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S. HRG. 111–1241 

LEGISLATIVE HEARING TO CONSIDER S. 3305 

HEARING 

BEFORE THE

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

JUNE 9, 2010 

Printed for the use of the Committee on Environment and Public Works 

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys 
(II) 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

BARBARA BOXER, California, Chairman 

MAX BAUCUS, Montana 

THOMAS R. CARPER, Delaware 

FRANK R. LAUTENBERG, New Jersey 

BENJAMIN L. CARDIN, Maryland 

BERNARD SANDERS, Vermont 

AMY KLOBUCHAR, Minnesota 

SHELDON WHITEHOUSE, Rhode Island 

TOM UDALL, New Mexico 

JEFF MERKLEY, Oregon 

KIRSTEN GILLIBRAND, New York 

ARLEN SPECTER, Pennsylvania 

JAMES M. INHOFE, Oklahoma 

GEORGE V. VOINOVICH, Ohio 

DAVID VITTER, Louisiana 

JOHN BARRASSO, Wyoming 

MIKE CRAPO, Idaho 

CHRISTOPHER S. BOND, Missouri 

LAMAR ALEXANDER, Tennessee 

BETTINA POIRIER, Staff Director 

RUTH VAN MARK, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

JUNE 9, 2010 

OPENING STATEMENTS 

Boxer, Hon. Barbara, U.S. Senator from the State of California ........................ 1 

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 2 

Lautenberg, Hon. Frank R., U.S. Senator from the State of New Jersey ........... 13 

Vitter, Hon. David, U.S. Senator from the State of Louisiana ............................ 13 

Additional statement ........................................................................................ 29 

Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland ................ 15 

Bond, Hon. Christopher S., U.S. Senator from the State of Missouri ................. 18 

Baucus, Hon. Max, U.S. Senator from the State of Montana .............................. 19 

Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee ................... 20 

Merkley, Hon. Jeff, U.S. Senator from the State of Oregon ................................ 21 

Whitehouse, Hon. Sheldon, U.S. Senator from the State of Rhode Island ......... 22 

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware ................... 23 

Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota ...................... 24 

Menendez, Hon. Robert, U.S. Senator from the State of New Jersey ................. 26 

Nelson, Hon. Bill, U.S. Senator from the State of Florida ................................... 28 

WITNESSES 

Minich, D. T., Executive Director, Visit St. Petersburg-Clearwater ................... 34 

Prepared statement .......................................................................................... 36 

Response to an additional question from Senator Boxer .............................. 43 

Responses to additional questions from Senator Carper .............................. 44 

Frenette, Mike, Captain, Venice Charter Fishing ................................................ 45 

Prepared statement .......................................................................................... 48 

Response to an additional question from Senator Boxer .............................. 52 

Responses to additional questions from Senator Carper .............................. 53 

Kopchak, R. J., Cordova District Fishermen United and Prince William Sound 

Science Center ...................................................................................................... 55 

Prepared statement .......................................................................................... 57 

Response to an additional question from: 

Senator Boxer ............................................................................................ 62 

Senator Carper .......................................................................................... 63 

Murchison, Kenneth M., Professor, Paul M. Hebert Law Center, Louisiana 

State University ................................................................................................... 64 

Prepared statement .......................................................................................... 66 

Response to an additional question from Senator Boxer .............................. 79 

Responses to additional questions from: 

Senator Carper .......................................................................................... 80 

Senator Whitehouse .................................................................................. 82 

Hartman, Barry M., Partner, K&L Gates ............................................................. 84 

Prepared statement .......................................................................................... 86 

Responses to additional questions from: 

Senator Carper .......................................................................................... 94 

Senator Whitehouse .................................................................................. 95 

Senator Inhofe ........................................................................................... 98 

Baron, Ron, Executive Vice President, Willis Global Energy, Willis of Texas, 

Inc .......................................................................................................................... 100 

Prepared statement .......................................................................................... 102 

Responses to additional questions from Senator Carper .............................. 109 
Page

IV 

ADDITIONAL MATERIAL 

Bill submitted by Senator David Vitter, the Acceptance of Offer on Liability 

and Expedited Claims at Mississippi Canyon 252 Act ..................................... 147 

Deepwater Operations in the Gulf of Mexico by Company Size, data compiled 

by the Office of Senator Robert Menendez ......................................................... 187 

Westlaw information on Ballard Shipping Company etc. v. Beach Shellfish 

et al ....................................................................................................................... 196 
(1) 

LEGISLATIVE HEARING TO CONSIDER S. 3305 

WEDNESDAY, JUNE 9, 2010 

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, Washington, DC. 

The full Committee met, pursuant to notice, at 10:30 a.m. in 

room 406, Dirksen Senate Office Building, Hon. Barbara Boxer 

(Chairman of the full Committee) presiding. 

Present: Senators Boxer, Inhofe, Baucus, Bond, Voinovich, Carper, Lautenberg, Alexander, Vitter, Cardin, Klobuchar, 

Whitehouse, Udall, and Merkley. 

OPENING STATEMENT OF HON. BARBARA BOXER, 

U.S. SENATOR FROM THE STATE OF CALIFORNIA 

Senator BOXER. The Committee will come to order. 

Today, we will hear from fishermen, tourism officials, and legal 

experts about the drastic and heartbreaking economic damages 

caused by a significant oil spill and the need to pass legislation to 

ensure that the people whose jobs and livelihoods are impacted are 

made whole again. 

Several of us sitting here represent coastal States, and as we 

watch this we have the strongest of feelings about what it would 

mean if it happened in our State. And we have the strongest of 

feelings as to what it would mean to our fishermen, to our people 

who run tourism businesses and recreation businesses, and to our 

wildlife. So our hearts are in this hearing. 

I want to thank all the dedicated people who are now in the Gulf 

responding to the current disaster. This includes 17,500 National 

Guard troops, more than 20,000 people sent by President Obama, 

and countless State and local officials who are working day and 

night to protect and clean up the coast. 

As Chairman of this Committee, I want to unequivocally state 

that I want to make available as many people as it takes to clean 

up this mess with BP paying the bill as is required by current law. 

But as we know from previous oil spills, the road to recovery can 

be long and arduous. The Exxon Valdez spill showed how protracted and painful this experience can be. Listen to this history. 

On March 24, 1989, shortly after midnight, the oil tanker Exxon 

Valdez struck a reef in Prince William Sound, Alaska, spilling more 

than 11 million gallons of crude oil, which eventually contaminated 

1,300 miles of shoreline. The spill decimated fisheries and ended 

the lives of thousands that depended on the precious natural resources in Prince William Sound. 
2 

Exxon reached a settlement agreement for $900 million to restore injured natural resources over a period of 10 years. But more 

court cases followed, and Exxon continued to successfully fight the 

court’s ruling of an additional $5 billion to Alaska fishermen, natives, and businesses. In 2006 an Appeals Court cut this to $2.5 billion. And in 2008, nearly 20 years, 20 years after the spill, the case 

wound its way to the Supreme Court, who cut the amount Exxon 

owed even further to $507 million. After two decades of waiting, 

each plaintiff received $15,000. 

Exxon successfully fought to minimize the economic damages it 

paid after the spill, leaving many without adequate compensation. 

And while the court cases played out, the impact of the oil spill 

continued. The Prince William Sound herring fishery has been 

closed for the majority of the 21 years since the spill, 21 years. Further, surveys conducted since 2001 indicate that as much as 21,000 

gallons of oil remain on the coasts of Prince William Sound. 

Congress responded to Exxon Valdez by enacting the Oil Pollution Act of 1990, which included reforms, but it had serious shortcomings. Recent events make that clear. The Oil Pollution Act says 

that the party responsible for a spill at an offshore facility only has 

to pay $75 million for economic and natural resources damages. 

This is a recipe for another horrible, unfair, and long road. 

In the wake of the disaster in the Gulf, we must act. Already 

businesses are complaining that BP is not acting on claims. Coming from California, where our coastal tourism, recreation, and 

fishing ocean economies generate $23 billion in economic activity 

and support 388,000 jobs, I believe it is critical that we protect 

those whose jobs and livelihoods could be devastated by a spill that 

was no fault of their own. 

Shielding companies from responsibility for damages sends the 

wrong signal. If anything it increases the risk to the public. If you 

or I, colleagues, or anyone in the audience, members of the press, 

any of us, got into an accident that we caused, we are responsible 

for all the damages. No caps in that case, and there should be no 

caps in this case. 

The law should be clear that the polluter pays for the damages 

they cause, period. 

I look forward to the testimony from our witnesses today, and I 

call on my distinguished Ranking Member, Senator Inhofe. 

OPENING STATEMENT OF HON. JAMES M. INHOFE, 

U.S. SENATOR FROM THE STATE OF OKLAHOMA 

Senator INHOFE. Thank you, Madam Chairman. 

I am glad we scheduled this hearing today because it will be an 

example to see how complex this whole thing is. On May 27 President Obama held a press conference to explain his role in addressing the BP spill. He said, ‘‘This Administration is relying on every 

resource and every idea, every expert, every bit of technology to 

work to stop it. We will take ideas from anywhere and we are going 

to stop it.’’ 

When I heard this, I thought, that is great, Mr. President. You 

are focused on the right thing that you should be focused on. Of 

course, we in Congress need to do the same, as I have said during 

the previous hearings. Congress should focus on three priorities. 
3 

We need to mitigate and contain the environmental impacts, provide assistance to the Gulf’s affected commercial and recreational 

industry, and investigate the causes so that we can prevent an accident of this kind from happening again. 

That is essentially what the President initially said before emotion starting rising in this thing. Staying focused will help us to 

make the prudent decisions. I think we all agree on that. This is 

why I was discouraged when President Obama in the same press 

conference veered off course, and he said the spill occasioned passage of the global warming legislation. He referred prudently to the 

Waxman-Markey bill, the cap and trade bill that the House had 

passed last year. 

Now this raises the obvious question. How would cap and trade, 

a massive energy tax on consumers, stop the spill? How would it 

clean up the spill? How would it help those affected by the spill? 

And how would it help us determine what happened so that we can 

prevent this from happening again? The answer is it wouldn’t, but 

it makes great theater. And so we have had a lot of that. 

So I respectfully call on President Obama and my colleagues here 

in the Senate to concentrate on fixing the problem. Let’s avoid getting sidetracked by cap and trade and other issues that will needlessly complicate the efforts in addressing the real problem. 

We do have a lot of people right now who are trying to use this 

very tragic situation to advance their own agendas. Since the 

Chairman mentioned the Exxon Valdez, I recall that, Madam 

Chairman, when that happened, I was in the House on the appropriate committee, and so I actually went up there. When I got 

there, this horrible thing that took place, some of the far left environmental extremists were celebrating. They were actually celebrating that it happened. And I said, why would you do this? Well, 

because we are going to parlay this into stopping any kind of exploration or drilling on the North Slope. And they attempted to do 

that. 

And I said, wait a minute. The Exxon Valdez was not an exploration. It was not a drilling accident. It was a transportation accident. If you stop the drilling, stop our ability to produce and export 

our own resources, we are going to have to be reliant upon foreign 

countries, and so transportation would play a much larger role. 

Nonetheless, we are seeing a lot of that happen now. 

And I would say this. I think we should avoid overreaching. This 

thing was really tragic. People died. People’s economic livelihoods 

are at stake, as the Chairman said, and the environment is being 

harmed. But I am concerned that the President’s moratorium on 

deepwater drilling could harm the economy in the Gulf, as I am 

sure Senator Vitter will talk about. The Louisiana Department of 

Economic Development estimates that the President’s active drilling suspension alone will result in the loss of 3,000 to 6,000 Louisiana jobs in the next few weeks and over 10,000 in the next few 

months. 

So today’s hearing on S. 3305 is a welcome step, Madam Chairman. 

Senator BOXER. Thank you. 

Senator INHOFE. I am not through yet. 

Senator BOXER. Oh, so sorry. 
4 

Senator INHOFE. Two weeks ago, I had to object twice to a unanimous consent agreement to debate 3305 on the floor. We hadn’t 

had a hearing on it, and that is one of the reasons that I objected. 

This bill involves complex issues that must be understood before 

we act. If we get it wrong, we can set back this Nation’s energy 

future for decades. 

Now, why do I say that? Well, it is what the experts are telling 

us. In a recent letter from the Alliant Insurance, they said insurers 

offshore in gas operations sums it up well: ‘‘If the liability cap is 

increased to levels we understand are now under consideration, in 

our view only the major oil companies and the NOCs,’’ that is the 

national oil companies, and we are talking about China and Venezuela and some of the rest of them, ‘‘would be in a position to do 

this.’’ 

Now, I would go so far as to say—and I am not quoting them 

when I say this—that if we remove the caps altogether, even the 

big five who would be self-insuring—I think all of them self-insure—would not be able to cover it. So we would be completely reliant upon China and Venezuela and the national oil companies, the 

only ones who could actually handle an unlimited cap. 

So I think we need to look at this thing and to approach it logically and not emotionally. And I think we have some good witnesses today that are going to shed some light on this. 

Thank you, Madam Chairman. 

[The prepared statement of Senator Inhofe follows:] 

STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM THE STATE OF OKLAHOMA

Thank you, Madam Chairman, for scheduling today’s hearing to examine the complex issues surrounding the strict liability limits in the Oil Pollution Act of 1990. 

On May 27 President Obama held a press conference to explain his role in addressing the BP spill. He said his Administration is ‘‘relying on every resource and 

every idea, every expert and every bit of technology, to work to stop it. We will take 

ideas from anywhere, but we are going to stop it.’’ 

