June 15, 2010
Can The Government Make BP Set Up A $20 Billion Escrow Fund?
Posted by David Zaring

On NPR this morning, Robert Gibbs suggested that maybe the president could order this.  The Senate Democrats have couched their $20 billion fund approach as a request.  And some of that money would go to oil workers in the gulf not idled by BP's spill, but by the government's decision after the spill to stop all drilling in the gulf, as Ed Richards and Frank Pasquale have noted off line.

Can the government do that?

I doubt it.  The Oil Pollution Act, which gives the government special powers in this area, caps economic damages for off-shore drilling at $75 million.  The government can also require for the company to pay for clean up costs, and there's this interesting provision in section 2716 of the Act, which applies to offshore facilities in the event of catastrophe

 If the President determines that an amount of financial 
responsibility for a responsible party greater than the amount
required by subparagraph (B) is justified based on the relative
operational, environmental, human health, and other risks posed
by the quantity or quality of oil that is explored for, drilled
for, produced, or transported by the responsible party, the
evidence of financial responsibility required shall be for an
amount determined by the President not exceeding $150,000,000.

But that also doesn't get to $20 billion.  Section 2716a of the act provides for civil penalties in the event of violations of section 2716 in the amount of $25,000 per day, which isn't nothing, given how long this spill has been going on, but that also doesn't get to $20 billion.

So, because of the Due Process and Takings concerns that would arise because of a government mandate that a company come up with $20 billion dollars, this might be better phrased as an ask, rather than a demand, as the Senate Democrats appear to be doing.  I don't know all the other environmental statutes in the field, though, and it's worth noting that the sky may well be the limit if state tort law suits can be brought against BP; the OPA does, as a part of the Clean Water Act, not preempt state law liability suits.

What about the oddity of BP being asked to pay for oil workers idled by the federal government's own regulatory action?  It's a little weird, but I can see a case made for liability as a matter of consequential damages that were reasonably foreseeable and so on, but I still think the economic damages would be subject to the OPA cap.

UPDATE:Elizabeth Brown notes, of course, that there is an exception to these caps in the OPA, and it is an exception BP has to worry about ... unless it can argue that it wasn't the proximate cause of the spill (and, technically, it has a pretty good argument here, since it didn't drill the well, and (I don't think) ever operated it, though it did order it) or that there's a cap departure, and then there's a 20x cap departure.  Here's the exception:

[the cap subsection] does not apply if the incident was proximately caused by—

(A) gross negligence or willful misconduct of, or
(B) the violation of an applicable Federal safety, construction, or operating regulation by,
the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party (except where the sole contractual arrangement arises in connection with carriage by a common carrier by rail).

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