In the Face of Devastating Damage Caused by Gulf Oil Spill: Schumer Calls for Repeal of Century-and-a-Half Old Law that Would Allow Foreign Company with Responsibility for Gulf Oil Spill to Skip Out on Liability

Press Release

Today, United States Senator Charles E. Schumer called for a repeal of a century-and-a-half old law that allows the owner of Deepwater Horizon, the drilling rig that sank last month in the Gulf of Mexico and created the country's largest oil spill, to skip out on liability for this catastrophic event. Two weeks ago, Transocean, owner of Deepwater Horizon, filed a complaint in the US District Court in Houston, under the Limitation of Liability Act, to ask that their liability for all damages that resulted from the rig disaster be limited to a mere $27 million.

The "Limitation of Liability Act," passed in 1851, was put in place before sufficient means existed to insure sea vessels and to promote shipbuilding for a then growing industry. Deepwater Horizon, a moveable rig, qualifies as a vessel under the Act. If successful, Transocean could end up paying just a small fraction of clean-up costs that they would otherwise be liable for, and American taxpayers could be on the hook for the remainder. British Petroleum (BP) estimates that the cost of clean-up per day from the Gulf Oil spill is roughly $16 million.

"It's completely outrageous for a company that shares responsibility for the single largest and most expensive oil spill in American history to think it is going to get away with paying mere pennies of the total cost of the clean-up," said Schumer. "I am calling for an immediate repeal of this antiquated law that would provide legal cover to a foreign company that has a tremendous amount of liability for this accident."

When the law was enacted in 1851, Congress could not have envisioned that moveable oil rigs would qualify as "vessels" under the Act. Additionally, today ship owners have a wide variety of legal tools that they can utilize to protect their financial interests, including insurance and contractual provisions. The law was enacted at a time when such coverage did not exist for the shipping industry.

While Transocean has claimed that their Limitation Act filing would not affect oil clean-up related claims that could be made against it under the Oil Pollution Act (OPA), this seems to contradict its court filing which specifically asks the US District Court in Texas to exonerate Transocean from "any and all liability," including liability under the Oil Pollution Act for "hydrocarbons emanating from the sea floor." Transocean has already collected over $401 million in insurance payouts since the disaster occurred, but due to the antiquated nature of the Limitation Act, those payouts will not be made part of the Limitation Act fund, which is established to pay claims. Of the total $401 million in insurance payouts, the Limitation Act fund would be limited to just under $27 million in payout. Additionally, by submitting a claim under the Limitation of Liability Act, the statute of limitations for most claims against Transocean shrinks from three years to six months, plaintiffs seeking damages are denied the right to chose a venue for their course of action, and proceedings already underway, including in heavily damaged Louisiana, are now suspended pending a determination by the Texas court.

If successful under the Limitation Act, Transocean's liability would be seriously and drastically limited as to a variety of maritime causes of actions. These include claims related to the Jones Act, General Maritime Law (GML), the Death on the High Seas Act (DOHSA), and the Longshoreman and Harbor Worker's Compensation Act (LHWCA) -- all of which would provide financial damages to fishermen, oil rig workers, and others. This is in addition to any clean-up related claims under the Oil Pollution Act, which Transocean is also trying to skip out on. Although the judge in Texas this week decided that the Oil Pollution Act claims could continue notwithstanding Transocean's request for an injunction, the fact remains that these OPA claims could still end up being limited under the Limitation Act, both in this case and in any future tragedies.

Two years ago Transocean moved its corporate headquarters from Houston, Texas to Zug, Switzerland, while only a handful of employees are physically located there in order to lessen its tax liability. Over 1300 Transocean employees continue to work in Texas, but because the company relocated its headquarters overseas its US tax liability has been cut in half.

Schumer is introducing a bill on Tuesday that would repeal the 1851 Limitation of Liability Act to ensure that all parties responsible for the disaster are held fully liable to the extent of their determined negligence. The bill would prevent Transocean from limiting its liability to a mere fraction of the costs and damages it is responsible for as a result of the Gulf oil spill.

"The Limitation Act is no longer necessary, serves no legitimate purpose and should be immediately repealed so that no company has the opportunity to walk away from its responsibility and leave taxpayers on the hook for their catastrophic mistakes," continued Schumer.

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