When I heard this, I thought, ‘‘That’s great, Mr. President; you’re focused on exactly what you should be focused on.’’ Of course, we in Congress need to do the 

same. As I’ve said during previous hearings, Congress should focus on three priorities. We need to: 

• Mitigate and contain the environmental impacts; 

• Provide assistance to the Gulf’s affected commercial and recreational industries; 

and 

• Investigate the causes so we can prevent a disaster of this kind from happening 

again. 

Staying focused will help us make prudent decisions. Which is why I was discouraged when President Obama, in the same press conference, veered off course: he 

said the spill occasioned passage of global warming legislation. He referred approvingly to the Waxman-Markey cap-and-trade vote in the House last year. 

This raises obvious questions: How would cap-and-trade, a massive energy tax on 

consumers, stop the spill? How would it clean up the spill? How would it help those 

affected by the spill? And how would it help us determine what happened so we can 

prevent it from happening again? 

Well, it wouldn’t. So I respectfully call on President Obama—and my colleagues 

here in the Senate—to concentrate on fixing this problem. Let’s avoid getting sidetracked by cap-and-trade or other issues that will needlessly complicate efforts to 

address real problems. 

And I would add this: let’s avoid overreaching. Now this incident is serious—people died, people’s economic livelihoods are at stake, and the environment is being 

harmed. But I am concerned that the President’s moratorium on deepwater drilling 

could harm the economy in the Gulf. The Louisiana Department of Economic Development estimates that the President’s active drilling suspension alone will result in 

a loss of 3,000 to 6,000 Louisiana jobs in the next few weeks and over 10,000 Lou-
5 

isiana jobs in the next few months. More than 20,000 jobs are at risk over the next 

12 to 18 months. 

So, today’s hearing on S. 3305 is a welcome step, Madam Chairman. Two weeks 

ago I had to object twice to unanimous consent agreements to debate S. 3305 on 

the floor. We hadn’t had a hearing on it—that’s one of the reasons I objected. This 

bill involves complex issues that must be understood before we act. If we get this 

wrong, we could set back this Nation’s energy future for decades. 

Now why do I say that? Well, it’s what the experts are telling us. A recent letter 

from Alliant Insurance, which insures offshore oil and gas operations, sums it up 

well: 

‘‘If the liability cap is increased to the levels we understand are under consideration . . . in our view only major oil companies and NOCs (National Oil Companies) 

will be financially strong enough to continue current exploration and development 

efforts.’’ 

This letter was in reference to S. 3305’s $10 billion liability cap on economic damages. The insurers believe smaller U.S. independent producers won’t be able to drill 

with that limit. And bear in mind that ‘‘National Oil Companies’’ means those that 

are state-owned, such as the Chinese Offshore Oil Corporation. Do we really want 

China drilling in place of America’s independent producers? 

Alliant is not alone in holding this view. Consider this statement from INDECS 

insurance consultancy: ‘‘If we have understood the proposals correctly, then it would 

appear to us that the proposed bill will not act as ‘Big Oil Bailout Prevention Liability Act of 2010’, rather making it impossible for anyone other than ‘Big Oil’ to operate.’’ I ask that this letter be submitted for the record. Lockton Companies insurance brokerage has said much the same thing: ‘‘Without insurance, many of the active exploration and production companies would be unable to operate in the Gulf 

of Mexico. This decision will affect thousands of people, their families, and their 

local economies.’’ I ask that this letter be submitted for the record. 

Madam Chairman, our response to this tragedy should be measured, and it should 

be based on facts. How we respond could have far reaching consequences for the 

Gulf and the Nation. There’s simply too much at stake to get this wrong. 

[The referenced letters follow:] 
6 

12th May 2010 

Honourable Robert Menendez 

U.S. Senator 

528 Senate Hart Office Building 

Washington, DC 20510 

United States of America 

Dear Sir 

RE: PROPOSAL TO AMEND THE OIL POLLUTION ACT 1990 (OPA 90) AND 

THE INTERNAL REVENUE CODE OF 1986 

Executive Summary 

The energy insurance market has limited financial capacity for pollution. What 

protection it can offer, sees many terms and conditions contained in the language of 

the policies issued. These limitations can range from whether a policy covers 

pollution originating from a reservoir, the absence of a definition for environmental 

damage, the sharing of limits with other heads of claims, to whether there is 

negligence on the part of the entity making the claim. 

Insurers' ability to issue an insurance certificate to provide a company with its 

evidence of financial responsibility under OPA 90 is similarly limited. Our current 

estimates point to a maximum insurance financial capacity of approximately US$250 

million for this exposure, with a further US$1.5 billion subject to the exclusions 

mentioned above. 

We detail below many of the areas that need to be considered carefully in this 

assessment. It is quite clear to us that the ability to transfer any increased risk to the 

insurance market is very constrained. The extent to which oil companies, other than 

the super majors, will be able to provide alternative security, must be questionable. 

About INDECS 

INDECS is an independent insurance consultancy with over 20 years' experience 

working across more than thirty countries including the USA. We assist global 

businesses to achieve a more effective insurance and risk management strategy. 

INDECS does not sell insurance, we are not a broker, but provide independent 

advice to our clients on their insurance and risk management needs. 

The Proposed Bill 

We understand that two bills have been drafted, in the wake of the Deepwater 

Horizon catastrophe: 

1. To amend the limits of liability for offshore facilities under OPA 90 from 

US$75 million to US$1 0 billion 

2. To remove the limit of US$1 billion expenditures from the Oil Spill Liability 

Trust Fund, and to permit advances to be made to the Fund 
7 

Current Insurance Protection 

Under OPA 90, holders of leases or permits for offshore facilities are liable for up to 

US$ 75 million per spill plus removal costs. 

Under Section 1016 the holder was initially required to provide evidence of financial 

responsibility of between US$10 million and US$35 million depending on whether the 

facility is located seaward or landward of the seaward boundary of the State. This 

has subsequently increased to the maximum allowed by the act of US$150 million. 

There are various methods of evidencing financial responsibility including surety 

bonds, guarantees, letters of credit and self insurance, but the most common and the 

one that is most commercially available to all is by means of an insurance certificate. 

The certificate issued must identify a limit not less than that required under Section 

1016. 

While there are certain defences under OPA 90, insurers are put in the position of 

being a guarantor and may not have the ability to rely on the normal general 

conditions of the policy. Some insurers may also consider that it imposes a more 

"strict liability" on the insured, and, moreover, enables claims to be made directly 

against the insurer in certain circumstances. They therefore treat OPA certification 

distinctly from other insurance that may be available for this type of risk. The potential 

capacity for this type of insurance, which is the broadest available specifically 

focusing on OPA obligations and liabilities, is approximately US$150 to US$250 

million. 

Outside the realms of strict liability and OPA, an insured will be able to obtain 

coverage for sudden and accidental seepage and pollution by way of its Operators 

Extra Expense (OEE) and Excess Liability insurances. OEE coverage provides a 

combined single limit for well control, well redrilling and sudden and accidental 

seepage and pollution and clean-up. Therefore pollution liability and clean-up cost is 

subject to the apportionment of this combined single limit over respective risks. In 

practice the limit would be made available first for control measures (i.e. hiring in 

specialist well control experts and, if necessary, relief well drilling}, with any balance 

of the limit then being reserved for redrilling and pollution. It is possible to prioritise 

the use of the limit for compliance with OPA Financial Responsibility provisions, but 

this would be impractical in relation to the urgency by which oil companies will need 

to address the well control situation. 

We consider that the OEE policy provides the widest cover and is most "user friendly" 

to oil companies. The pollution element of the cover responds to costs which the 

insured company is obligated to pay by law or under the terms of the lease/license 

for the cost of remedial measures or as damages in compensation for third party 

property damage and third party injury claims. In respect of clean-up and 

containment, or attempt thereat, the policy pays such costs, including where incurred 

to divert pollution from shore, and is not on a "liability" basis. It should be noted that 

there is no definition of environmental damage - claims are recoverable to the extent 

of damages for third party bodily injury and loss of or damage to, or loss of use of 

tangible property. This coverage can therefore respond on a "strict liability" basis, 

where the law or license agreement specifies that such remedial costs or 

compensation is payable if emanating from the insured's facilities, irrespective of 

negligence. This contrasts starkly with the coverage available under most Excess 

Liability policies. 
8 

Excess Liability insurance responds to all legal liabilities incurred. Sudden and 

accidental pollution would be included in any limit provided. In respect of pollution 

from wells the limit available under these policies sits excess of the OEE policy 

referred to above (but is subject to its own policy form insuring conditions which are 

not as wide as OEE policies). In respect of pollution from hydrocarbons stored or 

being produced from or through facilities such as fixed and floating platforms and 

pipelines, the limit is from "the ground-up", or in excess of a specific local general 

liability policy. 

Excess Liability Policy forms vary but the market "standard" coverage offers quite 

limited pollution cover. Some actually specifically exclude pollution from wells. 

Basically pollution liabilities are excluded from all policies, but within the exclusion is 

a limited "buy-back", which requires that the pollution event is sudden, accidental and 

unintended and subject to strict discovery and reporting requirements. However, and 

significantly, the cover excludes " .... actual or alleged liability to evaluate, monitor, 

control, remove, nullify and/or clean-up seeping, polluting or contaminating 

substances to the extent such liability arises solely from any obligations imposed by 

any statute, rule, ordinance, regulation or imposed by contract". 

We regard this wording as too draconian and would always counsel oil companies to 

include a specific "pollution endorsement" that overrides this phrasing and would 

provide legal and statutory liability coverage, including costs incurred under lease 

block obligations for removal. We think this distinction in cover is important as it will 

impact capacity. Our figure below of US$1 to US$ 1.5 billion is based upon insurers 

subscribing to the standard market cover. If an alternative wording is utilised, or the 

pollution endorsement used, it could have the effect of reducing capacity by about 25 

to 35%. 

As with the OEE policy, the coverage is geared to damages for compensation in 

respect of third party bodily injury and third party property loss or damage or loss of 

use. There is similarly no concept of "environmental damage" expressed in the 

policy. 

Insurance Capacity 

The immediate effect of the Deepwater Horizon loss is that capacity will, for a time, 

be fluid. Most insurers had not factored in to their risk aggregations that the net is 

spread very wide indeed in respect of responsible parties under OPA. They are now 

seeing the implications of multi party actions against operators, drilling contractors, 

cementing engineers and their various sub-contractors arising out of a single incident 

such as the "Deepwater Horizon" loss. This is because the insurance limits are 

available to each separate party, so will stack up if three different entities are sued. 

In this context the lease block holders constitute one entity (their insurance policies 

may be separate covering their respective equity interests, but the capacity available 

is assessed upon 100% interest). 

Inevitably the recent loss has increased the demand for higher limits, and has 

consequently affected the overall aggregate exposures to insurers. This will likely 

reduce the available limits in the immediate future. At least one insurer has let it be 

known that its capacity has reduced. Others are reviewing their positions and it is 

most likely that June renewals will be subject to some reduction in overall capacity. 

This could be between 25 and 30% reduction, affecting all above policies, except 

Protection and Indemnity entries. INDECS has close relationships with the Energy 
9 

Insurance Market including its insurers and brokers. Based on our knowledge and 

these relationships we would opine that the following represents the maximum per 

occurrence capacity in this market currently: 

Operators' Extra Expense (OEE) 

The available global market capacity for the OEE cover is between US$500 

million and US$750 million per event on 100% basis. This means that the 

total limit purchased is shared out between the co-owners of the lease block 

(the licensees) according to their equity interest in the venture (as per the 

Joint Operating Agreement). 

In addition to this capacity, oil companies who are members of the mutual, Oil 

Insurance Ltd (OIL), Bermuda, (which includes a number of US based E&P 

companies) can claim up to a further US$ 250 million for each companies' 

equity interest, limited to US$ 750 million per event, but this limit is also 

applied on a combined single limit basis, inclusive not only of control of well 

cost and redrilling, but also property damage and wreck removal. 

Excess Liabilities 

The global commercial market limits available are between US$1 billion and 

US$1.5 billion per event on 100% basis (meaning that the limit is effectively 

reduced to reflect each of the oil companies' equity interests). This would 

include capacity available under any specific local general liability policy 

(normally limited to USD50m per event). This total would be inclusive of 

capacity from the Bermuda reinsurance market and specifically from Oil 

Casualty Insurance Ltd (OCIL), which is a sister organisation to OIL. This limit 

operates on an Ultimate Nett Loss basis, meaning that it must also respond to 

injuries and fatalities to third parties (but not employees) and to third party 

property damage and consequential financial loss. 

One final issue to consider for the commercial market is that In the event that 

the pollution arises from a named hurricane there would be a sub-limit agreed 

in the policy, which may not be more than US$200 million per oil company, 

and this would be inclusive of all insurable exposures (i.e. property damage, 

control of well, redrilling, wreck removal and pollution). 

Protection and Indemnity Clubs (P&I) 

One further area that merits comment is P&l, which provides cover in respect 

of pollution from mobile drilling units, heavy-lift vessels, pipelaying vessels 

and, to the extent that they may ultimately be more widely used in the Gulf of 

Mexico, Floating Production, Storage and Offtake units (FPSOs). 

