The Deepwater Horizon Oil Spill and the Limits of Civil Liability

JurisdictionUnited States,Federal
CitationVol. 86 No. 1
Publication year2021

THE DEEPWATER HORIZON OIL SPILL AND THE LIMITS OF CIVIL LIABILITY

Dr. Ronen Perry(fn*)

Abstract: This Article uses the unprecedented disaster in the Gulf of Mexico as an opportunity to critically evaluate the law pertaining to civil liability for oil pollution before and after the enactment of the Oil Pollution Act. This topic is analyzed as a derivative of a more general concern, namely the internal harmony of civil liability regimes. The Article unveils a general incongruity in American land-based and maritime tort law that surfaced through the Exxon Valdez litigation, and examines whether subsequent statutory reform has eliminated the problem in the limited context of marine oil pollution, using the Deepwater Horizon incident as a test case.

Part I systematically discusses pre-OPA law. It focuses mainly on two salient features of the Exxon Valdez litigation, namely exclusion of liability for purely economic losses, and punitive damages. Part II explains why pre-OPA maritime law gave rise to incongruity on the justificatory level, delineates the contours of the problem, and proposes a conceptual framework for resolution. Part III examines whether the enactment of the OPA has created a more defensible liability regime.

Following the Deepwater Horizon oil spill, there have been calls for raising the OPA liability caps or an even more comprehensive legislative reform. While some of the initiatives seem to have waned, this catastrophic incident, like the earlier Exxon Valdez case, will surely leave its mark. This article, which highlights relevant policy concerns, will undoubtedly serve policymakers in reassessing the limits of civil liability for marine oil pollution.

INTRODUCTION....................................................................................2

I. LIABILITY IN THE PRE-OPA ERA...............................................9

A.General Maritime Law...........................................................10

a.The Exclusionary Rule.................................... 10

b.The Commercial Fishermen's Exception........21

c.The Exxon Valdez Litigation...........................22

a.The Punitive Damages Doctrine......................24

b.The Exxon Valdez Litigation...........................31

B.Federal Legislation.................................................................33

C. State Law................................................................................35

II.THE GENERAL PROBLEM: SIMULTANEOUS APPLICATION OF THE EXCLUSIONARY RULE AND THE PUNITIVE DAMAGES DOCTRINE.....................................37

A.The Adverse Consequences of Simultaneous Application.....38

B.The Scope of the Problem......................................................43

C.Guidelines for Resolution.......................................................46

III.OIL POLLUTION LIABILITY IN THE OPA ERA.......................48

A.The Current Liability Scheme................................................49

B.A Critical Appraisal of the Current Scheme..........................62

CONCLUSION.......................................................................................66

INTRODUCTION

On April 20, 2010, while drilling at the Macondo Prospect, a seabed location about forty-one miles off the southeast coast of Louisiana, an explosion occurred on the Deepwater Horizon, a mobile offshore drilling rig.(fn1) The rig was owned and operated by Transocean, the world's largest offshore drilling contractor, and leased to BP, one of the world's largest energy companies and the lessee and principal operator of the Macondo field.(fn2) The explosion caused a blowout (an uncontrollable escape of oil), killed eleven workers, and ignited a fire that led to the sinking of the rig.(fn3) After the explosion, an attempt to activate the blowout preventer (BOP) failed, and oil started gushing into the Gulf of Mexico, causing horrific harm to the marine environment, fouling the shores of Alabama, Florida, Louisiana, and Mississippi, and resulting in multibillion dollar losses to the fishing and tourism industries, among others.(fn4) On July 15, nearly three months after the deadly explosion, BP announced that it had capped the hemorrhaging well, stopping the flow of crude oil into the Gulf.(fn5) On August 3 through 4, heavy drilling mud, followed by cement, was pumped from a surface vessel through a choke line into the blowout preventer to completely seal the well.(fn6) Two relief wells were drilled to ensure permanent plugging of the gusher,(fn7) and on September 19 a federal official announced that the Macondo well was effectively dead.(fn8) But while the flow has stopped, the legal saga has only just begun.

