Billions in Damages? You Bet Your BP!

Many Leftist commentators are getting riled up about a report that BP’s damages in the Deepwater Horizon oil spill are limited to $75 million. Here is Matthew L. Wald, writing yesterday at “Green,” the NYT’s Energy and Environment blog: "A 1990 law, the Oil Pollution Act [OPA], limits claims by fishermen, hotel owners and others against the operator of an offshore platform causing such pollution to $75 million."

That is so misleading as to be false. BP is in Deep Something, and it isn’t Deep Water. Since the explosion occurred on April 20, the company’s stock has lost a quarter of its value, and no wonder. Analyst Greg Smith told Bloomberg that the ultimate cost to the company may be $10 billion.

So what is all this talk about $75 million? Here to explain the matter is an excellent “Backgrounder” by Nathan Richardson, a specialist in environmental law with Resources for the Future.

In essence, it seems, the $75 million limit applies only to the damages an oil company must pay for sheer accidents. Think of it as almost a limit on strict liability damages. It does not refer to damages that result from “willful misconduct.” It does not refer to damages that result from gross negligence. It does not refer to damages that result from even the slightest violation of any federal regulation.

In addition, for the last 20 years, oil companies have been paying (currently 8 cents a barrel) into an “Oil Spill Liability Trust Fund” for every barrel of oil produced or imported into the United States. That Trust Fund now has at least a couple billion dollars available to handle any remaining claims from Deepwater Horizon.

Moreover, the OPA expressly states that it does not preempt suits in state court. So, BP will be on the hook for damages in every state where its spilled oil touches--and I’ll bet California and Massachusetts somehow find a way to get a piece of the action as well.

Basically, this is the way the capitalist system is supposed to work. Unavoidable accidents sometimes occur, and for that we have a doctrine of strict liability. On those occasions when negligence is involved, the parties found to be at fault must make full restitution to those they harm, and usually they must pay punitive damages as well. In light of such experiences--of risk-taking, accidents, negligence, and penalties--better practices are developed, risks are reduced, harms are lessened, and progress continues. But the two premises never to be doubted are: That risks will always be present, yet the work of the world must continue.

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