Oil Spill Incidents: Merely Increasing the Responsible Party’s Limit of Liability for Damages Is Not the Solution!
Tampa, FL (March 20, 2014) - The Bureau of Ocean Energy Management (BOEM) is proposing to add a new subpart to its regulations on Oil Spill Financial Responsibility (OSFR) for Offshore Facilities designed to increase the limit of liability for damages applicable to offshore facilities under the Oil Pollution Act of 1990 (OPA), to reflect significant increases in the Consumer Price Index (CPI) since 1990, and to establish a methodology BOEM would use to periodically adjust for inflation the OPA offshore facility limit of liability. BOEM proposes to increase the limit of liability for damages from $75 million to $133.65 million. OPA requires inflation adjustments to the offshore facility limit of liability not less than every three years to preserve the deterrent effect and “polluter pays” principle embodied in the OPA Title I liability and compensation provisions. In addition, the Department of the Interior has determined that this change would further protect the environment by ensuring that any party that causes an oil spill would pay an increased amount of any potential damages.
Although Congress created the Oil Spill Liability Trust Fund (OSLTF) in 1986, Congress did not authorize its use or provide taxing authority to support it until after the Exxon Valdez incident in 1989. The OPA, signed into law on August 18, 1990, provided the statutory authorization and funding necessary for the OSLTF. The National Pollution Funds Center (NPFC), an administrative agency of the United States Coast Guard (USCG), manages the OSLTF and acts as the implementing agency of OPA. Since 2003, the USCG has operated in the Department of Homeland Security.
A primary purpose of the OSLTF is to compensate persons for removal costs and damages resulting from an oil spill incident. In essence, the OSLTF is an insurance policy, or backstop, for victims of an oil spill incident who are not fully compensated by the responsible party.
OPA established an expenditure cap of $1 billion per oil spill incident. This $1 billion expenditure limit includes $500 million for natural resource damage assessments and claims.
Victims of the BP oil spill are at risk as a result of the cap. The cap is for total expenditures. This $1 billion expenditure limit applies even if the OSLTF is fully reimbursed by the responsible party and net expenditures are zero.
The term “Expenditure” should be defined as “an expenditure that is not reimbursed by the responsible party.”
The advantage of defining an expenditure, under the OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is threefold:
(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident;
(b) It allows the OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the OSLTF by the responsible party; and
(c) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.
On November 27, 2010, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, explaining the need to properly define the term “expenditure” under the OSLTF.
Click here to read the full text of the letter.
Click here for a better understanding of the issue.