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The Republican Oil Spill Liability Alternative

June 2, 2010 - by Donny Shaw

Senate Democrats have been trying since early May to pass a bill that would raise the liability cap on oil companies for the economic impact of spills. Under current law, oil companies have to pay the full cost of cleaning up any spills they cause, but their liability for associated economic damages is capped at $75 million.

The Democrats’ bill, called the Big Oil Bailout Prevention Act, would raise that cap to $10 billion. It’s a way to not only guarantee that BP would bear the full cost of economic damages they have caused in the Gulf region, but also to strengthen incentives for oil companies to avoid spills and have reliable backup plans in case something does happens. A higher liability cap may have encouraged BP do a better job at ensuring that the Deepwater Horizon’s blowout preventer was going to work, for example.

The Dems have called up the bill three times for quick passage through unanimous consent, and Republicans have objected each time — once through Sen. Lisa Murkowski [R, AK] and twice through Sen. David Vitter [R, LA]. The Republicans call the $10 billion cap “arbitrary” and argue that it would be too high for all but the biggest oil companies to be involved in offshore drilling.

On May 25, after objecting to the Democrats’ bill for the second time, Senator Vitter came out with his own alternative, called the Acceptance of Liability and Expedited Claims at Mississippi Canyon 252 Act. (In case you’re wondering, Mississippi Canyon 252 is the name of the site in the Gulf of Mexico that BP was leasing for its Deepwater Horizon rig when it blew up.)

According to Vitter, his bill would completely remove the liability cap for economic damages on BP for the Deepwater Horizon spill and establish an expedited claims process. Here’s how he described it on the floor of the Senate as he introduced it:

My bill mandates that the cap on economic damages for BP for this event be lifted and that there be no cap. BP has said publicly that not once, not twice, but on numerous occasions, and has even put it in writing that they will disregard any cap. My bill would say: Fine, that is a contract offer, and we are going to accept it. That will be binding under legislation, under the law. Under S. 3410, we would remove any cap on BP for this incident.

In addition, the other half of this bill establishes an expedited claims process because in this ongoing crisis in Louisiana, where people continue to hurt because of this ongoing spill, ongoing flow, they not only need their claim eventually paid in full, they need it to begin to be paid immediately. In this bill we establish an administrator to quickly and fairly resolve claims for economic damages. We establish an office of deepwater claims compensation to expedite that consideration. We set up offices within the gulf region to allow that claimant assistance, to advise people how to properly file their claim and expedite getting a claim.

Vitter’s bill directs the Secretary of the Interior to “renegotiate the terms of the lease known as ‘Mississippi Canyon 252’ to reflect statements made by BP in the letter” … “from the Group Chief Executive of BP to the Secretaries of Homeland Security and the Interior dated May 16, 2010, states in part that BP is ‘prepared to pay above $75 million’ on ‘all legitimate claims.’” It further clarifies that “all documented legitimate claims pursuant to the Oil Pollution Act of 1990 (33 U.S.C. 2701 et seq.) for economic damages relating to the Deepwater Horizon explosion and oil spill should be paid by BP without limit on liability.” Here’s a link directly to the relevant section of the bill text so you can take a look for yourself.

On May 25, Vitter asked that his bill be passed by unanimous consent, but Sen. Robert Menéndez [D, NJ] objected, outlining three concerns:

Reading the last 2 pages of the proposal we just got, and listening to the words of the Senator from Louisiana, there is a suggestion here that BP has, in essence, made a commitment or a contract, yet we have nothing before us other than testimony about a supposed willingness to pay all legitimate claims. They have equivocated when they have been asked before the committee, What does "legitimate’’ mean, and several members asked them a series of different elements of "legitimate,’’ and they would not commit to that.

Secondly, the letter the Senator has in his legislation that he wants to propound to pass right now says BP is "prepared’’ to pay above $75 million. It does not say it "shall’’ pay above $75 million. It does not say "will’’ pay. There is no legal obligation for them to do it. So to consume that and say that is the basis under which we are making some contractual relationship is a problem.

Finally, I think there is a problem between having legislation on a specific incident versus raising the cap in general. What happens when, God forbid, the next oilspill comes and a company is not taking the same position? It seems to me what we want to do is raise the cap in an unlimited fashion against any major oil company so we do not simply have to listen to their allegations that they are willing to pay any claims but that, in fact, they have a legal obligation to do so.

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