Magazine article Risk Management

The Legal Recourse in a Sea of Oil

Magazine article Risk Management

The Legal Recourse in a Sea of Oil

Article excerpt

[ILLUSTRATION OMITTED]

One of the most interesting legal--and human--issues arising from the Gulf oil spill is the compensation for those impaired: how far along the economic food chain it is appropriate to give settlements?

The perspective of my eight-year-old granddaughter Gabrielle provides a challenging introduction to these issues. Gabrielle likes "law problems." So I asked her whether BP should have to pay fishermen whose catch had disappeared.

"Of course," she said. I asked about restaurant owners on the shore who lost the fishermen's business. "Definitely," she answered. And what about the man who sells milk and eggs to the restaurant? "Sure," she affirmed. And the farmer who owns the cow who sells milk to that man? "Yes," she said.

"Gabrielle, how long will this go on?" I asked. She gave a little grin. "Until it ends," she replied.

Well, not quite until it ends. To determine what the stopping point is, Kenneth Feinberg, the administrator of the BP Deepwater Horizon Disaster Victim Compensation Fund (who has been encouraging people to employ the compensation fund rather than to file tort suits), will probably have to draw analogies from tort law. Although Feinberg is not bound by the law of the Gulf states, it is likely that he will also turn to that kind of reasoning.

There is indeed a general "rule" that you cannot recover under tort law for "economic loss." This rule distinguishes straight pocketbook injury, for which it denies recovery in tort, from physical harm and damage to tangible property, for which it gives compensation.

How closely can potential claimants analogize themselves to the owner of real estate whose property is fouled by oil-and therefore establish themselves as clear candidates for tort damages because of "property damage"? Fishermen are the best candidates, in part because the oil actually killed living creatures. The dairy farmer looks much less likely. But what are the most salient arguments from policy, often the ultimate arbiter of questions of legal duty, which is what issues of recovery for economic loss really are?

It should be noted, however, that the economic loss rule itself is pockmarked with exceptions. As far back as 1974, for example, the Ninth Circuit allowed a suit by commercial fisherman for fish kills caused by a spill in the Santa Barbara channel. But a dozen years later, the Fifth Circuit rejected suits for losses caused by a spill of 12 tons of the toxic insecticide pentachlorophenol brought by marina owners, boat rental operators, seafood restaurants and sport fisherman.

Judicial wariness of giving compensation for such losses has several roots. One concerns the difficulty in drawing lines among types of economic loss: why, for example, would we give recovery to the fisherman but not the restaurant owner? Or, if we extend damages to the restaurant owner then why not to the provider of milk and eggs--and even to the dairy owner?

Courts like broad rules. But they are also concerned about impractically long chains of consequences. More than 70 years ago, Supreme Court Justice Benjamin Cardozo wrote of the perils in exposing those who act carelessly to "a liability in an indeterminate amount for an indeterminate time to an indeterminate class."

Despite the rage against BP and its fellows in culpability, claimants will have to confront the argument that for one or a few acts of negligence--if negligence is all there was--imposing liability for consequences until "they end" is out of proportion to the original act. …

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