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Oil spill's economic damage could be permanent

BP has promised to cover all legitimate claims, but the law caps its liability, and relief might take years to reach those whose livelihoods are most in peril.

May 06, 2010|By Ronald D. White, Los Angeles Times
  • Containment efforts in the Gulf of Mexico are underway at the site of the oil rig explosion.
Containment efforts in the Gulf of Mexico are underway at the site of the… (Rick Loomis / Los Angeles…)

BP Chief Executive Tony Hayward is promising to shoulder all cleanup costs and pay all legitimate claims from the deadly Gulf Coast oil rig accident — but for those hit hard by the spill the relief could come too late to help them recover.

It took nearly 20 years for more than 30,000 Alaskan fishing boat operators, property owners and others to be paid damages after the Exxon Valdez tanker accident in 1989, legal experts note. A jury awarded victims $5 billion in punitive damages in 1994, but Exxon appealed. Fourteen years later, the case reached the U.S. Supreme Court, where justices cut punitive damages to $508 million.

"At ground zero in these disasters, there are people who are simply annihilated," said Mark Cooper, senior fellow at the Institute for Energy and Environment at the Vermont Law School. "If it doesn't happen in the first few years, it won't really help."

There also may not be enough money to cover the damages.

Although BP has agreed to cover the cleanup costs and economic losses, the liability for such losses — including lost profits of local businesses, property damage and the like — is capped at $75 million under legislation passed in the wake of Exxon Valdez.

The $75-million limit "seemed like a lot of money at the time," said David Pettit, an attorney with the Natural Resources Defense Council who was then working for a law firm representing Exxon. "It never anticipated something of this scale, where there could be victims in five states."

Exxon, now known as Exxon Mobil Corp., ultimately paid $3.8 billion in cleanup costs, fines and compensation related to the 11-million-gallon Exxon Valdez spill off Alaska, the worst in U.S. history. But that damage toll could potentially be topped by the Gulf of Mexico disaster that followed the April 20 explosion on and subsequent sinking of the Deepwater Horizon oil rig, which left 11 workers dead.

The underwater oil well is now spewing an estimated 210,000 gallons of crude oil a day into gulf waters, which supply a major portion of the nation's shrimp, oysters and other seafood, and is also an important source of tourism for Louisiana, Alabama, Florida, Mississippi and Texas.

London-based BP has said it is spending about $7 million a day on the cleanup and has dispatched $25-million checks to Louisiana, Alabama, Mississippi and Florida (the slick may not reach Texas).

Hayward has acknowledged that economic damages probably would exceed the liability limit. Meeting with reporters this week, he reiterated — with barely contained annoyance — that the company planned to make good on its promise to cover the economic losses.

"What I've said is what I mean: All legitimate claims will be honored," he told reporters.

But Sen. Bill Nelson (D-Fla.) is concerned that the commitment may not be airtight. Nelson, who along with other lawmakers met with Hayward on Tuesday in Washington, told reporters that the chief executive said BP was still assessing how it would handle claims beyond the $75-million limit.

"When I pressed him on who was going to be liable for the economic damages — not the cleanup damages, the economic damages — he said that will be something we will determine in the future," Nelson told reporters. "He said that is something that we will work out, we will discuss. I don't know that he used the work negotiate, but that was the impression."

Some members of Congress are hastily preparing legislative changes to ensure victims get paid in full. Senate and House bills would raise the $75-million limit on economic losses to $10 billion retroactive to April 15, meaning that it could be applied to the current spill.

"We're glad that the costs for the oil cleanup will be covered, but that's little consolation to the small businesses, fisheries and local governments that will be left to clean up the economic mess that somebody else caused," said Sen. Robert Menendez (D-N.J.), who introduced the Big Oil Bailout Prevention Act with Nelson and Sen. Frank Lautenberg (D-N.J.).

"We can't let the burden fall on the taxpayers," Menendez said. "We should ensure that those who cause the damage are fully responsible."

Pettit said that many victims probably would end up suing for restitution, just as after the Exxon Valdez disaster.

"We had state law claims, common law claims like public nuisance, trespass, a physical invasion of your property. If someone's oil floats up onto your beach, that's trespass and a nuisance," Pettit said. But those filing civil suits against BP may face the additional legal hurdle of having to prove negligence, he said, which isn't a factor in billing the company for cleanup costs.

There is an additional resource to reimburse victims: The Oil Spill Liability Trust Fund, which was part of the 1990 federal Oil Pollution Act. It currently contains about $1.6 billion, capped at $1 billion per disaster for cleanup and other costs.

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