Liability and Financial Responsibility

May 25, 2010
11:18 AM
Opening Statement – May 25, 2010
Liability and Financial Responsibility Issues
Related to Offshore Oil Production
“Today is the third hearing of this Committee on issues related to the Deepwater Horizon disaster in the Gulf of Mexico.  While today we will focus on liability and financial issues, we have foremost in our minds the human component of this accident – the 11 rig workers who lost their lives, their families, and the people of the Gulf who are experiencing this catastrophic situation first hand. 
“Yesterday I spent the day in the Gulf area observing the consequences of this accident and the joint response of our government agencies, BP, and many volunteers.   It’s a sobering reality to see oil begin to impact the shoreline, and to know that this well is not yet under control.  However, I also saw many people who have been working day and night for weeks to fight this spill and protect the Gulf, and I think we all want to express our gratitude to them for their extraordinary service. 
“Today we will examine the liability, financial responsibility and penalty provisions of the law related to this accident.  There is urgency in our effort.  We need to ensure that those harmed by this accident are fully compensated, and that a system is in place that properly allocates these risks and losses.
“Based on what I’ve learned so far, I believe that we have a system in dire need of repair.  Current law caps the responsible parties’ damages – other than clean up costs – at $75 million, nowhere near the damages which will result from this accident. 
“Equally troubling, the law requires the Secretary of Interior to adjust the amount of these caps at least every three years to reflect significant increases in the Consumer Price Index.  Yet the limits on damages for offshore facilities have not been increased since the law was passed in 1990 – 20 years of inflation have been ignored.
“Victims of this disaster will surely wonder why there should be any cap on damages, and why those responsible should not simply be required to pay the full amount of the harm they cause.  BP has stated that it will pay all legitimate claims, and that it will not insist on the $75 million cap currently in the law.  Even accepting that as true, we still have a broken system in need of repair.
“The Oil Spill Liability Trust Fund, financed mostly by a tax on oil, is intended to cover higher levels of damages, and to spread the risk of excess damages among the industry as a whole.  Yet it is limited to paying $1 billion per incident.  Congress over the years has been inconsistent in enacting taxes to fund this effort, and the taxes that support it are scheduled to expire in 2017.   So, we obviously need to look at this as well.
“The law also requires that operators in the offshore environment demonstrate certain levels of financial responsibility, to ensure that they can cover the losses that they may cause.    However, for facilities like the Deepwater Horizon, the maximum amount required is $150 million, and the standard requirement is only $35 million.  This amount has not been increased in decades.  We obviously need to fix this.
“Finally, there are civil and criminal penalties available to the Secretary to punish those who violate safety and other legal requirements.  These are intended to be a deterrent to playing fast and loose with the rules and creating safety risks.  But the civil penalties were set in 1990 at $20,000/day and have been raised only to $35,000 a day.  They remain at that level.  Here too, the law requires the Secretary to adjust these penalties every three years to reflect increases in the Consumer Price Index.  That has been done only sporadically. 
“So we have our work cut out for us.  These are complex areas of law and policy, and we have a number of experts here today who can help us think about how to fix this system.  I look forward to their testimony.”
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