The Risk of Oil Spills

By Oshins, Alice H. | Risk Management, December 1992 | Go to article overview

The Risk of Oil Spills


Oshins, Alice H., Risk Management


Risk managers may be surprised to learn that when the Exxon Valdez spilled 258,000 barrels of oil into Alaska's Prince William Sound, it was only 20 percent of the cargo that was discharged from the supertanker. Tragic incidents like these that wreak havoc on the environment and cost millions of dollars to clean up have brought about new legislation designed to avert future catastrophic spills.

Since the U.S. Oil Pollution Act of 1990 (OPA '90) imposed unlimited liability on owners and operators of vessels and shore facilities who discharge oil into surrounding waters, there has been a considerable debate about its stringent requirements and effect on the oil and international shipping communities. The cost of compliance is said to be $1.3 billion over the next 24 years, but some say the figure will be closer to $7 million by2015.

According to Raymond Burke Jr., of the New York law firm of Burke and Parsons, OPA '90 was enacted in the hope of decreasing the likelihood of accidents and mishaps in the ocean transport of oil. The act applies to ships intending to transport oil 200 nautical miles from the shoreline of the continental United States, and it imposes unlimited liability if the spillage is considered gross negligence - which can spell financial ruin for a shipowner. "The owner, operator or bare boat charterer of any vessel that discharges oil into the surrounding waters is, at least initially, considered the responsible party and the target of stringent liability and compensation provisions," said Mr. Burke. In addition to removal costs, he said, the responsible party becomes liable for consequential damages: harm to natural resources, economic loss to real or personal property, losses suffered by one who earns subsistence from natural resources, losses in tax revenues, loss to profit or earning capacity, and increased expense of public services.

Yet there are three general defenses to OPA '90, Mr. Burke said: act of God, act of war, and act or omission by third party. However, general defenses are lost if the responsible party falls to report an oil spill or cooperate with the authorities investigating a spill.

If they own or operate more than one vessel, they must demonstrate financial responsibility for their largest vessel through insurance or a letter of credit, or qualify as a self-insurer. …

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