U.S. fights Transocean's bid to limit liability

BP CEO Tony Hayward is reflected in a Transocean worker's sunglasses as he takes a first hand look at the recovery operations aboard the Discover Enterprise drill ship in the Gulf of Mexico, 55 miles (89 km) south of Venice, Louisiana on May 28, 2010.

WASHINGTON (Reuters) - The Obama administration on Tuesday sought to challenge Transocean Ltd's bid to limit its liability for its role in the gushing oil well it drilled in the Gulf of Mexico for BP Plc.

The two sides have been at odds for the last week over Transocean's petition to a U.S. federal court in Houston seeking to limit the drilling company's liability to just under $27 million for the sinking of its rig tied to the BP well.

Transocean seized on a 159-year-old law -- the Limitation of Liability Act of 1851 -- to try to limit its liability for its role in the spill. After complaints by the Justice Department, the company told the court that it did not mean to restrict claims by the U.S. government under a 1990 law on oil spills.

That still did not appear to satisfy the Justice Department, which told the court on Tuesday that such limits should not apply to the federal government or the states affected by the sinking of the oil rig and the spill.

"The Limitation Act and environmental laws cannot be reconciled in establishing the extent of a shipowner's liability for polluting the United States' navigable waters," the Justice Department said in a court filing on Tuesday.

The Obama administration said in the filing that Justice Department officials met with Transocean representatives to try to resolve the dispute, however they had not resolved all of the government's concerns.

"The United States remains willing to continue to work with Transocean to resolve these issues prior to a court ruling," the Justice Department said in the filing.

The Obama administration asked the court to clarify orders it has issued to ensure claims by federal and state governments can be made for pollution response costs, environmental damages and other related injuries under federal laws as well as preserve their ability to impose related penalties.

A Transocean spokesman declined to comment.

(Reporting by Jeremy Pelofsky; editing by Mohammad Zargham)