The limit purchased is generally between US$ 300million and US$ 500 

million, but US$ 1 billion per event is theoretically available. However, most 

US drilling contractors are not insured by the P and I Clubs. US drilling 

contractors generally rely upon commercial marine liability insurers, whose 

capacity would be limited to between US$ 500 million and US$ 750 million per 

event referred to above. 
10 

Effects of increasing the OPA 90 limits 

In conclusion, if the intention is to increase the limit required under OPA90 to US$10 

billion and also the required evidence of financial responsibility to something similar, 

then quite simply the energy insurance market will no longer be an option. Its 

capacity lies far below this limit and even then has a number of restrictions contained 

in it which we have discussed above. 

Companies, with the exception of super majors and foreign state owned companies, 

operating in the United States are highly unlikely to be able to provide any alternative 

method of financial responsibility such as bonds and lines of credit. The cost of these 

methods or ability to self insure these risks will far exceed their capabilities, 

preventing their management from fulfilling their fiduciary liability and presenting a 

barrier to acquiring new or even servicing existing permits in the future. 

If we have understood the proposals correctly, then it would appear to us that the 

proposed Bill will not act as "Big Oil Bailout Prevention Liability Act of 2010", rather 

making it impossible for anyone other than "Big Oil" to operate. 

Yours sincerely, 

Paul King 

Director 

CC: David Sharp, INDECS 

Honourable Barbara Boxer 

Chairman Senate Committee on Environment & Public Works 

410 Dirksen Senate Office Building 

Washington, DC 20510 

Honourable James M. lnhofe 

Ranking Member 

Senate Committee on Environment & Public Works 

456 Dirksen Senate Office Building 

Washington, DC 20510 

Honourable Jeff Bingaman 

Chairman Senate Committee on Energy & Natural Resources 

304 Dirksen Senate Office Building 

Washington, DC 20510 

Honourable Lisa Murkowski 

Ranking Member 

Senate Committee on Energy & Natural Resources 

304 Dirksen Senate Office Building 

Washington, DC 20510 
11 

May 13,2010 

Honorable Robert Me11endcz 

U.S. Senator 

528 Senate Hart Office Building 

Washington, D.C. 20510 

Dear Senator Menende~: 

Lockton Companies is the largest privately owned insurance broker in the world, and through I.ockton 

Marine & Energy in Houston, we service the insurance needs of many enetgy companies operating in the 

Gulf of Mexico. Specifically, we specialize in the small to midsr£e independent exploration and production 

companies that arc very active in dtilling wells in the shallow and deepwater Gulf of Mexico. In fact, two of 

our clients are in the top 10 largest lease holders and/ or most active drillers in the Gulf of Mexico; 

however, they are relatively small companies. Exploration and production companies are supported by 

thousands of workers all along the Gulf Coast from their own employees to many small to midsized service 

companies' employees. The Bureau of Labor and Statistics reported that there were well over 100,000 

petroleum-related workers and greater than $12 billion in total wages earned in the Gulf Coast Region 

alone. 

Insurance is critical to our clients and all small to midsized energy companies operating in the Gulf of 

Mexico. All of the companies operating in the Gulf of Mexico essentially go to the same ittsurance market 

to purchase their liability insurance coverage. The insurance market for offshore operations is relatively 

small, and prior to the Macondo well incident, we estimate the total market capacity for third-party 

pollution liability to be $1.3 billion to $1.6 billion. Following the Mancodo well event, we estimate the 

capacity has dropped to $1 billion to $1.2 billion. Furthermore, the cost for the insurance coverage has 

increased substantially. 

The market for Oil Pollution Act (OPA) coverage is an even smaller market, with total capacity of $200 to 

$300 million. While large exploration and production companies are able to certify on the basis of their 

balance sheet, most small and midsized companies are dependent on purchasing OPA coverage in the 

commercial insurance market. 

We understand there is legislation under consideration which could significantly increase the liability cap 

lor economic damages from the current level of $75 million. Given the limited capacity in the energy 

insurance market, a material increase in the cap will eliminate insurance as an option for many explor-Ation 

and production companies. Without insurance, many of the active exploration and production compatlies 

would be unable to operate in the Gulf of Mexico. This decision will affect thousands of people, their 

families and their local economies. 

Li.)Cl<TON Cl)\ll~\:\!1~, LLC 

1847 San Fdi~~\ ~uile Hi'l / Ht)ustnn, TX "i7057-3HO 

7!1-4SR-1.N9 

'W\V\\",\otkrt>!\.(l}1n 
12 

We respectfully request you give this issue cateful consideration, and we are more than happy to provide 

supporting information on the energy insurance matkct providing insurance for the Gulf of Mexico . 

.JAR:msk 

cc: I lonorablc Barbara Boxer 

Chairman 

Senate Committee on Environment & Public \\forks 

410 Dirksen Senate Office Building 

Washington, DC 20510 

Honorable James M. Jnhofe 

Ranking 1vfcrn.ber 

Senate Committee on Envil'onmcnt & Public \Xlotks 

456 Dirksen Senate Office Building 

Washington, DC 20510 

I Jonorablc Jeff Bingaman 

Chairman 

Senate Committee on Energy & Natural Resources 

304 Dirksen Senate Office Building 

Washington, DC 205JO 

Honorable Lisa Murkowski 

Ranking Member 

Senate Committee on Energy & Natural Resources 

304 Dirksen SenMe Office Building 

Washington, DC 20510 
13 

Senator BOXER. Thank you so much. 

I am sorry. I thought you were through. 

Senator INHOFE. No, that is all right. 

Senator BOXER. Senator Lautenberg. 

OPENING STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM THE STATE OF NEW JERSEY 

Senator LAUTENBERG. Thank you, Madam Chairman. 

What a difference in perspective, because I was up in Alaska the 

third day that the Valdez was foundering, and I saw people crying. 

I didn’t see people celebrating. I saw people brokenhearted about 

what was happening to the wildlife and to the fish supply and to 

the life that people had experienced before. 

And we shouldn’t start any hearings here without extending our 

condolences to the families who lost loved ones. They paid a price 

for mismanagement that is irreparable. 

We saw, as the Chairman so eloquently explained, what hap- pened with Exxon with their $5 billion punitive damage fine. And 

they whittled it away, spent the money for the lawyers, and 20 

years later they got the $5 billion fine down to a $500 million fine. 

Incredible, when in years since then they have earned billions and 

billions of dollars in a quarter. 

And let’s look at this thing realistically. Fishermen, crabbers, 

boaters, they don’t want a check or a handout. They want to continue a way of life that in many cases has gone on for generations 

so they can work to take care of their families. And that is why 

I want to make one thing clear. I will not stand for offshore drilling 

anywhere that can affect my State of New Jersey or my nearby 

States because the spillover is obvious. 

We have to pass energy legislation that prevents spills from happening by making the polluters pay. Pretty simple. Impose tighter 

regulations on existing drilling, placing a moratorium on offshore 

drilling in new areas, and investing in clean energy. But I am 

never going to stand silently on the beaches of my State that contribute $50 billion to our State’s economy and watch the funeral 

march of oil bearing down on my home State of New Jersey. 

And that is why I will not support any bill that puts New Jersey 

at risk by allowing drilling in the Atlantic, and in order to do that 

we have to make sure that companies large or small, if they make 

big mistakes, big management mistakes, as BP has, that they pay 

the price, regardless of the size of their company. 

And I look forward to hearing our witnesses and hear what they 

say about the results of this. 

Thank you. 

Senator BOXER. Thank you, Senator. 

Senator Vitter. 

OPENING STATEMENT OF HON. DAVID VITTER, 

U.S. SENATOR FROM THE STATE OF LOUISIANA 

Senator VITTER. Thank you, Madam Chair. 

This oil spill liability issue is extremely important, so thank you 

for the hearing on that. But as you know, this hearing has been 

styled specifically on one precise bill, S. 3305, by Senator Menendez 

and others, and I have no problem talking about that bill. 
14 

But when I understood this, I immediately wrote you and requested that as a member of the Committee from the single most 

affected State by the ongoing disaster— and it is an ongoing crisis 

and an ongoing disaster—I wrote and said I have a bill directly on 

point that lifts all liability caps on BP for this event, but also sets 

up an expedited claim process. And Senator Murkowski was instrumental in that portion of the bill. And I requested that this hearing 

and discussion be broadened to include that bill, S. 3461. 

After making multiple attempts to reach out to you following up 

on that letter, we finally talked last night, and you agreed it would 

be appropriate and appropriate for me to make the UC request so 

that I can join Senators Menendez and Nelson in the first panel 

and also present S. 3461, which would lift the entire liability cap 

on BP for this disaster and also set up an expedited claim process. 

This, by the way, has been completely cleared on the Republican 

side, so we could literally move on this as it pertains to this ongoing disaster and ongoing crisis immediately if we can get it cleared 

through the Senate. So I would make that unanimous consent request so that we can have that fuller discussion. 

Senator WHITEHOUSE. I am sorry. I didn’t understand the unanimous consent request. 

Senator BOXER. Do you want to repeat it? 

Senator VITTER. It is simply that I be allowed to join our colleagues in the first panel so that I can also present S. 3461, which 

is my bill to completely remove the liability cap on BP for this 

event and to set up an expedited claim process for this event. This 

bill has been cleared on the Republican side and could actually be 

passed immediately. 

Senator WHITEHOUSE. The UC is just to present that? 

Senator VITTER. Correct. 

Senator WHITEHOUSE. OK. 

Senator BOXER. Senator, I am going to slightly amend your request because as you know, we just got your bill this morning. Our 

staff just got a copy of it. It is 40 pages, and I haven’t seen it. It 

hasn’t been noticed. So what I am going to suggest is that I ask 

unanimous consent that any and all members of this Committee 

have the opportunity today to discuss any and all legislation relevant to the Menendez bill. 

Senator VITTER. I have no problem with that if I can join my colleagues at the table to be able to present 3461. Assuming that is 

incorporated in your request, I certainly agree. 

Senator BOXER. Let me reiterate. It is definitely incorporated. 

People can sit here or sit there. 

Do you have a problem with where people sit? We don’t. So I will 

just reiterate to be clear. 

This hearing is about the Menendez bill, but any and all members have the right to discuss their legislation or any relevant legislation to the Menendez bill. 

Senator LAUTENBERG. Within the time constraints, Madam 

Chairman? 

Senator BOXER. Within the time constraints, that is correct. 

All right. Now, we are going to move forward. 

I believe Senator Cardin is next. Yes. 
15 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

U.S. SENATOR FROM THE STATE OF MARYLAND 

Senator CARDIN. Thank you, Madam Chair. Let me thank you for 

this hearing. 

I know you pointed out yesterday was World Ocean Day. I know 

my friend from Rhode Island is fully aware of that, but we really 

do celebrate the importance of our oceans for seafood, for recreation, for sea lanes for transportation. And all of that has been 

brought into real question as a result of the Deepwater Horizon 

spill. 

I agree with our Chair that our first obligations must be to stop 

the spill and to do the mitigation, and that has got to be our first 

priority. You also need to hold BP responsible, as they said they 

would be, but to make sure that they are full held accountable for 

all the damages that are caused to small businesses that have been 

disadvantaged or put out of business, to landowners who have been 

damaged, and to taxpayers who otherwise would have to foot the 

bill. 

I agree with Senator Lautenberg that we need to put a moratorium on drilling until we are sure we have in place a regulatory 

structure that will protect the public as far as any future problems 

are concerned. And we need to take off the table those areas of the 

Nation where it is just too sensitive to drill, including the area that 

Senator Lautenberg and I represent. 

But this hearing is basically about the regulatory structure to 

make sure this doesn’t happen again. And I appreciate the Chairman mentioning the Supreme Court decision which I find to be 

very disappointing and shocking, telling Exxon that their punitive 

damages are limited to a little over $500 million, rather than the 

$2.5 billion. 

As we are trying to talk about, trying to put incentives in law 

to prevent this type of behavior, $500 million seems like a lot of 

money to most of us, but to an oil company such as BP Oil, which 

produced $6 billion in profits the last quarter. That is $6 billion in 

profits, not revenues, that these types of damages could be easily 

handled as just expenses on their books and no real discouragement against irresponsible behavior. 

That is why I particularly want to thank our colleagues, Senator 

Menendez and Senator Nelson, for bringing forward legislation. I 

am proud to be a cosponsor of that bill that would make our laws 

make sense as far holding the oil companies fully responsible for 

the damages that they cause through their irresponsible behavior. 

And this legislation should be enacted quickly, and I applaud my 

colleagues for doing it. 

One last point, Madam Chairman. Many of these people say that 

these are so-called black swan events that were unpredictable. I 

heard the CEO of BP Oil said they couldn’t have predicted what 

was going to happen in this type of circumstance. 

Well, that is not what they said when they presented their plans 

to the Government for their permit. They said they understood exactly what the risks were, and they were minimal, and if a spill 

occurred they had the proven technology in order to prevent any 

catastrophic or any significant damage to our environment. The 

truth of this matter is that such an event was entirely conceivable. 
16 

BP officials simply did not want to spend the money necessary to 

reduce the likelihood of it happening or to have on hand the resources in order to contain it, and they weren’t forced to do it. 

As a result, we have the ensuing damages. It is our responsibility 

to make sure that we have the right structure in place, and the 

Menendez bill needs to be part of that structure. I want to see less 

black swans and more snowy egrets. And I think that is our responsibility to make sure that happens. 

