• Lawsuits, Claims, and Legislative Implications of the Deepwater Horizon Spill
  • July 27, 2010 | Authors: Jeanne M. Grasso; Jonathan K. Waldron
  • Law Firm: Blank Rome LLP Shanghai Representative Office, USA - Washington Office
  • On April 20, 2010, a fire and explosion occurred onboard the Deepwater Horizon, a mobile offshore drilling unit owned by Transocean Ltd. and, at the time, operated for BP Exploration & Production, Inc. (“BP”). On April 22, 2010, the Deepwater Horizon sank, resulting in an uncontrolled flow of hydrocarbons from the wellhead into the Gulf of Mexico. As of the date of this article, BP is still trying to stem the flow of the oil and has reportedly spent over $3.1 billion responding to the ruptured oil well, including costs of the spill response, claims paid, and grants to the Gulf states. To date, BP has taken responsibility for responding to-and cleaning up-the spill and has established a process to manage claims from the incident, reportedly spending over $162 million in damage claims. As part of this process, BP is making advance payments based on estimates of business losses and has agreed to establish a $20 billion claims fund.

    In addition, there have been numerous ongoing administrative and congressional investigations, various Congressional hearings have been held and legislative proposals introduced, and multiple law suits have been filed.

    Following the Deepwater Horizon incident, many questions and concerns have arisen regarding the liability for damages and claim rights and procedures. If you have incurred losses, including economic losses, as a result of the oil spill, you may be entitled to compensation under the Oil Pollution Act of 1990 (“OPA 90”). In addition, Congress is holding a series of oversight hearings to look into the Deepwater Horizon incident and many Members of Congress have already responded by introducing bills to address perceived problems.

    Background

    In 1990, Congress enacted OPA 90 to increase pollution prevention, ensure better spill response capability, increase liability for spills, and facilitate prompt compensation for clean-up and pollution damage. OPA 90 created the Oil Spill Liability Trust Fund (the “Fund”) to provide funds for oil spill clean-up, assessment and restoration of natural resources, and compensation to claimants for removal costs and damages. The Fund is managed by the U.S. Coast Guard’s National Pollution Funds Center (the “NPFC”), which is charged with evaluating and determining whether to accept claims made against the Fund. At the start of the spill, there was approximately $1.6 billion available in the Fund and a $1 billion limit per incident, of which no more than $500 million may be paid for natural resource damages.

    The Coast Guard has designated BP as the “Responsible Party” (“RP”) ultimately responsible for payment of both the removal costs and damages due to the incident. The limits of liability for an offshore facility are $75 million in addition to all removal costs; however, the limits of liability can be broken under various scenarios.

    Numerous lawsuits have been filed alleging both OPA 90 claims for removal costs and damages, as well as claims for removal costs and damages under general maritime law in a negligence action in a federal or state court. The problem with negligence claims under general maritime law is that it is not a strict liability regime, and generally a defendant is not liable under the general maritime law for purely economic losses in the absence of physical injury to the claimant’s person or property, even though such losses may be deemed a foreseeable consequence. Experience has shown with OPA 90 that the claims process discussed below provides a viable and fairly efficient means for recovery without the attendant expenses and uncertainties for recovery associated with litigation.

    Claims Procedures

    Before filing a claim with the NPFC, the claimant must have submitted its claim to the RP for resolution-unless otherwise directed by the NPFC to file directly against the Fund-and must not be involved in a pending law suit. The RP is authorized to make interim payments, but if the RP denies the claim or fails to pay it within 90 days, the claim may be submitted to the NPFC. Claims associated with removal costs must be submitted within three years of the completion of all removal actions related to the incident. Claims for all damages must also be submitted within three years of the date of injury (from the time the injury was reasonably discoverable with the exercise of due care). Claims that are settled with the RP may not be submitted to the Fund for reimbursement of a greater amount. However, if partial settlements are received from the RP, e.g., only a portion of the claim was resolved, subsequent claims may be submitted to the Fund for reimbursement. Such partial claims must be clearly documented as to what portion of the claim was paid and/or not paid by the RP.

    Upon receipt of a claim, the NPFC reviews it for completeness and may request additional information from the claimant. Once the NPFC makes a determination with regard to the claim, the claimant must accept or reject the determination within 60 days. More details concerning claims procedures may be found under the NPFC’s website at: www.uscg.mil/npfc/claims/.

    On June 16, President Obama and BP announced that BP established a $20 billion claims fund for the incident. The fund will be available to satisfy legitimate claims, including natural resource damages and state and local response costs. Fines and penalties will be excluded from the fund and paid separately. Payments from the fund will be made as they are adjudicated by an Independent Claims Facility (“ICF”) set up for this purpose. Standards for claim adjudication will be developed and published in the near future. Dissatisfied claimants maintain all current rights under law, including the right to go to court or to the Fund. Processing details for this mechanism are still being worked out.

    Claims for Economic Damages

    Among the compensable damages specified in OPA 90 are damages arising from economic loss. Specifically, RPs are liable for “[d]amages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources. . . ." One of the major concerns arising out of this incident is whether parties will be able to seek compensation and reimbursement for such things as vessel delays, diverting from original plans, chartering alternative vessels, and other similar actions resulting in lost profits or earning capacity. Although the Coast Guard will not pay claims for demurrage or contractual charter party disputes per se, once the dispute has been settled between the subject parties, the party suffering an economic loss due to lost profits or earning capacity may have a viable claim under OPA 90.

    Congressional Oversight and Legislation

    In response to the Deepwater Horizon incident, numerous hearings have been held-and will continue to be held-with a focus on the economic and environmental effects of the spill, as well as the impact of the oil rig explosion on offshore oil and gas development policy. Members of Congress have already introduced over 100 bills to address various aspects of the spill. Various Congressional committees are now starting to take action to consolidate and consider various bills. For example, H.R. 5629, sponsored by Congressman Oberstar and under consideration by three committees, would among other things, repeal limits of liability, increase the minimum level of financial responsibility for an offshore facility to $1.5 billion, authorize recovery for non-pecuniary damages and human health injuries, require all vessels engaged in OCS activities to operate under the U.S. flag and be 75% U.S. owned (and a Mobile Offshore Drilling Unit ("MODU") would also have to be built in the United States), and substantially revise the oil spill response planning and safety regimes for vessels, facilities, and MODUs.

    Notwithstanding the advance of H.R. 5629, conflicts have emerged over the question of who should be in charge of the oversight of the spill. Chairman Oberstar’s committee understandably puts the Coast Guard in charge. Chairman Rahall of the House Natural Resources Committee questions whether that is correct and whether an official in the Department of the Interior should have that responsibility consistent with the responsibility for Outer Continental Shelf resources. There is also continuing concern by a number of Members of Congress over broader unintended consequences for liability having nothing to do with the oil spill such as for cruise lines and overflying aviation, approval and use of dispersants, trade secret protections for response techniques, and impacts on small business ability to participate in response and clean up activities, among other concerns. Finally, other committees such as the House Judiciary and Energy and Commerce Committee have yet to make their mark on this legislation.