Shifting the Costs to Those Bestable to Bear Them: an Argument for Theadoption of Pure Economic Loss in Theevent of an Oil Pipeline Spillin Nebraska

• Jurisdiction: United States,Federal,Nebraska
• Citation: Vol. 46
• Publication year: 2022

46 Creighton L. Rev. 115. SHIFTING THE COSTS TO THOSE BESTABLE TO BEAR THEM: AN ARGUMENT FOR THEADOPTION OF PURE ECONOMIC LOSS IN THEEVENT OF AN OIL PIPELINE SPILLIN NEBRASKA

SHIFTING THE COSTS TO THOSE BESTABLE TO BEAR THEM: AN ARGUMENT FOR THEADOPTION OF PURE ECONOMIC LOSS IN THEEVENT OF AN OIL PIPELINE SPILLIN NEBRASKA

Ryan Watson - '14

I. INTRODUCTION ................................... 115

II. BACKGROUND .................................... 117

A. Pure Economic Loss ............................ 117

B. Historical Review of the Purposes and Performance of Oil Pipelines in the United States .......................................... 120

C. Federal Liability for Oil Spills ............... 123

1. Navigable Water vs. Groundwater ............ 124

2. A Financial Gap in Federal Liability ......... 126

D. State Liability for Oil Spills .................. 127

III. ANALYSIS ......................................... 130

A. It Is Unclear Whether an Oil Spill Affecting Groundwater Would Be Covered Under the Federal Framework of Oil Spill Liability ........................................ 130

B. Nebraska's Agricultural Economy Is Insufficiently Protected from a Worst-Case Scenario Oil Spill From the Keystone XL Pipeline Extension ......................... 131

C. Legislation Implementing Recovery for Pure Economic Losses Would Protect Nebraska's Agricultural Economy In the Event of Groundwater Contamination ........ 133

D. Is the Risk of a Spill Worthy of Legislation Increasing the Scope of Liability? ....................................... 134

E. Risks Should Be Born By Those Who Are Best Able to Bear Them ....................... 135

IV. CONCLUSION ..................................... 136

I. INTRODUCTION

A spill in the Nebraska Sandhills from the proposed Keystone XL Pipeline extension could release 7.9 million gallons of oil and eventually pollute up to 4.9 billion gallons of groundwater in the Ogallala Aquifer.(fn1) This contamination would pose serious health risks for Nebraskans using groundwater from the Ogallala Aquifer for drinking and irrigation.(fn2) Approximately eighty percent of all water usage in Nebraska is derived from groundwater.(fn3) Although pipeline operators are statutorily obligated to restore cropland productivity, farm workers will enjoy no protection against their loss of income before the crops are restored.(fn4) In the event of a worst-case spill scenario, the lack of statutory protection for third parties would leave many Nebraskans to suffer a loss of income.(fn5)

This Article proposes the Nebraska State Legislature enact legislation that allows the recovery of lost wages or diminution in profits without the burden to show physical injury or damage in the event of a pipeline spill.(fn6) This Article will discuss the history behind the doctrine of pure economic loss, its rare exceptions, and the arguments surrounding the doctrine's effectiveness.(fn7) Next, this Article will provide a broad historical overview of oil spills and subsequent federal legislation allowing for pure economic loss recovery.(fn8) The Article will then analyze the federal liability framework and expose existing gaps covering groundwater.(fn9) Finally, this Article will review Nebraska law disallowing the recovery of pure economic loss in contrast to several other states.(fn10)

Nebraska farm workers are inadequately protected from risks posed by the Keystone XL Pipeline.(fn11) Nebraska's reliance on agriculture reinforces the need to implement pure economic loss recovery to address dangers from a potential Keystone XL pipeline oil spill.(fn12)This Article proposes to close the gap in oil spill liability coverage for third parties in Nebraska.(fn13) The Article identifies and rebuts objections to implementing recovery for pure economic losses.(fn14) The Article will summarize the necessity and importance of this potent legal remedy.(fn15)