[The prepared statement of Senator Cardin follows:] 

STATEMENT OF HON. BENJAMIN L. CARDIN, U.S. SENATOR FROM THE STATE OF MARYLAND

Madam Chair, yesterday was World Oceans Day. It’s an opportunity to celebrate 

the world’s oceans and the products and amenities they provide, including seafood, 

recreational opportunities, and sea lanes for international trade. It’s also a time to 

appreciate oceans for their intrinsic value. I regret to say that I think all of these 

values are coming into sharper relief as we struggle to comprehend what’s happening—and what will happen—in the Gulf of Mexico and beyond as a result of the 

British Petroleum (BP) Deepwater Horizon spill. 

I think the spill in the Gulf does two things: first, it brutally underscores the need 

for our Nation to develop and implement an energy policy that weans us off oil as 

quickly as possible. We need to do that for our national and economic security, and 

we need to do it to protect human health and the environment. Second, because we 

cannot end our oil addiction overnight, we need to revamp our regulatory and legal 

frameworks so they prevent this sort of accident from happening again. 

We already know that the existing regulatory framework—replete with inherent 

conflicts of interest at the Minerals Management Service (MMS)—is inadequate, 

and we are beginning to address those problems. The catastrophe unfolding in the 

Gulf of Mexico as a result of the BP Deepwater Horizon accident suggests that the 

legal framework needs to be revamped, too, and indicates what’s at stake. This accident claimed 11 lives and is well on its way to becoming the worst accidental oil 

spill in history, if it hasn’t already surpassed the 140 million gallons released in the 

1979 IXTOC 1 spill. The natural resource and economic damages are significant 

now, and the well may not be capped for another 2 months. Oil is killing marine 

wildlife, destroying some of America’s most important commercial fisheries, and 

fouling fragile barrier islands, crucial wetlands, and previously pristine beaches 

along the Gulf Coast. It threatens to be swept by the so-called Loop Current around 

Florida and up the south and even mid-Atlantic coast. 

Yesterday the Senate Judiciary Committee held a hearing on whether liability 

caps and recent Supreme Court decisions undermine the legal framework meant to 

act as a deterrent to inappropriate cost cutting and risk taking behavior on the part 

of oil and gas companies and other entities involved in offshore drilling. It appears 

that recent decisions by the Supreme Court—especially the 2008 Exxon Shipping 

decision—have lessened the efficacy of threatened litigation as a deterrent to bad 

corporate behavior. As the organization People For the American Way (PFAW) 

notes, the Roberts Court gave Exxon-Mobil a $2 billion gift by reducing a punitive 

damages award from $2.5 billion to $507.5 million for the 1989 Exxon Valdez oil 

spill. The majority’s willingness in that decision to invent a rule capping punitive 

damages against Exxon-Mobil does not bode well for those hoping to hold BP and 

the other potentially responsible parties such as Halliburton, Transocean, and Cameron accountable for this most recent disaster. 

Today’s hearing here in the Environment & Public Works Committee focuses exclusively on liability caps. The $75 million liability cap on damages established two 

decades ago and unchanged since then is a trifle compared to big oil companies’ 

enormous profits and the burgeoning costs associated with containing and responding to a catastrophic deepwater oil spill. We need to lift the liability cap on damages 

to $10 billion at least—something S. 3305 will do. While BP officials have claimed 

that the company won’t be bound by the existing cap, the fact remains that under 

current law BP is only responsible for up to $75 million in damages, including injuries to natural resources, unless the accident is caused by gross negligence, willful 

misconduct, or violation of an applicable Federal regulation under certain circumstances. It’s worth noting that BP’s first quarter profits—not revenue, but profits—were almost $6 billion. The existing $75 million liability cap is equivalent to 

less than 1 day of BP profits. I congratulate Senator Menendez for introducing S. 

3305. I am proud to co-sponsor the measure. 
17 

I have heard that the Credit Suisse Group AG estimate of stopping and mitigating 

the spill could be as high as $37 billion. So it’s clear that a spill of this magnitude 

could overwhelm a responsible party’s ability to pay, in which case funds would 

have to be withdrawn from the Oil Spill Liability Trust Fund. As Chairman of the 

Environment & Public Works Subcommittee on Water & Wildlife, I particularly appreciate that S. 3305 eliminates the $500 million per incident cap on natural resource damage claims that can be paid out by the Trust Fund. That is the right 

thing to do. And while we will hold all responsible parties’ feet to the fire when it 

comes to paying claims for damages of all kinds, we need to ensure that the Trust 

Fund, if it needs to be tapped, will have adequate revenues for the task at hand, 

too. That’s why I am heartened the House-passed version of H.R. 4213, the so-called 

extenders bill currently on the Senate floor, more than quadruples the current assessment on domestic and imported oil from 8 cents per barrel to 34 cents per barrel. 

It is a constant challenge to assess risks and benefits accurately. And it is a constant challenge to strike the right legal and regulatory balance to protect human 

health and the environment in the most cost effective, least burdensome way possible. This task is further complicated because more and more we also need to be 

aware of—and do a better job planning for—so-called ‘‘black swans’’—namely, low 

probability events that have absolutely staggering consequences. The September 11, 

2001, terrorist attacks, the breached levees following Hurricane Katrina in 2005, the 

housing market meltdown in 2007 and 2008, and now the BP Deepwater Horizon 

accident have all been called ‘‘black swans.’’ 

What troubles me is that ‘‘black swan’’ events seem to be occurring more frequently, with even greater and greater consequences. More important, one characteristic of ‘‘black swans’’ is that they are supposedly unexpected. Well, the events 

I just mentioned were not entirely unforeseeable. For instance, an unclassified September 1999 report prepared by the Library of Congress for the National Intelligence Council entitled ‘‘The Sociology and Psychology of Terrorism: Who Becomes 

a Terrorist and Why?’’ warned that Osama bin Laden’s terrorists could hijack airliners and fly them into Government buildings like the Pentagon. According to the 

report, ‘‘Suicide bomber(s) belonging to al-Qaida’s Martyrdom Battalion could crashland an aircraft . . . into the Pentagon, the headquarters of the CIA, or the White 

House.’’ With regard to the levees, it seems that nearly everybody anticipated the 

breach. The problem wasn’t lack of anticipation; it was lack of preparation. And the 

New York Times reported that John Paulson earned $1 billion in hedge fund fees 

in 2007, $2 billion in 2008, and $2.3 billion in 2009 by betting against subprime 

mortgages. 

Perhaps ‘‘black swans’’ aren’t so unanticipated after all. And if that’s the case, 

they may be—to a certain degree—avoidable, if only we have the proper legal and 

regulatory frameworks and proper incentives and disincentives in place. 

With disingenuousness reminiscent of officials from the previous Administration 

talking about 9/11 or breached levees, BP officials initially claimed that the accident 

was unprecedented, unforeseeable, and inconceivable. On April 30, BP spokesman 

David Nicholas said, ‘‘The sort of occurrence that we’ve seen on the Deepwater Horizon is clearly unprecedented.’’ On May 2, BP spokesman Steve Rinehart said, ‘‘I 

don’t think anybody foresaw the circumstance that we’re faced with now’’ and added 

that the company didn’t build a containment dome prior to the accident because ‘‘it 

seemed inconceivable’’ that the blowout preventer (BOP) would fail. Of course, the 

containment dome didn’t work, either. 

The truth of the matter is that such an event is entirely conceivable. BP officials 

simply did not want to spend the money necessary to reduce the likelihood of it happening and to have on hand the resources to respond swiftly and effectively. And 

they weren’t forced to. 

Not only did BP cut corners with regard to drilling and capping the well; it also 

failed to maintain adequate resources to contain and respond to a spill. On June 

3, BP chief executive office Tony Hayward finally acknowledged the obvious: the 

company simply wasn’t prepared to deal with a deepwater spill. ‘‘What is undoubtedly true is that we did not have the tools you would want in your tool kit,’’ he told 

The Financial Times in an interview. 

Of course, Mr. Hayward’s acknowledgment last week diverges dramatically from 

the mendacious claims that BP officials made on the company’s Deepwater Horizon 

drilling permit application about having ‘‘proven response technology.’’ That’s why 

on May 17 I joined several members of this Committee, including Chairman Boxer 

and Senators Lautenberg, Gillibrand, Sanders, Klobuchar, Carper, and Merkley, in 

writing to Attorney General Eric Holder urging him to open an inquiry into whether 

BP officials violated civil or criminal laws, including 18 U.S.C. 1001, by making 
18 

false and misleading statements to the Federal Government regarding the company’s ability to respond to a deepwater oil spill in the Gulf of Mexico. 

Mr. Hayward argued that in the wake of the 1989 Exxon Valdez spill in Alaska, 

BP and other oil companies developed plans to contain oil on the surface of the 

water (even that assertion appears dubious), but BP did not have the equipment 

necessary to stanch a deepwater leak like the one in the Gulf. He concluded that 

BP—and by extension presumably the entire oil industry—will have to find ways 

to manage ‘‘low probability, high impact’’ risks in the future. 

It seems apparent that the existing legal and regulatory frameworks governing 

offshore oil and gas exploration and development—particularly in deep waters— 

need to be re-worked to ‘‘help’’ BP and other oil companies in that task; it is unlikely 

that they will do so adequately of their own volition because of the cost. That’s why 

S. 3305 is so important. For too long now BP and other oil companies have systematically understated the risks associated with offshore drilling—especially deepwater 

drilling. Establishing higher liability caps, reinvigorating the ability of plaintiffs to 

act as watchdogs, and restoring a robust regulatory regime will help to keep oil companies honest. We need to do that so we have fewer ‘‘black swans’’ in the Gulf of 

Mexico and more snowy egrets. 

Senator BOXER. Thank you, Senator. 

Senator Bond, followed by Senator Baucus. 

OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, 

U.S. SENATOR FROM THE STATE OF MISSOURI 

Senator BOND. Thank you very much, Madam Chair, for holding 

this hearing today on the Senate Bill 3305 by Senators Menendez, 

Sanders, and others. I regret to say that this bill should be called 

the Big Oil Gulf Monopoly Bill, because that is what it is. The 

Menendez bill would make operating in the Gulf so expensive that 

only big oil or national oil companies could afford it, giving them 

a virtual monopoly in the Gulf. 

There is unanimous agreement on this Committee—and I imagine in the Senate as a whole—that we need to raise the oil spill 

economic liability caps. The only question is how much is best. 

What does more harm than good? 

This bill is a tragedy, and I am thankful that the witnesses from 

Florida, Louisiana, and Alaska have come here today to share their 

stories. Our thoughts and prayers are with all the victims, but especially with those families that lost loved ones in the first tragic 

explosion. 

The public needs to know the pain of the victims of this disaster 

so we can make them whole, deter future bad behavior, and ensure 

future claims are paid. But I wonder if these victims ever thought 

that the reaction to their tragedy would be a proposal to reward 

the very big oil company that caused this mess. 

The Menendez bill is a reward to big oil, including British Petroleum or British Pollution, if you want to call it that, because it 

would hand big oil companies like BP, Exxon, and others a virtual 

monopoly over future Gulf production. The $10 billion liability cap 

or unlimited liabilities proposed by others would force Gulf production insurance rates to levels unaffordable to all except big oil companies, a fact that has been laid out in numerous things including 

by the PFC Global Risk Company. 

By their very name, big oil companies are large enough just to 

write the check, pay any insurance premium, or even self-insure. 

The Menendez big oil Gulf monopoly bill would kill all competition 

that big oil faces. BP, Exxon, and others would be free to roam the 
19 

Gulf without competition from the smaller American drillers who 

have drilled successfully and without spills. 

The Menendez big oil Gulf monopoly bill would turn the Gulf of 

Mexico into big oil’s own private pond. We know that the sponsor 

of this legislation pulled the $10 billion liability cap out of thin air. 

We know that in their rush to go public with their proposal they 

may not have thought all the unintended consequences. But now 

that we have time to reflect, I urge this Committee to be thoughtful 

in reviewing what will work best to compensate victims and not 

give an unfair advantage to big oil in the future. 

There have been some thoughtful proposals like expanding the 

existing oil spill trust fund so that all users of oil pay more for the 

risk they are causing. Others propose a Price-Anderson-type model 

that the nuclear industry uses to ensure against nuclear accidents. 

That model would have us raise the cap for those that caused a 

spill, say, to $1 billion, and spread the cost of damages above that 

amount across the entire industry. There may be other solutions 

we should consider. 

What we do know is that America will continue to need petroleum for several more decades as we transition to cleaner homegrown transportation fuels. And we have seen that the so-called 

regulatory agency, the Minerals Management Service, is badly broken and obviously did not demand that the proposed driller have 

the kind of means in place to deal with a catastrophic oil spill. 

But the bottom line is we cannot close down the Gulf without 

putting ourselves at hostage even further to the Venezuelans, the 

Chinese, Russia, and the other groups and the people in OPEC 

where they don’t have to follow the same environmental standards 

that I believe that we have rightly imposed on drilling in the 

United States. 

There are thousands of Gulf wells operating safely as we speak. 

Over 40,000 of those wells have been drilled and operated or are 

operating with no spill like this. I support the Senate’s considering 

new drilling safety reforms, but we should all oppose the Menendez 

big oil Gulf monopoly bill. 

I thank the Chair. 

Senator BOXER. OK. 

Just to be clear, that is not what Senator Menendez calls it, but 

you have every right to give it your nickname. OK. 

Senator Baucus. 

OPENING STATEMENT OF HON. MAX BAUCUS, 

U.S. SENATOR FROM THE STATE OF MONTANA 

Senator BAUCUS. Thank you, Madam Chairman. 

