Political and Public Relations Pressure on Display in Wake of BP Oil Spill as Legal Questions Continue to Mount

The BP oil spill and its aftermath continue to break uncharted territory, both legal and otherwise. 

Lawsuits continue to mount following the April 20, 2010 explosion of the Deepwater Horizon and resultant release of an estimated 35,000 to 60,000 barrels of oil per day, including a record $19 Billion Clean Water Act suit brought against the energy company and the rig’s operator Transocean Ltd. by The Center for Biological Diversity, an environmental group. 

Following several failed attempts to cap the well, the ongoing spill and its after effects continue to be a public spectacle and a substantial challenge for BP, Congress and the White House as all three grapple with attempts to address claims of those harmed by what President Obama has described to the nation from the Oval Office as “the worst environmental disaster America has ever faced.” 

In response to pressure from the Obama Administration and Congressional Democrats, BP PLC recently announced that it would set up a $20 Billion escrow fund to pay claims stemming from the spill.  Kenneth Feinberg, previously appointed Special Master of the U.S. Government’s September 11thVictim Compensation Fund and current Special Master for TARP Executive Compensation, has been named as the independent administrator of the $20 Billion escrow fund.  Feinberg has pledged to accelerate payments to spill victims and increase transparency in the claims handling process. 

While neutral observers and critics of the measure have openly questioned the government’s express legal authority to cause the escrow fund to come into existence, the measure serves as an unprecedented example of political and social pressures translating into truly massive sums of money being set aside to satisfy claims. 

As of press time, the rough contours of the spill compensation plan have only recently been laid out.  Key administrative details which remain to be resolved include guidelines concerning the type of claims which will be honored versus those which are deemed too remote to be paid, although Feinberg has indicated that lessons learned in administration of the September 11th Victim Compensation Fund would serve as an example. 

Importantly, President Obama has clarified that the Gulf Spill fund is not intended to supersede public or private rights to pursue their claims arising from the Gulf spill in court.  In addition, reports suggest that the fund is not intended as a liability cap, and will not provide for recovery of punitive damages, which will have to remain the province of the court system.  Consequently, there is little likelihood that the fund will appreciably stem the rising tide of litigation that has already ensued as a result of the spill.  Indeed, the establishment of the fund itself may fuel additional legal claims.  Ultimately, suits will likely ensue among BP and its joint venture partners in the rig, including 25 percent owner Anadarko Petroleum Corp. and 10 percent owner Mitsui, as BP may seek contribution from them for funding at least part of the $20 Billion escrow fund, and as the rig’s co-owners pursue their own claims against BP and others.  As the technical investigation continues concerning the underlying cause of the rig explosion and failure of the well’s blowout preventer to prevent the release of oil from the ruptured well, additional claims will almost certainly follow.  Additional suits have already been filed as a result of the 6-month moratorium on issuance of deepwater offshore drilling permits imposed by the Obama Administration.

In the wake of such a dramatic and far-reaching environmental disaster, private industry, government and the courts themselves will continue to be pressed to action by the interests of those impacted by the Gulf oil spill, whose numbers appear ever-increasing.

For more information, please contact Stephen E. O’Day, Andrew M. Thompson or Christopher J. Bowers.

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