More than two decades ago, the Exxon Valdez oil spill shocked America. The notorious supertanker ran aground on Bligh Reef off the Alaskan coast on March 24, 1989, spilling eleven million gallons of crude oil into Prince William Sound.(fn9) Exxon spent $2.1 billion in cleanup efforts, pleaded guilty to criminal violations occasioning fines, settled a civil action by the United States and Alaska, and paid $303 million in voluntary settlements with private parties, principally fishermen.(fn10) Subsequent civil litigation has spanned nearly two decades. This litigation resulted in a $287 million compensatory damages award to commercial fishermen and a settlement with Alaska Natives,(fn11) and culminated in a recent U.S. Supreme Court ruling on the proper amount of punitive damages.(fn12) At the time, the Exxon Valdez spill was the worst environmental disaster in U.S. history.(fn13) But it has been dwarfed by the Deepwater Horizon catastrophe, which can now claim the dubious title of the world's largest accidental release of oil. According to the most recent estimate, 4.9 million barrels (more than 200 million gallons) of oil were released from the well, of which approximately 800,000 barrels were captured by BP, leaving more than four million barrels to gush into the Gulf.(fn14) BP spent billions of dollars on containment and cleanup.(fn15 ) Nearly 170,000 claims were submitted to BP's claims offices, and later to the Gulf Coast Claims Facility,(fn16) by September 3.(fn17) Over two hundred lawsuits-representing tens of thousands of victims-were filed against BP by mid-June 2010,(fn18) and Gulf coast states sought payouts for lost revenue and other damages.(fn19) BP, Transocean, and other parties will probably spend many years litigating these claims and negotiating settlements.

This Article, which follows up on my recently published work,(fn20) uses the unprecedented disaster in the Gulf of Mexico as an opportunity to critically evaluate the law pertaining to civil liability for oil pollution before and after the enactment of the Oil Pollution Act (OPA).(fn21) This topic is analyzed as a derivative of a more general concern: the internal harmony of civil liability regimes. This Article unveils a general incongruity in American land-based and maritime tort law that surfaced through the Exxon Valdez litigation, and examines whether subsequent statutory reform has eliminated the problem in the limited context of marine oil pollution, using the Deepwater Horizon incident as a test case.

The emphasis on the award of punitive damages in recent literature on the Exxon Valdez spill has overshadowed an extremely important part of the litigation, namely the wholesale rejection of numerous claims for purely economic loss by the federal district courts in the early 1990s. Thus, on the one hand, liability for economic loss was strictly limited under the exclusionary rule instituted in Robins Dry Dock and Repair Co. v. Flint,(fn22) leaving many victims of the Exxon Valdez disaster uncompensated.(fn23) On the other hand, liability was expanded through an award of punitive damages to relatively few successful claimants. While these two components of the litigation might not seem incompatible from a simple doctrinal perspective, they are inconsistent on a deeper theoretical level.

The exclusionary rule and the punitive damages doctrine are both exceptions to general principles of private law. The rule barring recovery for purely economic loss is an exception to the general principle that one whose unreasonable conduct caused foreseeable harm to another is liable for that harm, which is probably the most fundamental principle in modern tort law.(fn24) The exclusionary rule reduces the extent of liability to prevent adverse consequences, such as over-deterrence or undue punishment.(fn25) Punitive damages are an exception to the general principle that tort damages should restore the victim to the pre-tort condition (restitutio in integrum), which is the most fundamental principle in the modern law of remedies.(fn26) These damages are used as a supplementary sanction in exceptional cases where compensatory damages do not provide the necessary levels of deterrence and retribution.(fn27)

When both the exclusionary rule and the punitive damages doctrine are applicable to a particular case, they simultaneously increase and decrease the wrongdoer's liability. The exclusionary rule limits liability to prevent over-deterrence, over-punishment, etc., whereas the punitive damages doctrine expands liability to enhance deterrence and retribution. When applied in tandem these rules cancel out each other's allegedly legitimate...

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