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May 6, 2010

Eliminate The Liability Cap For Offshore Drilling

by Doug Mataconis

Commenting on the efforts in Congress to increase the statutory liability cap that oil companies enjoy for damages caused by offshore drilling accidents, John Cole makes this point:

Here’s a revolutionary idea- why don’t we get rid of the limit altogether! If BP or Exxon cuts corners and makes a hash of things, and they cause 60 billion dollars worth of damage, they are on the hook for the whole 60 billion dollars! And if they can’t pay for the whole bill, the company is liquidated, the shareholders get wiped out, and the company ceases to exist.

Why don’t we give that a shot? And don’t tell me it is because no one will then undertake oil drilling. Of course they will! They’ll just pass on the costs to the consumer. And should being really careful and safe cost too much money, then it might just make other forms of energy look cheaper by comparison, and spur investment in those energy types.

So how about it? No more immunity, no more corporate welfare, no more subsidizing industries that don’t even pay a damned penny in taxes in the US anymore.

Cole is coming at this from the left, but I think he’s absolutely right from a free-market perspective.

If a company causes damages to others as a result of their activities — and in the case of something like offshore oil drilling the question of negligence wouldn’t even be an issue because of the inherently dangerous nature of the activity — why should their liability for those damages be capped in any amount ? And how can we really say that we’ve factored in all the costs of any activity when the consequences of the damages it might cause are shielded ?

Lift the cap, make BP pay.


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7 Comments

  1. Cole is coming at this from the left, but I think he’s absolutely right from a free-market perspective.

    Free markets and leftism are not necessarily opposed. Lysander Spooner and Benjamin Tucker referred to themselves as socialists and are accepted as such. Kevin Carson has almost single-handedly resurrected the free-market anti-capitalist left through his mutualist blog and the Center for a Stateless Society.

    Note that when conservatives and right-libertarians scream bloody murder about federal solar energy research, few if any bother to question how much subsidizing fossil fuels get. In a free market, who knows which one is the cheapest?

    Comment by Joshua Holmes — May 6, 2010 @ 10:01 am
  2. Doug:

    “Lift the cap, make BP pay.”

    I agree with removing the cap but I’m unclear on one detail: are you suggesting that congress should pass a law removing the cap and make BP pay for the oil leak that has already happened (thus retroactively making BP pay damages according to a statute that did not exist prior to the oil leak) or are you suggesting the cap should be removed going forward? Correct me if I’m wrong but people/businesses cannot be punished retroactively…right?

    Comment by Stephen Littau — May 6, 2010 @ 11:47 am
  3. Why shouldn’t BP foot the entire bill? It is their mess, they specifically left off a piece of equipment that would have prevented the leak.

    And why should there be a cap on liability? The very thought is rather absurd.

    Comment by John — May 7, 2010 @ 2:26 am
  4. Stephen,

    Yes, changing the law now would likely be an ex post facto law if applied to BP for this accident. And thus unconstitutional

    I’m talking about going forward

    Comment by Doug Mataconis — May 7, 2010 @ 7:03 am
  5. Thanks for the clarification.

    Comment by Stephen Littau — May 7, 2010 @ 4:00 pm
  6. Just FYI, the ex post facto prohibition doesn’t apply to statutes within the realm of civil law, only as regards criminal or penal legislation. Specifically, you can’t be tried and convicted for something that wasn’t a crime at the time of you performing the alleged act, but you can be sued for damages in civil court for the same thing. This stems from a Supreme Court ruling dating back to 1798 Calder v. Bull; the argument being that matters of civil court do not involve the State and that applying ex post facto to civil cases violates individual freedom to seek “natural justice.”

    In other words, you can sue for whatever you like but its up to the civil judge to determine if you have a legitimate claim of damages. Since civil court relies on proof of damages, not weight of statutory law, to apply ex post facto to civil court would violate an individual’s freedom to generally use our legal institutions to seek compensation for damages done.

    As such, the removal of the liability cap would mean the BP can in fact be sued under existing civil statutes for damages caused by the Deepwater Horizon disaster, it just means that now they can’t limit their damages to $75 million.

    Also, it’s questionable if Congress had the authority to put the cap in place to begin with, and there’s some debate as to that point. Constitutionally, Congress can pass laws specifically declaring things for which you cannot be liable, like the Good Samaritan Laws, but the limitation of damages on something for which you can be sued is seen by some (myself included) as a violation of the separation of powers. Usually, limitations on damages are allowed to just work themselves through the court system (precedent applies). If you can make the case that your emotional damages are worth some obscene figure, then it sticks (good luck with that). Everyone has a right to appeal, and its usually in these appeals processes that limitations are defined by precedent, rather than legislative statute.

    That’s all a bit of a gray area, but the law is always a work in progress. My understanding of the Constitution is that legislators can’t really limit damages, but they can limit torts.

    Hope my two doubloons is helpful.

    Comment by Dan Brown — May 21, 2010 @ 4:26 am
  7. The proposed “Big Oil Bailout Prevention Act” would amend the existing Oil Pollution Act, 33 U.S.C. §2702 et seq. (1990 (the “Act”). In particular, Sec. 1004. The Act created a Fund available to the President to clean up environmental damages. The Fund is in turn funded by an 8-cent per barrel tax. The larger the producer, the greater their contributions to the Fund.

    Congress, in essence, created an insurance policy. Sec.1004 sets the “deductible” before the Fund begins paying.

    What appears to be lost in this debate is that BP’s liability is not “capped” against all liability. It is rather that the Fund is being used because clean-up costs will clearly exceed $75M. Furthermore, if BP’s actions were grossly negligent, wilful misconduct or in violation of an applicable Federal safety, construction or operating regulation then BP’s liability is not capped and the Fund can recover its expenses.

    I suggest that the Fund (in essence a publicly funded Federal insurance policy) would best benefit from increased tax per barrel on a percentage basis of value rather than an 8-cent fixed tax. A modest increase in the “deductible” cap from $75M also seems reasonable. But to increase the cap from $75M to $10B would drive smaller producers out of business because only “Big Oil” could afford that kind of deductible. It seems to me that the Democrat introduced bill actually benefits Big Oil at the expense of “Little Oil.”

    Comment by Gary C. Johnson — May 23, 2010 @ 10:16 am

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