The circumstances in which we find ourselves are clearly unacceptable, and the news regrettably keeps getting worse. We are 

now in the midst of the worst oil spill in our Nation’s history. We 

are all asking the same questions. What happened? How can we be 

sure it doesn’t happen again? And today we are evaluating one proposal to address some of these questions. 

We want to encourage the use of robust spill prevention and safety measures in offshore oil and gas development. That is clear. We 

also want to prevent the American taxpayer from subsidizing pri-
20 

vate enterprise by absorbing environmental risk. We want to have 

a domestic oil and gas industry. 

With these points in mind, should the liability cap under the Oil Pollution Act be increased to a $10 billion level proposed in S. 

3305? This seems to be a straightforward question with a simple 

answer. But in spite of our outrage we should not react in haste. 

The country needs domestic oil and gas, and we should seriously 

evaluate each proposal that comes before us. This hearing is a good 

step in that evaluation. A few key questions: Should there be any 

Federal cap on liability at all? And if so, what is the appropriate 

level? How much risk is the American taxpayer absorbing on behalf 

of oil and gas companies as a result of this liability cap? 

And is that appropriate? Does the current cap fail to provide incentive to offshore oil and gas producers to adopt appropriate safety measures? What effect does raising the cap have on our ability 

to develop domestic oil resources? And what are the legal implications of the retroactive application of a $10 billion liability cap? 

Madam Chairman, I look forward to hearing from the witnesses 

as we discuss these issues. Again, this spill is tragic. It is caused 

by many mistakes on the part of many, including British Petroleum, most likely Transocean, and Halliburton, and the appropriate parties listed and others who are appropriately liable and 

culpable should clearly bear the burden of all the costs. 

Senator BOXER. Thank you, Senator Baucus. 

Senator Alexander. 

OPENING STATEMENT OF HON. LAMAR ALEXANDER, 

U.S. SENATOR FROM THE STATE OF TENNESSEE 

Senator ALEXANDER. Madam Chairman, thank you very much for 

having the hearing. 

And thanks to the witnesses for coming. 

I have three observations I would like to make. Some of the witnesses are from the Gulf Coast, and while this is not a hearing 

about the oil spill liability trust fund, which is funded by a 6 cents 

per barrel fee on industry to help pay for clean up and to compensate those hurt by the spills, one of the questions I am going 

to be asking is whether those from the Gulf Coast think the money 

that is collected by that fund to clean up oil spills ought to be spent 

to clean up oil spills. 

They might be surprised to learn there is a proposal in the 

House and in the Senate to raise the tax on the fund to clean up 

oil spills and spend it on more government instead of cleaning up 

the oil spills. And people must be wondering what is Washington 

thinking about that, and that is a question that I will have. Should 

the money raised to clean up oil spills be used to clean up oil spills 

or spent on some other form of government? 

A second observation has to do with the need for new laws and 

new regulations. Before we pass new laws and new regulations on 

this whole subject, I would hope the Committee would carefully 

look at the laws that have already been passed. The Chairman 

mentioned the Oil Pollution Control Act, which was passed in 1990 

after the Exxon Valdez spill. One of the provisions of that Act says 

that the President shall ‘‘ensure the clean up of an oil spill and 

have the people and equipment to do it.’’ 
21 

One might ask: What was President Obama’s cleanup plan? And 

where were the people and equipment to clean it up? Now, if the 

answer is that the Federal Government can’t clean up an oil spill, 

or that President Bush had the same plan, or that President Clinton had the same plan, then perhaps we should change the law. 

But what the law says, and it has for 20 years, is that the President of the United States shall ensure that it is cleaned up and 

shall have the people and equipment to do it, instead of effectively 

delegating the clean up to the spiller. 

The third thing, and final observation I would like to make, is 

along the lines of one suggested by Senator Bond as well. We might 

learn a lesson from other successful regulatory actions that the 

Government now has, especially with the nuclear industry. I mentioned at an earlier hearing, for example, the accountability in the 

nuclear Navy is pretty impressive. If there is a problem on a Navy 

reactor, the captain might lose his job and his career. 

And we have regulating oil a multiplicity of agencies. Some have 

suggested 14 instead of 1, which is the Nuclear Regulatory Commission in the case of nuclear power. So accountability and multiplicity of regulators is something that might be looked at. 

In terms of the increase in liability, I think almost everyone in 

the Senate believes there ought to be an increase in liability, but 

the question would be: Should it be from the current model that 

we now have? I would suggest we ought to consider the Price-Anderson model that the nuclear industry uses. In that case, the entire nuclear industry is responsible for any accident. The industry 

is forced by law to insure itself for the first $12.6 billion in damages related to a nuclear accident. Each reactor must carry $375 

million in private liability insurance. Each reactor may be assessed 

up to $111 million more for any accident. 

In other words you have all of the operators and all of the reactors very interested in what might be happening at any other reactor. There are incentives to cooperate with best practices, to share 

technology and information, and to assist each other if there were 

to be an accident. So you wouldn’t have the prospect of Chevron or 

Exxon sitting on the sidelines watching BP clean up. 

So I would ask the Committee seriously to consider, rather than 

just raising the liability limit on this model, should we not explore 

a model like Price-Anderson. It wouldn’t be exactly the same. We 

would assign liability per reactor, but the oil industry might be apportioned differently, possibly by risk, by well, or by volume of production. The Price-Anderson has been very successful with the nuclear industry. It might be helpful as we look forward in the oil industry. 

Thank you, Madam Chair. 

Senator BOXER. Thank you. 

Here is what we have: Senators Merkley, Whitehouse, and Carper. 

OPENING STATEMENT OF HON. JEFF MERKLEY, 

U.S. SENATOR FROM THE STATE OF OREGON 

Senator MERKLEY. Thank you, Madam Chair. 

Oregon’s beaches and continental shelf fishing grounds contribute an enormous amount to the economy of our State through 
22 

harvesting of salmon, through harvesting of ground fish, through 

crabs, oysters and other shellfish, and certainly through tourism. 

We take great pride in our beaches. In fact, Oregonians are one 

of only two States where the citizens own the beaches. All the 

beaches are public. There is no private access only. And I can tell 

you that the citizens of Oregon through their legislature have 

banned the drilling to the degree they can off the coast of Oregon 

to the 3-mile boundary, and is it OK to drill within those three 

miles? No, and the legislature has spoken, and I think contains the 

wisdom of the State. Is it OK to drill 70 miles off the Oregon coast? 

The answer is no. That oil, if leaked, would wash up. It would affect the salmon and the shellfish and the tourism and the coastline 

we so dearly love. 

In fact the West Coast Senators as a whole—and I am proud to 

have joined Senator Boxer in this—have come together, all six of 

us, and proposed not a moratorium but a permanent ban on drilling off the Pacific Coast because the value of the oil that would be 

extracted is very small, would have no impact on the international 

price, and it puts at peril a huge number of jobs and a huge valuable ecosystem that serves us so well. 

We currently have a liability cap that creates a moral hazard, a 

moral hazard because companies drilling say we don’t need to be 

thorough and careful. We can take shortcuts. And if we make a 

mistake, the public will pay. We will shift our costs to the U.S. citizen. This is not all right for Wall Street, and it certainly isn’t all 

right for oil drilling. 

And we have seen the sorts of shortcuts that occur from this 

moral hazard. We have seen that equipment placed at depth often 

hasn’t been tested at depth. We have seen equipment placed a 

depth that wasn’t designed to shut off and shear off the very thick 

pipes used 5,000 feet under the ocean. We have seen carelessness 

in regard to the hydraulic system. We have seen carelessness in regard to the charging of batteries. 

We have seen claims for equipment ready to go to clean up and 

respond to a spill that was not ready to go. We have seen a container placed over the top of the spill that had never been tested 

and was filled with ice and didn’t work. We have seen point after 

point in which shortcuts were taken because BP knew it could shift 

the cost to the American citizen, and that is not OK for the pocketbooks of the American citizen, and it is not OK for the thousands 

of folks who depend on the Gulf for their living that have been affected by this terrible disaster. 

So I applaud you for bringing this bill forward, Senator Menendez and Senator Nelson, and I am proud to be cosponsor of it. 

Thank you, Madam Chair. 

Senator BOXER. Thank you so much. 

Senator Whitehouse. 

OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, 

U.S. SENATOR FROM THE STATE OF RHODE ISLAND 

Senator WHITEHOUSE. Thank you, Madam Chair. 

Rhode Island considers itself our informal name, the Ocean 

State, and so I can’t help but note the context in which this spill 

has taken place. Our oceans presently are populated by massive 
23 

dead zones. In the Arctic we see melting ice caps. In the tropical 

seas we see collapsing coral reefs. And we see vast plastic and 

waste out in our farthest oceans. 

We see marine mammals so poisoned by human release of various chemicals and poisons that they are now swimming toxic 

waste, and one of the lead scientists who studies marine mammals 

predicts their extinction. 

We see ocean acidification at its highest level in 800,000 years, 

portending a sea in which the baseline creatures in the food chain 

become soluble in their environment. We see 90 percent and more 

losses of major pelagic species. We see stresses in shore from 

warming waters and changing habitat. And this is sort of the last 

call that we cannot ignore our oceans. We do so at our peril. 

Madam Chairman, our energy legislation needs to attend to this. 

It needs to attend to the effects of our energy use on coastal States 

and on the oceans. It is not enough to treat coastal States as if they 

were land-bound terrestrial States. There is no great constituency 

for the oceans in Congress, but we will find to our peril very soon 

that if we don’t take better care of them, the cost will be high. 

I submit that we need to improve the Outer Continental Shelf 

Lands Act and the liabilities under that Act. And I have put legislation in to that effect. We need to lift the cap on punitive damages 

that the Supreme Court protected Exxon with, and I have submitted legislation to do that. 

We need to support Senator Menendez’s legislation to lift the cap 

on Oil Pollution Act liability, and we need to support Chairman 

Leahy’s legislation under the Deaths on the High Seas Act to make 

sure that seafaring oil rig workers are treated as fairly as people 

involved in airline disasters. 

So this is a very important hearing, but it is also a part of a larger picture that I know Senator Menendez and Senator Nelson see 

very clearly as representatives of States that are ocean States in 

their own right. 

For another day is the question of what the consequences should 

be for regulators who are asleep at the switch when disaster and 

recurring indications of unpreparedness such as Senator Merkley 

just described take place, particularly when they are asleep at the 

switch having been lulled to sleep by industry lullabies. 

We have a lot of work to do here, and I think this is an important step. I appreciate this hearing very much. 

Senator BOXER. Thank you. 

Senator Carper, followed by Senator Klobuchar, and then we 

want to end this and turn to our witnesses, who have been extremely patient. 

OPENING STATEMENT OF HON. THOMAS R. CARPER, 

U.S. SENATOR FROM THE STATE OF DELAWARE 

Senator CARPER. Thanks, Madam Chair. 

And thanks to our witnesses who have been extremely patient. 

I want to thank you for holding this hearing today on Senator 

Menendez’s legislation. And I look forward to the opportunity to 

take a closer look at liability issues that are associated with our 

Nation’s offshore oil and gas industry. 
24 

As I have mentioned before, my heart goes out to the folks that 

are impacted by this terrible accident, to the families of the 11 

workers who died, and those that were injured. My heart also goes 

out to the thousands of workers, the individuals and families in the 

Gulf of Mexico who depend on the Gulf’s waters and shores for 

their economic livelihood. 

As a member from a coastal State I can say that I truly understand the importance of our shorelines to our own local and national economies. Our oceans and our shores give life to many, 

many industries, among them tourism, recreation, fishing industry, 

transportation, construction, research and education and real estate and many, many more. 

So we need to work together to make sure that the laws that we 

have in place protect these critical industries from economic harm 

in a fair and a real way. 

Today’s hearing is an important step in helping Congress figure 

out what kinds of reforms are needed, to make sure that liability 

for the offshore oil and gas industry holds responsible parties accountable for their actions or for their inactions. 

I look forward to hearing from our witnesses today on how we 

might best go about reforming liability laws for the industry and 

what other reforms might be needed to better protect our businesses and our environment from suffering further damage in the 

wake of this terrible accident. 

Again, thank you very much. 

Senator BOXER. Thank you, Senator Carper. 

Senator Klobuchar. 

OPENING STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM THE STATE OF MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Madam Chairman. 

Thank you, Senators, for being here. 

A few weeks ago, I actually went down to the Gulf and saw firsthand the scope of the disaster, which many have since seen, and 

I remember flying over it and thinking this is so much worse than 

it looks on TV when you see the miles and miles of orange waves. 

And now what we have seen since is worse, the pelicans on television hobbling around drenched in oil; the wildlife in peril. We are 

losing an entire ecosystem and the foundation of our Nation’s Gulf 

Coast economy, from the fishermen across the Gulf Coast who sit 

idle to the hotel rooms sitting empty to the countless beaches that 

are now home to tar balls instead of beach balls. 

It has now been over 50 days since the disaster began, and the 

costs have begun to increase exponentially. We still, as we all 

know, don’t know exactly how much oil has leaked, but we do know 

that this is likely the worst oil spill in our Nation’s history and perhaps in the world’s history. 

Yesterday, I joined Senators Shaheen and Gillibrand and others 

on a bill to give the President’s Gulf Oil Spill Commission subpoena power. We also had a hearing with Senator Whitehouse and 

some other Members, Senator Cardin, of the Judiciary Committee, 

and actually heard testimony from the brother of one of the victims. That really brought it home. 
25 

At the same time, over the last few weeks we have listened to 

the Chairman of BP America and the leaders of Transocean and 

Halliburton testify before us. BP has indicated that they will pay 

for the spill. Now, they are spending millions of dollars on fancy 

television ads to talk about how they are working to make up for 

this disaster. 

