* Interior Dept calls for higher criminal penalties
* BP has said it is not bound by existing cap
* Some fear chilling effect on oil search from higher caps
* Justice Dept silent over whether negligence in spill (Adds senators’ quotes, vote on bill, Justice Department comment)
By Tom Doggett
WASHINGTON, May 25 (Reuters) - The U.S. Justice Department said on Tuesday that Congress could retroactively impose a higher liability cap on BP (BP.L) to pay for the damage from its growing oil spill, and the company would likely lose if it challenged the higher cap in court.
Current law imposes a $75 million liability cap on economic damage. Since the BP spill in the Gulf of Mexico in late April, legislation has been introduced in Congress to raise the cap to $10 billion.
“Our view is that there is a strong chance to defeat any (legal challenge) if Congress were to lift the caps,” U.S. Associate Attorney General Thomas Perrelli told a Senate Energy and Natural Resources Committee hearing on the oil spill.
“I believe that we have a system in dire need of repair,” Jeff Bingaman, the panel’s Democratic chairman, said about the current oil spill liability law.
Some lawmakers and legal experts have questioned whether Congress could make the higher liability cap apply to the BP accident. BP has said it would pay all legitimate claims and was not bound by the existing cap.
Perrelli told the committee the government had strong arguments to defeat anyone challenging any retroactively imposed cap.
Some lawmakers are worried that raising liability levels would boost insurance costs, if policies were even offered, making it more expensive for smaller companies to search for offshore oil.
That would result in the United States relying on more foreign oil and creating fewer high-paying offshore drilling jobs for U.S. workers.
Senator Lisa Murkowski, the top Republican on the Senate energy committee, said she supported raising the liability limits in a sensible manner.
“We must and we will hold BP fully accountable for this tragedy,” she said. “We also must consider the cumulative effect of the different levels of liability, which could be economically devastating.
“Thousands of jobs, particularly along the Gulf coast, could be lost, our nation’s energy security could be weakened, without providing any additional protection,” she said.
Senate Democrats failed on Tuesday afternoon to ram through legislation that would eliminate the cap altogether on the costs oil companies would have to pay in major oil spills.
Meanwhile, the U.S. Interior Department told the Senate panel that Congress should increase fines and prison sentences for individuals and energy companies that violate the federal law covering offshore oil development.
Since the law was enacted in 1978, the criminal penalty has remained unchanged with fines of no more than $100,000 per day or imprisonment of up to 10 years. The current maximum daily civil fine is $35,000.
“We believe it is appropriate to consider thoughtful increases in the amount of both civil and criminal penalties,” U.S. Deputy Interior Secretary David Hayes told the committee.
Perrelli refused to tell the committee whether the Justice Department had found any negligence yet by BP or others involved in the oil spill.
The department said later in the day it was considering a request from lawmakers to open a criminal inquiry into whether BP made false and misleading comments to the government regarding its ability to respond to oil spills in the Gulf of Mexico. However, the department would not confirm or deny whether an investigation was already underway. (Reporting by Tom Doggett; Edited by Sofina Mirza-Reid and David Storey)