As oil continues to flow into the Gulf of Mexico from the Deepwater Horizon rig explosion, litigation has already begun. According to the New York Times, about 200 people have already filed lawsuits in various courts around the country for claims ranging from deaths on the rig during the explosion to shareholders claiming loss from plunging stock.
The figure most frequently discussed in the news is $75 million -- the cap on BP's liability under a 1990 law passed after the Exxon Valdez disaster that covers economic and punitive damage claims made in federal courts. The company has said it plans to disregard the cap without tapping into a federal trust fund designed to help people whose claims are denied, and has put $20 billion in an escrow account at the president's urging. It says it has already paid $84 million to individuals and businesses.
The last large-scale domestic oil spill was Exxon Valdez in 1989. Determining liability was complex -- and that spill took place in a remote, sparsely populated bay. The court cases involving Exxon Valdez were not fully resolved until the Supreme Court heard Exxon Shipping Co. v. Baker in 2008. As an immediate response, Congress passed the 1990 Oil Pollution Liability and Compensation Act, which, among other things, gives states the ability to collect from companies for natural-resource damage and gives individuals who are directly affected the right to make claims directly to the company. All claims for damages made under the 1990 act are capped at $75 million. The law also set up a trust fund to pay claims companies involved in oil spills decline to pay. Sen. Robert Menendez of New Jersey has proposed raising the cap to $10 billion in the wake of the BP spill.
The cap does not, however, apply to cleanup costs. There will likely be future legal wrangling over who among BP and the two contractors involved with the rig that exploded in April, Transocean and Halliburton, is more responsible and therefore more liable to pay cleanup costs and private claims.
But the 1990 law does not preclude individuals from making other claims -- like civil claims that the company was negligence or malfeasant. Nor does it rule out the possibility that the federal government could go after BP and the other companies for civil or criminal penalties. The latest estimates show that BP could face $280 million in civil penalties, according to the New York Times. In the same article, one estimate puts BP's ultimate cost at $62.9 billion.
"It will make the Exxon Valdez look like a simple case," says Jody Freeman, a professor at Harvard Law School.
Plaintiffs often try to bring cases in state court rather than federal court because they believe state judges and juries will be more amenable to bigger rewards. Big state-level cases, like those against tobacco companies in the 1990s, support that notion to some extent. However, the affected Gulf states -- Florida, Georgia, Alabama, Mississippi, Louisiana and Texas -- are rated among the worst legal climates for businesses by the U.S. Chamber of Commerce. Louisiana ranks 49th of 50, and the other states rank in the bottom ten except Texas, which is 36. This is even after some of those states have passed tort reform laws.
Mississippi famously won $248 billion against tobacco companies. In 2004, it passed a tort reform law that caps punitive damages, but not economic damages. The caps is tied to a company's net worth. (Another change the law made is that BP, if it is found to share liability with the other companies involved, would only pay damages proportionate to its responsibility.) Louisiana had its tort reform law struck down by the state supreme court, so it has no caps on liabilities. But new legal precedent limits punitive damages so that they have some relationship to actual economic damages, usually no more than double.
Given the size and scope, BP suits may have more in common with the large class action tobacco suits of the 1990s, or other personal injury litigation like that over asbestos and pharmaceutical products. There was considerable natural resource damage in Alaska, but it was still a finite amount of oil in an area that's not particularly populated and does not have as much economic activity. (New estimates show that the same amount that was spilled in 1989 is spewing into the Gulf every four days, and isn't stopping.) Freeman says BP and the other companies will probably try to move the claims to federal court.
An added wrinkle in the federal courts is whether federal maritime law applies. Transocean is already arguing that it does. It is trying to invoke a 1851 ruling that would limit its liability to $27 million. In the Exxon Valdez case, the Supreme Court ruled that a 1 to 1 ratio of punitive damages to economic damages was the maximum under maritime law, but there is some belief that the 1990 act changes that. In one case heard in the First Circuit after 1990, the judges determined that that law meant maritime law limits were not applicable.
The cap also will not apply if BP is found to have committed gross negligence of willful misconduct, a high legal standard but a possibility. Plaintiffs or the government would have to prove that BP took risks, knew about the risks and disregarded the likely consequences. Federal officials are already expecting to file criminal charges.
The scope of the disaster and the number of people it is likely to directly affect, from fishermen to homeowners to restaurant and hotel employees is unprecedented. The costs of clean up have already soared to $1.25 billion. But what's really unprecedented is the future ecological damage that states may struggle to quantify.
"It's not easy to value human health, absolutely, but we have been trying to do that for centuries in personal injury cases," says says Nina Mendelson, a professor from the University of Michigan School of Law. "We have a lot less practice trying to value shared environmental resources damaged in an irreplaceable way."