The problem for me is that the story is all too familiar. I want 

to bring you back to the Exxon Valdez. Why do I care about this? 

Well, a Minnesota law firm actually represented the fishermen 

from the very beginning to the end in that case. At the time of the 

Exxon Valdez spill CBS News reported after the disaster that 

Exxon executives were quoted telling fishermen, you have my 

word, we will make you whole again. 

But for 20 years Exxon fought the Minnesota law firm, fought 

them for paying damages and Appeals Court decisions multiple 

times. They have still not paid in full. Years of fighting and court 

appeals on Exxon’s part finally concluded with a U.S. Supreme 

Court decision in 2008 that found that Exxon only had to pay 

$507.5 million of the original 1994 court decree for $5 billion in punitive damages. 

Twenty years later some of the original plaintiffs are no longer 

alive to receive or continue fighting for compensation from Exxon. 

An estimated 8,000 of the original Exxon Valdez plaintiffs have 

died while waiting for their compensation as Exxon fought them in 

court. 

We cannot let the victims of the Gulf oil disaster suffer this same 

fate. And that is why I am so focused on the bill that Senator 

Menendez and others up here have worked on to lift the liability 

cap for offshore drilling accidents. I immediately got on that bill because I had seen what happened to the fishermen with the Exxon 

Valdez. It is a pretty basic free market idea, an American idea, that if 

you take a risk you should be the one to get the rewards, but also 

the one to incur the costs. 

I thank you, Madam Chair, for holding this hearing. I truly believe that if we hadn’t had that $75 million cap in place, perhaps 

different calculations would have been made. When you know that 

there is a $75 million cap on damages, and you have to make a decision about whether you are going to have a backup to a blowout 

preventer, whether you are going to have a redundant safety system in place, you can’t help the accountants, the number crunchers 

look at it, and go, well, it is $75 million. 

And I am not saying for a minute, for a minute that BP would 

have made the same decision if they had known what disaster 

awaited them. They wouldn’t have. They would have made it safer. 

But the point is all they knew at that time was that there was a 

$75 million cap on damages. 

And that is why I feel strongly both for the victims of this disaster, for our taxpayers in Minnesota, across the country, but also 

for incentives going forward that we have to raise that cap. 

Thank you very much, Madam Chairman; I yield the floor. 

Senator BOXER. Thank you. 

We have been joined by Senator Udall. 

Do you have an opening statement? 
26 

Senator UDALL. No, I don’t, but I would like to go to questioning 

in the proper order. 

Senator BOXER. All right. That is fine. 

We will go then to Senator Menendez. 

Your bill is the focus of this hearing, and again, any Member can 

raise their own bills, but we are very, very grateful to you for your 

leadership. We want to put in the record at this time an article, 

White House Endorses Unlimited Liability Cap for Oil Spillers, 

saying we need to ensure there is no arbitrary cap on corporate responsibility for a similar major oil spill. 

So congratulations, you have gotten that support. 

[The referenced article was not received at time of print.] 

OPENING STATEMENT OF HON. ROBERT MENENDEZ, 

U.S. SENATOR FROM THE STATE OF NEW JERSEY 

Senator MENENDEZ. Thank you very much, Chairman Boxer and 

Ranking Member Inhofe, and distinguished members of the Committee, for holding this hearing on S. 3305, which I want to just 

make sure for the record is the Big Oil Bailout Prevention Liability 

Act. We need to act quickly to make sure oil companies are held 

fully accountable for all damages related to an oil spill. And we 

have all come a long way since I introduced this legislation with 

a whole host of my colleagues about a month ago. 

The Administration, as you just cited, has moved to embrace the 

idea of unlimited liability for drilling in deep waters for all future 

drilling operations. Senators Vitter and Murkowski have introduced legislation that they say would hold BP accountable for unlimited damages for this incident, but it is silent on future spills. 

And my proposal, with my colleagues, has changed as well. When the disaster first occurred a $10 billion liability cap not only 

seemed adequate to compensate all those impacted by the spill, but 

it represented a sizable increase from a ridiculously low current 

level of $75 million. 

But this spill is larger in scale than anything we have seen in 

U.S. waters. It has forever changed our understanding of the potential size of oil disasters, even for someone like me who had long 

warned about the danger of rig blowouts. So for that reason, along 

with 20 cosponsors, we have amended the legislation for unlimited 

liability. 

So we have come a long way, but there is still a ways to go. Now, 

I find it interesting that those who say that we need to hold the 

victims harmless in the process and take care of them want to keep 

largely the present system in place. That is the voices I hear, a system of rather limited liability, of $75 million. BP made $94 million 

each day in the first quarter of this year, so that is less than 1 

day’s consequence. 

And I wonder at the same time—they are pursuing drilling that 

has unlimited risks. So I wonder whether the ‘‘drill, baby, drill’’ 

crowd ever thought about the ‘‘spill, baby, spill’’ consequences, because that is what we have today. 

Now, one of the objections I have heard to removing the liability 

cap is that it will cause mom and pop drillers to go out of business. 

My view of this is not a question of small versus big companies. 

This is about safe versus unsafe companies. If you are drilling in 
27 

the Gulf and are cutting corners the way BP allegedly has, then 

there is no doubt that insurers will be charging you more because 

you are a risky company. And if you are an unsafe company I am 

sure regulators are going to force you to overhaul your operations 

and use better equipment. That will definitely cost an unsafe company some money to get its operations into compliance. 

But a company with a higher safety standard should not have 

those same issues to worry about. The insurers and regulators 

alike would be able to see that you are operating safely, and in 

turn you should be able to continue your operations without the 

fear of major cost increases. 

Lifting the liability cap, as we do under the legislation, also instills discipline on oil companies, as Senator Klobuchar was referring to, not to cut the corners, not to take the calculation that the 

cost of doing business if something goes wrong is a limit of $75 million. And so by lifting the liability cap we make sure that the incentives are not perverse as they are under the present law. 

However, if you are an unsafe company that is also small, then 

we should be all concerned. According to a recent analysis by Credit Suisse, BP’s cleanup costs, economic damages, and other related 

costs could total $37 billion. That is a shockingly high number, but 

one BP will likely be able to absorb since it is a company well 

worth over $100 billion. 

But what if a similar unsafe but smaller company had caused 

this leak? As you can see from the bar chart that I have brought 

and the report I have provided to the Committee, there is a company worth less than $500 million drilling in over 4,000 feet of 

water in the Gulf. If a $500 million company had been the operator, and a spill causing $37 billion in costs and damages had 

taken place, I think it is clear that the residents of the Gulf and 

the American taxpayer would be holding the bag for over $36 billion. Is that the liability standards we want? Is that the risk we 

want to our collective economy? 

So unsafe companies that are not so big that they could pay for 

their catastrophic mistakes might have reason to worry, but small 

safe companies should be able to continue operating in the Gulf 

without fear. 

Finally, as I have mentioned previously, I applaud Senator Vitter 

for embracing unlimited liability for damages stemming from this 

bill, but I believe we need to change the law for all potential future 

spills so that the American taxpayer knows all companies will pay 

for that which they spill. 

I also don’t believe that Senator Vitter’s approach will survive judicial scrutiny because it attempts to form a contract without the 

consent of the parties and because it is an unconstitutional bill of 

attainder on just one company and one incident. By contrast the 

Department of Justice and the Congressional Research Service 

have both testified that our bill would survive constitutional challenge. Superfund law is an example of that. We created responsibility for polluting parties that had already polluted, and we created the liability subsequently, and that has been litigated and 

upheld. 

So we need to pass legislation that would hold all oil companies 

accountable and hold up in court. It is time we finally start treat-
28 

ing oil companies like we do everyone else, Madam Chairman. The 

average taxpayer does not enjoy a liability cap. The guy installing 

solar panels on your roof does not have a liability cap, and neither 

should oil companies. 

The mom and pops we should be worried about are not oil companies, but mom and pop taxpayers who shouldn’t have to pay for 

the cleanup spills of others. 

Thank you, Madam Chairman, for the opportunity to testify on 

our bill, and I am happy to answer any questions. 

Senator BOXER. Thank you very much. 

Senator Nelson, to be followed by Senator Vitter. 

OPENING STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM THE STATE OF FLORIDA 

Senator NELSON. Madam Chairman, this comes down to whether 

or not you want to lessen the likelihood that you have these kinds 

of spills in the future. So that all those mistakes that were made, 

starting with the coziness with the Government regulator never 

happens again; starting with all of those backup systems on the 

blowout preventer that did not work, never happen again; and that 

all of the mistakes that are being made now, the fishermen that 

are being promised that they are going to be hired and they don’t 

get paid, and they said give us a 14-day requisition and we will pay 

you in 14 days. That is 28 days. Where are they going to get the 

money to pay their crews? And it goes on and on and on. 

Madam Chairman, this is NOAA’s projection, and obviously you 

can see it, but you can go on the NOAA Web site. This is the projection for Friday. This is a 72-hour projection. And it has it now 

the winds are not blessing us as they have on the Florida coast, 

the Alabama coast, and the Mississippi coast. The winds are changing, and by Friday are sending it to the coast of Florida. 

The National Park Service has already put out a warning not to 

go into the water on the Gulf Islands Seashore Park, and that includes part of Perdido Key as well, which is a part of Florida. 

Now, it is hard for someone who has exposure to the Gulf, but 

for that matter, any of the Senators that have exposure to any of 

the oceans, not to be very emotional about this when you see as 

a result how your people are going to suffer. 

And so we come to you with a simple little proposal, and that is 

that the person who makes the mistake ought to be responsible. 

And if the penalty is that they are going to be responsible and have 

to pay, they are sure going to be a lot more careful about what they 

are doing. 

I don’t think, Madam Chairman, that the Government regulator 

is going to make the mistake that we have for the last couple of 

decades, and I think that house is being cleaned, and it sure needed to be cleaned. 

And so this Committee we would ask you, as you deliberate, let’s 

don’t delay this. Let’s get it out there so that it sends a strong signal to the future exploration that these mistakes should not be 

made. 

Thank you. 

Senator BOXER. Thank you, Senator. 

Senator Vitter. 
29 

STATEMENT OF HON. DAVID VITTER, 

U.S. SENATOR FROM THE STATE OF LOUISIANA 

Senator VITTER. Thank you, Madam Chair, and thanks for the 

opportunity to present S. 3461 by Senator Murkowski and myself. 

This bill is very simple. You have it before you. It does two 

things. First of all it removes any and all liability cap on BP for 

this event. It absolutely does that without equivocation to give certainty on that issue to the people of the Gulf Coast who are going 

through an ongoing crisis. 

And second it establishes an expedited claims process because it 

is crucial that these folks not just be made whole eventually, but 

they start to be made whole now because they are struggling 

month to month. 

This bill has also been completely cleared on the Republican side, 

so it stands ready to move immediately. 

Now, Madam Chair, as I have said several times in this Committee and sort of tried to gently remind folks, this is an important 

issue we are discussing, this whole event, but it is not just an important issue. It is an ongoing crisis. It is an ongoing disaster in 

the Gulf because the flow continues, the pollution continues, and 

it expands and is now hitting four States, not just mine. 

And that is very much the perspective I am coming from. This 

is an ongoing crisis, and we need to act in certain ways. And that 

is why I bring this bill because we can act immediately on this to 

address this ongoing crisis. 

Now, clearly—clearly the economic damages liability cap needs to 

be increased to a great extent permanently, and we all agree on 

that. But just as clearly, that will not pass immediately. Hopefully, 

it won’t take extremely long, but it will not pass immediately. So 

that is why, again Senator Murkowski and I cleared entirely on the 

Republican side, have brought this bill. 

And again, the bill is real simple. No. 1, it removes completely, 

completely any cap on BP for this event. No. 2, it sets up an expedited claims process to make these folks in the Gulf whole, not just 

eventually but starting right now as they struggle month to month. 

And finally with regard to the details of the bill, let me say, 

Madam Chairman, that we drafted the bill very specifically to 

avoid legal challenge from BP or anyone else. However, we are 

open to technical revision. And if Senator Menendez has a version 

that he would support, we are open to that. We just want this 

passed immediately to address this ongoing crisis and would be 

happy to work with him on a technical revision regarding the liability issue. 

Finally, Madam Chairman, let me submit for the record and read 

this letter which I think sums up very well the attitude of folks facing this ongoing crisis in the Gulf. It is from four leading local 

elected officials who all happen to be Democrats: ‘‘Dear Senator 

Boxer: If there is any national policy challenge that is not and 

should not be treated as partisan in any way, surely it is the ongoing oil disaster in the Gulf. Although there is universal agreement 

about this in Louisiana, apparently that may not be the case in 

Washington, DC. Several weeks ago, Senator David Vitter introduced emergency legislation to completely remove the existing cap 
30 

in Federal law for economic damages as it pertains to BP and our 

disaster. 

‘‘The bill also includes an expedited claims process so that affected fishermen and others aren’t just made whole, but are paid 

something immediately in an ongoing basis. When Senator Vitter 

tried to pass this through the Senate immediately, it was blocked 

by Senator Robert Menendez, Chairman of the Democratic National Senatorial Committee. 

‘‘We urge you to intervene with Senator Menendez and others so 

that this important legislation can be passed through the U.S. Senate and then the U.S. House. This should be made the law immediately to help us deal with this ongoing crisis. We realize that permanent revisions to OPA will require more debate, but this focused 

change for the BP disaster can and should be passed immediately. 

