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How Much Will BP Have to Pay? Damage Caps for Big Oil

Many businesses have been destroyed and many families have been devastated by last month’s Deepwater Horizon oil spill. BP, the company at the center of the oil spill storm, will likely be paying numerous claims including those of the 28 men who were killed or injured in the accident, the commercial fishermen whose businesses have been destroyed by the oil in the waters, and the charter boat captains, resorts and individual property owners who are unable to attract tourists to the area and run their businesses as expected for an as yet undetermined amount of time. That is a lot of potential lawsuits and the potential for significant damages, but just how much will BP have to pay?
The 1990 Oil Protection Act - $75 Million Cap
The Oil Protection Act was part of the federal government’s response to the 1989 Exxon Valdez catastrophe in Alaska. The Act requires oil companies to have a plan for preventing spills from occurring and for cleaning up oil spills should they occur. It also caps damages from oil spills at $75 million in many cases.
Why BP May Pay More Than $75 Million
While the Oil Protection Act limits the liability of oil companies to $75 million in many cases, that ceiling is not absolute and there is good reason to believe that BP will be required to spend significantly more than $75 million to the victims of its April 20, 2010 Deepwater Horizon accident. Specifically, BP may owe more than $75 million because
  • The Oil Protection Act allows a company that is responsible for an oil spill to be liable for additional damages if the damages were caused by the gross negligence of the company;
  • The Oil Protection Act specifically does not preempt state and local lawsuits related to the accident. That means that while damages in federal court are limited to $75 million, additional damages can be claimed pursuant to state and local laws;
  • The $75 million is specifically exclusive of all clean up costs. Clean up costs from the accident are not capped by federal law and the government has stated that it intends to hold BP accountable for the considerable clean up costs associated with the Deepwater Horizon accident;
  • BP’s global chief executive is quoted in the May 5, 2010 New York Times as stating that the “$75 million cap would inevitably be exceeded.” This indicates an acceptance on BP’s part that the $75 million cap is unrealistic given the magnitude of this oil spill; and
  • Federal legislation has already been sponsored that would retroactively raise BP’s damage cap from $75 million to $10 billion. Of course this legislation is not yet law and even if it does become law it will almost certainly be the subject of litigation for years before it can be applied to provide damages to plaintiffs in Deepwater Horizon lawsuits.
Thus, whatever BP’s ultimate financial responsibility for damages above and beyond clean up costs in the Gulf waters turn out to be, it is likely that it will exceed the $75 million cap set forth in the Oil Pollution Act of 1990.

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