II. BACKGROUND

A. PURE ECONOMIC LOSS

Negligent infliction of economic loss, where the parties are connected solely by the accident, is a base theory for a claim of pure economic loss.(fn16) Anthony v. Slaid(fn17) is a seminal American case for the pure economic loss doctrine.(fn18) Anthony, a man who financially supported the town indigents, brought an action for damages against Slaid.(fn19) Anthony based his claim on extra expenses he incurred as a result of Slaid's wife assaulting an indigent Anthony supported.(fn20)The Supreme Judicial Court of Massachusetts stated that the damage to Anthony was too indirect to recover losses.(fn21) Since Anthony, American courts have persistently failed to recognize relational losses for recovery.(fn22)

Robins Dry Dock and; Repair Co. v. Flint(fn23) developed the exclusionary rule barring recovery of pure economic loss under the theory of relational losses.(fn24) The United States Supreme Court stated that damages caused by one man, to the person or property of another man, would not make the doer of the wrong liable to a third-party because the injured person was under a contract with that third-party unknown to the tortfeasor.(fn25) In Robbins Dry Dock, a party who had chartered a vessel brought suit against a dry dock company because the dry dock company damaged the vessel's propeller, thereby causing the chartered party to be delayed.(fn26) The federal district court allowed for recovery on the basis that the chartered party had a right in rem with the vessel.(fn27) Robins Dry Dock and; Repair Co. ("Robins Dry Dock") appealed to the United States Court of Appeals for the Second Circuit, which determined the chartered party was not a beneficiary of the contract between the vessel and the dry dock and therefore could not recover.(fn28) The United States Supreme Court granted certiorari and stated the injury to the propeller created no wrong to the chartered party but did harm the owners of the propeller.(fn29) The Court recognized the chartered party had no claim in contract or tort because they lacked a protected interest against unintended damages inflicted upon the vessel by the Robins Dry Dock.(fn30) This decision has been interpreted to bar liability for future lost profits or additional costs suffered in actions other than contract, such as negligence, nuisance, or admiralty.(fn31)

One argument against recovery for pure economic loss is that it creates liability to a broad unknown class of plaintiffs.(fn32) Federal and state courts have generally accepted the bright line exclusionary rule barring recovery for pure economic losses.(fn33) A few notorious exceptions of this rule exist.(fn34) In People Express Airlines, Inc. v. Consolidated Rail Corp.,(fn35) the Supreme Court of New Jersey recognized that a duty of care to avoid economic damages is owed to a particularly foreseeable class of plaintiffs who can maintain predictable presence and can expect a certain type of economic disruption.(fn36) In this case, the operating terminal for People Express Airlines ("People Express") evacuated at Newark International Airport after a rail tanker owned by Union Tank Car Company, and leased to BASF Wyandotte Company, leaked ethylene oxide and ignited in the neighboring rail yard operated by Consolidated Rail Corporation.(fn37) Although no physical damage occurred to property or personnel of People Express, the airline filed suit for business losses occurring as result of the evacua-tion.(fn38) People Express asserted these losses were proximately caused by each of the other parties' negligent actions.(fn39) The trial court granted defendants summary judgment on the assertion that, absent property damage personal injury or property damage, economic loss could not be recovered under tort.(fn40) The appellate court overruled the trial court, holding that summary judgment was inappropriate because negligently caused economic losses are not barred automati-cally.(fn41) The Supreme Court of New Jersey then granted certification.(fn42)

The Supreme Court of New Jersey held that economic loss damages, when proximately caused, are recoverable, despite lack of physical damages, if suffered by individuals whom the defendant knows or has reason to know are likely to suffer.(fn43) The court identified the historical background of American courts' denial of recovery for pure economic losses.(fn44) The court described how barring tort claims based on the physical harm requirement may run contrary to the purpose of tort law.(fn45) The court explained further, noting the overall purpose is to allow victims to recover for their losses, as well as, deterring future tortious conduct, vindicating reasonable conduct, and shifting the risk of loss to those best able to bear it.(fn46)

Theoretical arguments of economic efficiency abound in defense of excluding pure economic losses.(fn47) Meanwhile, scholastic discourse does not converge upon any common justification for allowing the recovery of pure economic losses.(fn48) This disagreement could possibly be a result of the complexity and sophistication required to sort the goals of efficiency, corrective justice, and insurance.(fn49)

B. HISTORICAL REVIEW OF THE PURPOSES AND PERFORMANCE OF OIL PIPELINES IN THE UNITED STATES

The United States has a long history of oil pipelines serving national consumption needs, but pipelines have also created adverse financial and environmental consequences.(fn50) In 2011, the United States House of Representatives...