Thank you for focusing on this urgent request quickly.’’ 

And I will submit this for the record. 

Thank you, Madam Chair, and I look forward to our discussion 

and hopefully quick action. 

[The referenced letter was not received at time of print.] 

Senator BOXER. Thank you. 

Well, I regret that politics was entered into the record, but that 

is your choice, Senator Vitter. 

Senator Vitter, let me just say I do have a suggestion. I am going 

to ask Senator Menendez about it. What you are saying is your 

State and you have decided, you have decided that you want to 

make sure that for this particular spill affecting your State that 

there be no limit on the liability of BP. 

And you are not willing to at this stage at least, and maybe we 

can move you toward it, to admit that once something happened on 

the Atlantic coast, and Senator Lautenberg found himself in the 

same position as you, but it is a different company, he wouldn’t 

have the same protection. That is the constitutional question. Why 

should one State and one spill get treated a different way? 

So I am wondering, Senator Menendez, if Senator Vitter took his 

bill and basically said all other spills that will occur from this day 

forward with different companies will be treated the same way, unlimited liability. That would be a technical change, I suppose you 

could call it. Would that be something that you could work with, 

if he agreed that all other spills be treated the same way with different companies at different places? 

Senator MENENDEZ. Madam Chair, first let me just say my opposition had nothing to do with being the Chairman of the Democratic Senatorial Campaign Committee. It had everything to do 

with that proceeding with one incident and one company and saying, yes, you have unlimited liability and no one else has, is bad 

public policy, and I think is also illegal. 

So the answer to your question is yes. 

Senator BOXER. Good. 

Senator MENENDEZ. If in fact we have unlimited liability across 

the board for the future, that is in essence what we are trying to 

accomplish. And I would hope that since the Republican Caucus 

has cleared, according to Senator Vitter, the proposition that unlimited liability should exist for this incident, then the precedent 

and the principle is set for any other. 
31 

Senator BOXER. Right. And I would recommend, Senator Menendez, that you work with all of us and Senator Vitter to try and 

make this proposal on the floor of the U.S. Senate today, that we 

amend this bill to ensure that any other spill with different companies, that the people in that region, the fishermen, the recreation 

industry, the tourism industry, they be made whole as well. And 

then we can come together as Democrats and Republicans because 

that is my goal is to get this thing done. 

Senator VITTER. Madam Chairman, may I respond? 

Senator BOXER. Yes, and then Senator Nelson. 

Senator VITTER. OK, thank you. Because it is obvious that—— 

Senator LAUTENBERG. Madam Chairman, forgive me, but we 

have in front of us a bill to be considered. And I think that we 

ought to do that business and not let it be diverted even if it 

sounds right. 

Senator VITTER. Madam Chair, I would refer to your unanimous 

consent which was passed which clearly allows this discussion. 

Senator BOXER. Yes, but what I am going to do is ask the people, 

I want to have answers. So I guess I want to ask Senator Nelson 

a question here. 

Senator VITTER. Madam Chair, since you clearly—— 

Senator BOXER. Senator, when you want to come back up here. 

I am asking a question to specific Senators. I have 2 minutes remaining. 

Senator VITTER. Which have everything to do with my proposal, 

and I can’t respond—— 

Senator BOXER. I will be glad to give you as much time as you 

want, but these two have to leave. So I would like to get the benefit 

of their time. 

Senator VITTER. OK. I will be happy to wait to respond until they 

have responded. 

Senator BOXER. Well, after they leave. 

Senator Nelson, and I would ask to have 30 seconds added back 

on because I am losing my time here. 

The Price-Anderson model, which has been suggested by Senator 

Alexander, I have asked for a review of that. And what happens 

there is that the taxpayers are on the hook when the liability goes 

over $10 billion, and then the taxpayers have to come in and fund 

it. The reason I like Senator Menendez’s bill, which is broad, I like 

Senator Vitter, the fact that he holds BP accountable, but I like the 

Menendez approach better because it includes all companies, is because taxpayers will never have to bail out. 

And your point I thought was so well made. We are looking at 

preventing this type of thing from happening. And if there is a situation where, like Price-Anderson, where taxpayers are on the 

hook above a certain amount, won’t they do what Senator 

Klobuchar said they did with the $75 million, which is to take into 

account what the rules are, and maybe they will cut corners because they feel they can rely on taxpayer bailouts. 

Could you respond to that? 

Senator NELSON. Yes, and you already have taxpayer participation with regard to the trust fund. And the trust fund is for cleanup expenses, and it is at a limited amount of 6 cents per barrel. 

You ought to consider raising that to 25 cents because it is only a 
32 

matter of something in excess of $1 billion in the trust fund, and 

obviously you can see these cleanup expenses are going to be enormous. So you have already got taxpayer participation. 

This is a question of liability for the overall economic damages, and that is where this artificially low limit of $75 million is completely unrealistic. And if you want to make people all the more responsible, they need to understand they are going to suffer the economic consequences of paying for the damages as a result of their 

malfeasance and misfeasance. 

May I also say, Senator, when you are considering the legislation, you may want to take a good example from the Act of 1990 

that set up a citizens oversight panel that then looked at the implementation of all the clean up and the damages over time, and that 

citizens oversight panel has become most effective with regard to 

the Exxon Valdez. I am going to file legislation on that in the next 

few days and would ask that you all consider that as you approach 

this whole program since you are the Environment Committee. 

Senator BOXER. My time has run out. 

Senator Inhofe. 

Senator INHOFE. OK. First of all, let me clarify something, and 

I think it speaks well of both of us, Madam Chairman. 

You mentioned that you were kind enough to let Senator Vitter 

be heard, and I would point out that we didn’t know about Senator 

Menendez until Monday at 5 o’clock and Nelson until 7:20 last 

night. And so we didn’t object to that, and I don’t object now. 

But I would like, since Senator Vitter does want to respond to 

many of the things that have been said, for you to go ahead and 

take my time as you see fit to respond. 

Senator VITTER. Thank you, Senator, very much. 

And just to respond to the Chair, my entire point seems to be 

lost on some folks. The point is that we need a permanent revision 

of the law, but there is clearly disagreement about how to do that. 

And that is clearly not happening this week or next week. We 

should have that debate. We should move it along as quickly as 

possible. And I have a proposal which, by the way, increases the 

liability cap on BP to $20 billion, which is double the original 

version that Senator Menendez introduced which is before us. 

But in the meantime, I would again urge us and plead that we 

can act to address the ongoing crisis in the Gulf through a focused 

bill. Now, I don’t think it hurts Senator Menendez’s effort at all. 

In fact I can make an argument that it helps build momentum for 

it, so I don’t understand the tremendous opposition to it. But again 

I urge and plead that we come together in a bipartisan way, do 

that immediately, and continue to have this debate not for years, 

but continue to have this debate to come toward a permanent solution. And that is all I am urging with my bill. 

Senator INHOFE. Madam Chairman, I won’t even use the remaining 3 minutes that I have, but my staff tells me that it was an understanding that we were not going to have questions of the Members, and we do have several witnesses that we would like to hear 

from. In fact, they would have answers to a lot of these questions, 

so I would like to move on, if I could, to the panelists as soon as 

possible. 

Senator BOXER. That is fine. 
33 

Senator LAUTENBERG. Madam Chairman. 

Senator BOXER. Yes. 

Senator LAUTENBERG. If I may, you were very generous in permitting this intrusion into the discussion of the bill at hand. And 

it is obtrusive, and the fact that we had a political introduction, 

DSCC, it shows you the tone, the sincerity with which this is delivered. 

Madam Chairman, I want to comment my colleague, Senator 

Menendez, who is diligent about everything he does; excellent testimony. I was quick to join him once we saw what the liability situation was going to be there. 

And it is customary, is it not, for these Committees to generally 

excuse the Senators after their testimony. And I move that we get 

on with that and get the regular discussion going. 

Senator BOXER. I apologize. I was just wanting to see if we could 

come together here, and I think we may have found a way. A 

friendly amendment to the Vitter bill so that everybody is protected 

is something that I am going to be working on with you, Senator 

Vitter, and you, Senator Menendez. And I apologize. 

Senator VITTER. Madam Chair, let me just apologize to Senator 

Lautenberg. As a member of the Committee coming from the most 

affected State by this ongoing crisis, for having the gall to have legislation to try to address it now. 

Senator BOXER. That is not what Senator Lautenberg said. 

We are going to move on now. We thank Senators very, very 

much. 

And now we are going to go to our panel: Mr. D.T. Minich, Executive Director of Visit St. Petersburg-Clearwater, which promotes 

tourism for key portions of the western coast of Florida; Captain 

Mike Frenette, a professional tournament angler and guide and is 

the owner and operator of the Red Fish Lodge located in Venice, 

Louisiana, which caters primarily to anglers. He is also the President of the Venice Charter Boat and Guide Association and a member of the Board of Directors of the Louisiana Charter Boat Association. 

Mr. R.J. Kopchak. Mr. Kopchak has been a commercial fisherman for over 35 years in Prince William Sound, the Cooper River 

Delta, and Northern Gulf of Alaska. In 1989, when the Exxon 

Valdez ran aground, he played a key role in the local response to 

the spill. He is a Board Member of the Cordova District Fishermen 

United, a local fishermen’s organization, and is the Development 

Director of the Prince William Sound Science Center. 

Mr. Kenneth Murchison is a Professor of Law at the Paul M. 

Hebert Law Center at Louisiana State University, where he has 

been a member of the faculty at the Law Center since 1977 and 

taught environmental law since the early 1980s. 

Mr. Barry Hartman, a Partner with the law firm of K&L Gates 

and a former Acting Assistant Attorney General. Mr. Ron Baron is 

Executive Vice President of Willis Global Energy Practice. 

We want to welcome this distinguished panel, and we are going 

to start with Mr. Minich, Executive Director of Visit St. Petersburg-Clearwater. 
34 

STATEMENT OF D. T. MINICH, EXECUTIVE DIRECTOR, 

VISIT ST. PETERSBURG-CLEARWATER 

Mr. MINICH. Good morning. I thank you all for calling this hearing today. 

I am the Executive Director of Tourism for the St. PetersburgClearwater area, which is on the Gulf Coast. When you take in 

Tampa Bay as a whole it is the largest tourism area really on the 

Gulf Coast of Mexico. 

Tourism is the No. 1 industry in the State of Florida, $61 billion 

a year; almost a million people are employed in tourism. And the 

reason that for over 100 years many, many people have been coming to our State and enjoying our State is because of the tremendous beaches and pristine waters that we have. And all of that is 

currently at risk. My area alone is a $6 billion industry, tourism, for just my county, and there are over 80,000 people directly employed in tourism 

in Pinellas County alone. So you can see that it is a very, very big 

industry, and it is currently at risk. 

You might wonder why I am here talking today because right 

now there is no oil, and for the short term there doesn’t look like 

there will be oil on our beaches, but I will get to that in a minute. 

We have had experience in Pinellas County with an oil spill. In 

1993 three tankers collided right at the mouth of Tampa Bay, and 

oil was spilled, and oil ultimately affected 14 miles of our 35 miles 

of beach. Now, let me tell you this number, and let me tell you it 

slow. Those three boats and this oil spill was 362,000 gallons. That 

is coming out of there every couple of hours, 362,000 gallons. So 

in terms of gallons, in terms of barrels, it was a very minor spill. 

We saw cancellations of 40 percent to 60 percent, and it took us 

2 years to recover from a relatively small spill that was cleaned up 

in a relatively short amount of time. 

So the effects of this spill are huge and tremendous, and no one 

knows where we are going. This is so uncharted. We don’t even 

know how long this is going to affect us. 

I also, because of our concern, have met with some of the folks 

in Alaska tourism, and I have been told some things that astounded me. First of all the Valdez was a very small area of Alaska. It was concentrated. It was pretty predictable where this was 

going to effect and how it was going to effect, unlike the current 

situation. It took Alaska tourism 5 years of advertising, of very, 

very aggressive advertising to get in people’s minds that Alaska 

still was not covered with oil, to also understand that this was a 

very small part. This wasn’t where the Alaska cruise ships go or 

anything like that. As you have heard, 20 years to get claims back, 

and they told me no tourism entities received any of those claims. 

What it means to us right now is that we are seeing 25 percent 

reduction in reservations right now for the summer months. We 

are getting families that are calling in that have been coming to 

St. Pete-Clearwater for years and years and years, and they are 

saying we don’t want to risk it. Our hotels have all removed the 

cancellation policies, that they will refund the money if they check 

in and there is oil. But they don’t want to risk it because they don’t 

want to buy for a family of five, five airline tickets that are nonrefundable for August, and then when August comes around, and 
35 

they discover there is possibly oil on the beach where they plan to 

vacation, they are not going to get that money back. 

We met with the Governor Monday, and I have a family, the 

Hubbard family, fifth generation operating a marine and fishing 

charter and restaurant on John’s Pass, and she was almost in 

tears. The creditors were flying down Tuesday from Des Moines to 

talk to her, and their business is in jeopardy, and they have been 

there five generations, and this business is in jeopardy. 

We have been through hurricanes. We have been through 

wildfires. We have been through all kinds of economic ups and 

downs, and this is the worst thing and the scariest thing that we 

have seen in Florida tourism because it is so unpredictable and because it has the potential to affect, if it gets in the loop current, 

as Senator Nelson was showing earlier, it gets in the loop current, 

it could affect the Keys. It could affect the East Coast. It is already 

affecting the west coast, and $75 million is nothing. BP is spending 

$50 million, two-thirds of that on a public relations campaign for 

their own benefit right now. 

