Following the Devastating Gulf Oil Spill, Liability Spreads

by Steve Wilson on May 12, 2010 · 4 comments

in Business, Errors & Omission, General Liability

100511_oilexecs.rp600x350 The question of liability for the oil spilling into the Gulf of Mexico following an explosion and sinking of a drilling rig is as murky as the now-polluted ocean water. Experts can say where claims might arise. They can’t say who will be on the hook, but note that already the lines are in the water.

A rash of lawsuits are being filed under state statutes seeking payment on behalf of individuals and businesses who could lose millions of dollars. BP, operator of the rig, has said it will pay “legitimate claims” for property, commercial and personal injury losses.

Executives of the three companies involved in the Gulf oil disaster — BP, Transocean and Halliburton — testified before senators Tuesday and were quick to lay blame elsewhere.   In their opening statements, the executives said it was too early to draw conclusions but then explained what they thought went wrong and who was responsible.

"I can see the liability chase that’s going to go on," Sen. Robert Menendez, D-N.J., told the Senate Energy and Natural Resources Committee as the hearing got under way.  Sen. Lisa Murkowski, R-Alaska, urged the companies not to point fingers, saying that "we are all in this together."

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Transocean, which owned the rig that exploded, suggested work done by subcontractor Halliburton could have been the key factor. Halliburton and BP, meanwhile, said the blowout preventer that failed on Transocean’s rig was critical.  A top executive of BP, which leased the rig for exploratory drilling, focused on a critical safety device that was supposed to shut off oil flow on the ocean floor in the event of a well blowout but "failed to operate."  "That was to be the fail-safe in case of an accident," said BP American President Lamar McKay, pointedly noting that the 450-ton blowout preventer — as well as the rig itself — was owned by Transocean Ltd. However,  Transocean CEO Steven Newman sought to put responsibility on BP.

It will certainly take some time to figure out where the liability truly lies.  More than likely it will end up being a shared responsibility, and ultimately the insurers of these companies will have to pay some severe claims.  We can expect to see oil prices increase, limitations on exploratory  and off-shore drilling, and rate hikes in the insurance industry overall.

{ 4 comments… read them below or add one }

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