Gulf Oil Spill: The Impact of Damage Caps Will Be Felt By Tens of Thousands

You haven’t seen much about it in the press yet,  but BP has the benefit of a cap that will probably limit its liability for the oil spill in the Gulf.  Section 1004 of the Oil Pollution Act (OPA), passed into law in August 1990 after the Exxon Valdez incident, limits the liability of holders of leases or permits for offshore facilities to $75 million per spill, plus removal costs.

The Act also limits the liability for tank vessels larger than 3,000 gross tons to $1,200 per gross ton or $10 million, whichever is greater and the liability  for responsible parties at onshore facilities and deepwater ports  to $350 million per spill. 

The Act also created the Oil Spill Liability Trust Fund.   The primary source of revenue for the fund was a five-cents per barrel fee on imported and domestic oil. Collection of this fee ceased on December 31, 1994 due to a "sunset" provision in the law. Other revenue sources for the fund include interest on the fund, cost recovery from the parties responsible for the spills, and any fines or civil penalties collected. The Fund is administered by the U.S. Coast Guard’s National Pollution Funds Center (NPFC).

According to the EPA, the Fund can provide up to $1 billion for any one oil pollution incident, including up to $500 million for the initiation of natural resource damage assessments and claims in connection with any single incident. The main uses of Fund expenditures are:

  • State access for removal actions;
  • Payments to Federal, state, and Indian tribe trustees to carry out natural resource damage assessments and restorations;
  • Payment of claims for uncompensated removal costs and damages; and
  • Research and development and other specific appropriations.

Thus, if the oil damages the coastline, the damages will be hundreds and hundreds of millions, the vast majority of it paid for by consumers who paid the tax on oil, and not the company that negligently created the harm.  That is a crying shame.  

Maybe this tragedy will cause people to re-examine the appropriateness of damage caps in general.   Whether they concern property damage, personal injury or wrongful death, damage caps are nothing but a bailout to those who cause harm. 

Contact Information