News 25 May, 2010

USA - Background on BP liability for Deepwater Horizon Claims and Advice on the Decontamination of Hulls

Following consultation with ReedSmith the following advice has been received from the International Group Secretariat with regard to shipowner liability for fines, the cost of cleaning fouled hulls and delays as a result of vessels being in contact with oil pollution caused by the Deepwater Horizon incident, and the possibility of recovery from BP. Further guidance is also given on the mandatory requirements adopted by the Unified Command for the decontamination of hulls.

Background on BP Liability for Deepwater Horizon Claims

Under the Oil Pollution Act of 1990, the "responsible party," BP, is liable for the total of all removal costs (i.e., "costs of removal that are incurred after a discharge of oil has occurred or, in any case in which there is a substantial threat of a discharge of oil, the costs to prevent, minimize, or mitigate oil pollution from such an incident"), plus up to $75,000,000 in other damages covered damages (i.e., damages to natural resources, real or personal property, subsistence use of resources, loss of revenues, profits and earning capacity and losses to public services. In addition, BP may be additionally liable for claims arising under state law causes of action.

BP has indicated that it will not be invoking the $75 million cap on third-party damage claims. Instead, it has made the following statements publicly regarding payment of claims:

“BP takes responsibility for responding to the Deepwater Horizon oil spill. We will clean it up. BP has established a robust process to manage claims resulting from the Deepwater Horizon Incident. BP will pay all necessary and appropriate clean-up costs. BP is committed to pay legitimate and objectively verifiable claims for other loss and damage caused by the spill – this may include claims for assessment, mitigation and clean up of spilled oil, real and property damage caused by the oil, personal injury caused by the spill, commercial losses, including lost of earnings, profit and other losses as contemplated by applicable laws and regulations.”

The claims process details are set forth at the Deepwater Horizon Claims website. 

Decontamination of Hulls

The Unified Command overseeing the recovery effort has adopted a mandatory protocol for vessel assessment and, if necessary, decontamination for all vessels operating in the area impacted by the spill, which includes the mandatory filing of self-assessment forms. Failure to comply with this protocol may subject vessels to delays and/or penalties.

The Coast Guard (Sector Mobile) regularly has been publishing a list of decontamination sites. We were informed yesterday by the Coast Guard that the vessel decontamination services are being provided for BP's account; no arrangements for payment are required for impacted vessels.

If a vessel is exposed to oil and requires decontamination elsewhere (i.e., if it is fouled on an outbound voyage and requires cleaning on arrival at a foreign port), we believe that the vessel operator would have a strong basis to seek compensation from BP through its claims process for any clean-up or property damage costs.

Similarly, if a vessel operator is faced with a claim from a third party for damage caused by an oil-fouled hull, the vessel may bring a corresponding claim against BP. Such cases could turn on individual facts and circumstances; that is; it is possible that the success of a claim against BP could depend on whether the vessel complied with the mandatory protocol for vessel assessment and other regulatory requirements, whether the vessel operator acted reasonably, and the particular legal basis for the third-party claim.

As a general matter, BP as a responsible party has a broad responsibility to pay commercial damages (including lost profits and earnings) to businesses impacted by the spill. BP has acknowledged as much in its public statements and Congressional testimony. Accordingly, we do not see broad structural impediments to shipping companies pursuing claims against BP for losses caused by the spill, including damage to vessels or facilities, or harm caused by diversion of vessels or other operational disruptions. However, any future claims must be verifiable and well-documented, and general legal damages principles including forseeability and remoteness are likely come into play.

Accordingly, great care should be taken by vessels trading to the impacted area, including daily monitoring and compliance with Coast Guard updates and bulletins (available at sites including Marine Safety Unit Morgan City and Deepwater Horizon Response).