of-contract claims from leaseholders, plus any claims for lost profits, oil industry consultant Jack Coleman told the committee yesterday. He cited the Mobil v. U.S. case, in which the Supreme Court ruled that the Interior Department breached its contracts with oil companies by restricting drilling off the coast of North Carolina.

"The lessees had a right to rely on the law as it existed at the time that the lease was issued, and therefore, the lessees recovered all their expenses," said Coleman, a former attorney at the Interior Department.

The Congressional Research Service recently issued a report that said oil companies were unlikely to prevail on those types of claims, though the Constitution "disfavors retroactivity" in general.

"Congress legislates retroactively all the time," Associate Attorney General Thomas Perrelli told the Senate Energy and Natural Resources Committee last month (Greenwire, May 25).

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