Sorting Out BP's Gulf Oil Spill Liability: Four Blunt Points

September 06, 2014

Confused about where things stand in the litigation hurricane over the 2010 Gulf of Mexico oil spill? Not surprising. On Thursday, BP (BP) suffered a major setback in federal court in New Orleans—that much is clear—but what exactly the ruling means in terms of the company’s ultimate legal bill won’t be known for some time. Herewith: four blunt points to help cut through the murk.

1. Environmentalists feel vindicated. U.S. District Judge Carl Barbier’s ruling that BP committed “gross negligence” and bore most of the blame for the disaster “is an historic win for the gulf coast ecosystems and economies that were damaged by the BP oil spill,” said Fred Krupp, president of the Environmental Defense Fund. “This means that BP will finally be forced to pay what it owes to fix what it broke,” added David Yarnold, president of the National Audubon Society. Barbier’s interim decision that BP’s conduct was reckless rather than merely careless means that the company’s liability under the Clean Water Act could eventually come in at something closer to $18 billion than the $3 billion or $4 billion BP would have preferred.

2. Wait, hasn’t BP already paid out a lot of money? Yes. The company has acknowledged at least some responsibility for the explosion that killed 11 rig workers, sullied shorelines, and shut down maritime businesses. Since 2010, BP has paid out more than $28 billion in cleanup costs and damage claims. As a matter of accounting, the company has taken a $43 billion charge to cover all the costs related to the spill. That’s a $15 billion difference. After Barbier’s ruling, it’s far more likely that BP will need to pony up all of the $15 billion—and maybe more.

3. BP, however, sounds eager for more courtroom bloodshed. The company immediately vowed to appeal. “BP believes that the finding that it was grossly negligent with respect to the accident and that its activities at the Macondo well amounted to willful misconduct is not supported by the evidence at trial,” the company said. “The law is clear that proving gross negligence is a very high bar that was not met in this case.” This will be a difficult argument to make. Barbier based his determination on a detailed factual analysis of the sort appellate courts typically hesitate to second-guess. Moreover, the distinction between ordinary negligence and gross negligence, as those terms are used in maritime law, comes down to a subjective assessment. Persuading a higher court that Barbier was flat-out wrong in making this judgment won’t be easy.

4. And Barbier isn’t done with BP. The judge still has to decide the extent of the spill and how much BP and its contractors—Halliburton and Transocean—have to pay under the Clean Water Act. In finding that BP acted recklessly, he apportioned 67 percent of the fault to the British-based company; 30 percent to the rig operator, Transocean (RIG); and just 3 percent to Halliburton (HAL), which provided the cement. At this point, one might assume that BP would be trying to make nice with the judge. But no. In connection with the settlement of another segment of the litigation—that concerning certain business and economic damage claims—BP has repeatedly antagonized Barbier by accusing a claims administrator he appointed of unfairness. After losing several rounds in that separate dispute, BP has filed a long-shot appeal to the U.S. Supreme Court and lobbed in a motion seeking to have Barbier’s claims supervisor removed for conflicts of interest. These are not the tactics of a company searching for compromise.

BP initially responded to its colossal operational failure in the Gulf by putting up a fair amount of money—perhaps not enough, but certainly not chump change—and searching for opportunities to settle government and private claims. Conciliation didn’t work, and the litigators were unleashed. The ensuing conflict hasn’t gone well for BP, and the company now appears vulnerable to further setbacks. Whether that will speed additional dollars to ecological restoration work or incite years of appeals is another question.

(Bloomberg Businessweek)

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