WASHINGTON (Reuters) - The government’s push to make BP Plc pay for the massive oil spill in the Gulf of Mexico may have wider repercussions, raising tricky legal debates and possibly making it too costly for some companies to operate offshore.
Lawmakers in the House and Senate have introduced legislation that would raise to $10 billion the maximum amount of cash oil companies would be required to pay for economic losses. The White House has also expressed support for raising the cap on damages from the current $75 million.
This plan, however, would apply not only to new leases but also to those existing leases where contract terms have already been agreed. This could present a problem, according to Jack Coleman, who served for more than a decade as the Interior Department’s senior attorney for royalties and offshore minerals.
Coleman said the Supreme Court ruled in another case dealing with offshore energy production that laws in place at the time a lease is issued are still part of the contract.
“If you go about making substantial changes to those laws then you have breached the leases,” he said.
The Senate Energy and Natural Resources committee is set to hold a hearing on Tuesday on the liability issue. Lawmakers are seeking ways to bring the legislation up for a vote in Congress.
Smaller energy companies operating offshore may not be able to remain insured with a liability cap at $10 billion and beyond. These companies could potentially sue the government, arguing they would have paid less or not bought their current leases if they knew their liability would rise.
“Clearly that’s the argument if I’m the oil companies’ lawyers that I’m going to be making,” said Pat Parenteau, a professor of environmental law at the Vermont Law School.
It’s unlikely that the government would be able to apply the cap only to BP, because that would raise constitutional issues regarding basic fairness and due process, Parenteau said.
Whether that claim holds “really comes down to what was the reasonable expectation that BP had when it bought these leases,” Parenteau said.
Jeffrey Rachlinski, of Cornell Law school, disagreed with the idea that the government’s changes to the cap for existing leaseholders may not stand up in court.
“The liability provisions are not part of the leases, they are part of federal law,” Rachlinski said. “Contractual provisions always give way to substantive law.”
For its part, BP said it will ignore the $75 million cap and pay all legitimate economic claims. Whether these public statements legally bind the company to uphold this pledge is up for debate.
Some argue BP’s promises show the company is willing to amend its current lease contract in the case of this particular accident and the government will be able hold BP accountable for claims beyond the cap even if no new liability law is passed. Others say this is unclear.
“The existing law is pretty clear,” said John Pendergrass, a senior attorney at the Environmental Law Institute. “Their voluntary statements or even writing saying that they’re not going to take advantage of that legal right, I’m not sure that would hold up.”
Reporting by Ayesha Rascoe; Edited by Sofina Mirza-Reid and David Gregorio
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