Following the Deepwater Horizon incident, the framework of liability for oil pollution and victim compensation in the United States is undergoing significant changes. In the event of a marine casualty or oil spill, the owner or operator of a vessel has planned for liability in accordance with the current federal scheme established under the Oil Pollution Act of 1990 ("OPA"), (1) and numerous other federal and state environmental statutes. The reaction from Congress to the enormous public outrage and unprecedented scope of the oil spill from the Deepwater Horizon, was to push legislative proposals through committee hearings, and bring bills to the floor for a vote that would repeal established limits of liability, both under the OPA and other statutes, such as the Shipowner's Limitation of Liability Act of 1851. (2) This knee-jerk reaction to remove limits of liability is short-sighted and serves only to quench public thirst for punishment by showing that the politicians can act swiftly and forcefully. The proposed legislation would not increase the funds available for compensation to injured claimants, nor would it result in claimants being compensated in greater numbers or more promptly.
As part of the present liability scheme, participants in the industry are required to submit evidence of financial responsibility sufficient to pay claims up to the OPA limits. (3) As a practical matter, this requirement is usually met by provision of a certificate from a qualified insurance company agreeing to act as a guarantor of the OPA liability limit for a vessel or facility. (4) The guarantor must agree to direct action lawsuits from claimants. (5) The financial responsibility requirement ensures that compensation funds are immediately available from the responsible party to pay claims for damages and removal costs.
Because the OPA's financial responsibility requirements are set by reference to OPA limits, legislation which repeals those limits would, in effect, dismantle the proven and effective system established by the OPA, which has been relied upon by the vessel and offshore industries over the last twenty years. The removal of the OPA's statutory limits of liability would also put the U.S. shipping and offshore industries at a distinct disadvantage in a global economy governed by international limitation regimes, which (by the way) impose lower limits and provide less compensation than the robust system already in place under the OPA.
Moreover, the OPA already has provisions which call for unlimited liability in the event the responsible party acts with gross negligence, willful misconduct, or violates an applicable federal safety, construction, or operating regulation. (6) A responsible party will also lose its limits if, after an oil spill, the responsible party fails to report or cooperate with authorities or, without sufficient cause, fails to follow a governmental order. (7) State law may also provide unlimited liability for an oil spill. (8) The OPA expressly provides that individual states may legislate to create supplemental liability for oil pollution damages. (9) For this reason, removing limits of liability will not provide additional motivation for potential responsible parties, but instead will likely make it impracticable to set financial responsibility requirements.
A dramatic increase in the OPA limits of liability, or removal of current limits of liability entirely, would seriously disrupt the existing compensation and liability scheme for oil spills. Such an increase may also jeopardize the ability of most companies to provide evidence of financial responsibility as required by the statute, which could place the maritime industry in the U.S. at a competitive disadvantage in the global marketplace. Careful consideration should be given to study the effects of modifications to the OPA limits of liability, including comparison to other prominent jurisdictions worldwide, which would balance the interests of industry participants with protecting the environment and providing adequate compensation to victims of an oil spill. …