We have to lift this cap. We have to remove this cap because we 

don’t know where this thing is going. This could affect us for 20 

years or more. 

[The prepared statement of Mr. Minich follows:] 
36 

Committee on Environment and Public Works 

U.S. Senate 

Written Testimony 

"The Big Oil Bailout Prevention Liability Act of 2010" 

Wednesday, June 9, 2010 

D.T. Minich, COME 

Executive Director 

St. Petersburg/Clearwater Area Convention & Visitors Bureau 

Thank you for the invitation to testify at today's hearing. I have been asked to address 

three pertinent issues in my remarks this morning - first, the economic value of tourism 

in Florida; second, the potential impacts of the Deepwater Horizon oil spill on tourismrelated businesses; and third, the need for raising the caps to ensure any damages 

associated with this or future spills are compensated. 

Let's start with the economic value of tourism to Florida. There's no doubt that tourism 

is big business in our state. One look at numbers from VISIT FLORIDA, the state's 

official tourism marketing corporation, validates the enormous contributions that 

tourism makes to the Sunshine State. 

In 2009, Florida hosted 80.9 million visitors. That's almost the combined populations of 

New York, California and Texas. These visitors generated nearly $61 billion in travel 

spending and $3.65 billion in sales tax collections. They account for 21 percent of the 

state's total taxable sales. Moreover, tourism industry employment represents 968,400 

Florida jobs, so every 85 visitors support one Florida job. 

Last year's figures are indicative of the economic impact of tourism on the state in 

recent years. For 2008, VISIT FLORIDA reported that tourism generated 84.2 million 

visitors, $65.2 billion in travel spending, $3.9 billion in sales tax collections, and just 

over 1 million Florida jobs. In 2007, tourism accounted for 84.5 million visitors, $65.5 

billion in travel spending, $3.9 billion in sales tax collections, and 991,300 Florida jobs. 

Without a doubt, tourism consistently is vitally important to the state's economy. 

But what about the specific economic contributions of Florida's beaches? For more than 

a century, the state's 825 miles of beaches have been an important engine for 

economic development. Florida's economy is strongly tied to its waters through tourism 

and recreation, and there are many facets of the state's economy that are dependent 

on its coastline. 

Page 1 of 7 
37 

According to the Florida Oceans and Coastal Council, Florida's coastal shoreline counties 

contributed almost $562 billion in direct revenue to the state in 2006, the most recent 

year for which statistics are available. That represents a whopping 79 percent of 

Florida's economy! In addition, shoreline counties contributed more than 75 percent of 

Florida's GDP, wages, employment and establishments on only 56 percent of Florida's 

total land area. This takes into account tourism and recreation, the fishing industry, 

marine transportation, coastal construction, marine research and education, and real 

estate. 

Tourism Expenditures at Florida's Beaches 

Another measure of the beaches' importance to the state can be found in a report 

prepared by the Catanese Center at Florida Atlantic University in July 2005 that 

chronicles tourism spending. While the report's statistics are dated, they give us 

another quantifiable picture of just how valuable the beaches are to Florida's economy. 

The Florida Atlantic University report revealed that out-of-state beach visitors spent 

$19.1 billion in 2003, an amount that was equal to 3.8 percent of the gross state 

product. These beach visitors paid about $600 million in state sales taxes and created 

more than 500,000 jobs. At that time, 77 percent of Florida's population lived in coastal 

areas, and 80 percent of the personal income received by the state's residents came 

from coastal areas. Plus, 79 percent of the state's payrolls were earned in Florida's 

coastal areas. 

Even more relevant is that the report broke down the economic impact of Florida's 

beaches by region, including the northwest region. That area encompasses the beaches 

in the state's Panhandle that began witnessing tar balls from the Deepwater Horizon 

spill wash ashore on their coastline late last week. The report indicates that the 

northwest beach region accounts for $5.7 billion in contributions to Florida's economy 

and $2.8 billion in tourist spending; and 85 percent of tourists to the area visited its 

beaches. One can just imagine what those numbers would look like today, given the 

overall growth in Florida tourism over the last seven years and the opening last month 

of the $318 million Northwest Florida Beaches International Airport. It's the first 

commercial-service international airport to be built from the ground up in the past 15 

years. 

My area -- St. Petersburg/Clearwater on the Gulf Coast of Florida - is a prime example 

of how tourism drives the local economy of a beach destination. From 2002 to 2009, 

visitors to the area contributed more than $42 billion to our local economy. Each year, 

we host more than 13 million visitors, making us the most popular vacation destination 

on Florida's West Coast. These visitors generate more than $6.1 billion in total 

revenues, which means tourism is the number one industry and number one employer 

Page 2 of 7 
38 

in our area. And consumer research shows that our beaches are one of the most 

influential factors for those who chose our area for their vacation. In 2009, 93.5 percent 

of our visitors said the beaches influenced their trip decision-making. 

But tourism revenues are only part of the story. Not only do people benefit from the 

economic impact of the travel industry in dollars and cents, but they also benefit from 

the quality of life to which it contributes. So, the industry's impact is actually measured 

in two ways. 

The "value in exchange" measurement considers expenditures, jobs, taxes and the like; 

AND the industry's "value in use" takes into account the quality of life that tourism gives 

not only to visitors but also to residents who reap the rewards of tourism expenditures 

on local infrastructure. This latter measurement of tourism's impact reframes the 

industry's purpose from an ends- meaning the dollars spent- to a means- meaning 

what is done with those dollars locally. In essence, tourism is a tool for enhancing what 

residents love about their region. 

From performing arts to low cost travel, tourism affords a better quality of life. It also 

impacts parts of the community that are far beyond the obvious. The Penny for Pinellas 

program in Pinellas County, for example, would suffer without tourism. Visitors 

contribute approximately 35 percent of Penny for Pinellas revenues, which equals 

roughly $40 million annually. This program adds value to the county by funding roads, 

bridges, parks, drainage and other capital improvement projects. 

All of this paints a clear picture of the contributions that tourism makes to every 

community in Florida that it impacts and the trickle down benefits of visitor 

expenditures. 

First-Hand Experience 

Given the staggering economic impact figures I've just shared, it doesn't take much to 

surmise the potential impact of the Deepwater Horizon oil spill. While no one can say 

with certainty exactly how this slow-motion calamity will affect us in the future, I can 

share with you some relevant experiences. 

Pinellas County, Florida- with 345 miles of shoreline, 35 miles of white sandy beaches, 

and 11 barrier islands-- has first-hand experience with an oil spill. In 1992, our local 

convention and visitors bureau hired a Tampa firm, Research Data Services, to study 

how a major oil spill would affect Pinellas County. At that time the company's founder, 

economist Dr. Walter Klages, estimated a major spill could cause a 45 percent decrease 

in visitors over two years. He also projected that it also could result in the loss of 7,392 

tourism-related jobs in the county. 

Page 3 of 7 
39 

His predictions rang true one year later, when in August 1993, the beaches of southern 

Pinellas County suffered a minor oil spill that nonetheless caused major headaches for 

beach hoteliers. The spill occurred after two barges and a freighter collided in the 

shipping channel west of the Sunshine Skyway Bridge south of Mullet Key in Tampa 

Bay, Florida. After the accident, as tar balls littered the shore, a few of our area's large 

resorts reported that their occupancy rates fell by double digits when compared with 

the previous year. 

Furthermore, the environmental impact not to mention the clean-up efforts for what 

would be considered a "minor spill" were significant. Systematic shoreline surveys were 

conducted and oil was found buried by two to eight inches of clean sand deposited 

during high tide. Cleanup crews focused on manually removing the band of surface oil 

high on the beach. A plan was developed to remove the subsurface oil without 

generating large volumes of sediment for handling, disposal, and replacement. The plan 

called for mechanical removal of the heavy buried layers, manual removal of 

moderately oiled sediments/ and mechanically pushing stained sand onto the lower part 

of the beach for surf washing. 

Meanwhile1 cleanup crews were contending with very thick oil that had been deposited 

around some mangrove islands. Tarmats formed when sediment was mixed with oil 

along the shallow flats surrounding the islands. Large thick mats coated mangrove 

roots/ oyster and seagrass beds, and tidal mud flats, which are favored breeding and 

feeding grounds for a vast array of wildlife. 

Roughly 14.5 miles of fine-grained sand beach from St. Petersburg Beach north to 

Redington Shores Beach were affected by this spill. Sand beaches on Egmont Key at the 

entrance to Tampa Bay were also oiled. Additionally, four mangrove islands inside the 

entrance to Boca Ciega Bay at Johns Pass and two small areas of Spartina Marsh were 

oiled. Jetties, seawalls, and riprap within the bay and at Johns Pass and Blind Pass were 

also oiled to varying degrees. It is estimated that more than 30 miles of residential 

seawalls were oiled within Boca Ciega Bay. Some impact also occurred on the northern 

side of Mullet Key at Bonne Fortune Key in fringing mangroves. 

Our research in the aftermath of the incident showed its long-term effects on our area. 

In addition to the cost of extensive clean-up efforts, it took our hotels two years from 

the time of the spill to return to the level of business they had enjoyed prior to the 

accident. 

Lessons from Exxon Valdez 

All of this resulted from just a minor spill that is absolutely dwarfed by what we are 

facing in the Gulf today. The current-day spill is closer in nature to that of the Exxon 

Valdez when it struck a reef in March 1989. The tanker subsequently lost almost 11 

Page 4 of 7 
40 

million gallons of crude oil that eventually covered 1,300 miles of coastline and 11,000 

square miles of ocean in Prince William Sound, Alaska. While the Exxon Valdez spill was 

smaller and more geographically confined than the Deepwater Horizon spill, it gives us 

clues as to what we might expect from today's much larger disaster. 

In 1990, a study examining the impacts of the Exxon Valdez oil spill on Alaska's tourism 

industry found that 43 percent of businesses in the spill-affected areas felt that their 

business had been significantly or completely affected by the oil spill; and 59 percent 

reported spill-related cancellations. The same study found that visitor spending in the 

summer following the oil spill dropped by 35 percent in the most spill-affected regions 

and lost $19 million in direct visitor spending statewide. 

Despite the extensive cleanup attempts in Prince William Sound, less than 10 percent of 

the oil was recovered; and a study conducted by NOAA determined that, as of early 

2007, more than 26,000 gallons of oil remained in the sandy soil of the contaminated 

shoreline, declining at a rate of less than 4 percent each year. 

Both the long- and short-term effects of the oil spill have been studied extensively. 

Thousands of animals died immediately; the best estimates include 100,000 to as many 

as 250,000 seabirds, at least 2,800 sea otters, approximately 12 river otters, 300 harbor 

seals, 247 bald eagles, and 22 orcas, as well as the destruction of billions of salmon and 

herring eggs. The effects of the spill continued to be felt for many years afterwards. 

Overall reductions in population have been seen in various ocean animals, including 

stunted growth in pink salmon populations. Sea otters and ducks also showed higher 

death rates in following years, partially because they ingested prey from contaminated 

soil and from ingestion of oil residues on hair due to grooming. 

Almost 20 years after the spill, a team of scientists at the University of North Carolina 

found that the effects are lasting far longer than expected. The team estimates some 

shoreline Arctic habitats may take up to 30 years to recover. While Exxon Mobil cites 

studies that conclude the spill will not cause any long-term ecological impacts, a study 

from NOAA scientists concluded that the contamination can produce chronic low-level 

exposure, discourage subsistence where the contamination is heavy, and decrease the 

wilderness character of the Prince William Sound area. 

I recently spoke with Ron Peck, President and CEO of Alaska Travel Industry 

Association. He told me that, even though the Exxon Valdez spill impacted a relatively 

small part of the state, public perception was that the spill had affected the entire state. 

Moreover, the state had to run advertising for the next five years to combat negative 

public perceptions regarding the viability of an Alaska vacation, long after the spill 

clean-up had ended. Plus, he lamented that it took 17 years for resulting lawsuits to be 

settled through the courts. And, while fishing and other industries affected by the spill 

eventually received some compensation, tourism businesses ultimately received no 

Page 5 of 7 
41 

compensation whatsoever for their losses. Let me repeat that: tourism businesses 

received not one dime of compensation from Exxon for the Valdez disaster, which 

simply boggles the mind. 

Environmental Disaster 

The Deepwater Horizon oil spill is quickly becoming one of the biggest environmental 

disasters our country has ever faced. As I said before, its full impacts are still unclear 

and will likely remain so for decades to come. But it remains certain that the travel 

industry in Florida will suffer sharp declines if adequate steps are not taken immediately 

to stop the spread of oil to the coastline and mitigate the environmental damage 

already caused by the spill. Any decline no matter how small - in travel to the Gulf 

Coast region of Florida will have significant economic impacts. 

Early signs already indicate this very fact. The Florida Restaurant and Lodging 

Association estimates that occupancy rates along the Florida Panhandle beaches, 

between Pensacola and Panama City, already are down by 30 percent from 2009. In 

my area, a study we conducted last month indicated that 18 percent of potential visitors 

to Pinellas County said the Deepwater Horizon oil spill has impacted their vacation 

choices away from beach destinations that could be impacted by the spill. 

And other Florida beach destinations are predicting similar impacts. Nicki Grossman, 

President of the Greater Fort Lauderdale Convention & Visitors Bureau, was recently 

quoted as saying that oil on area beaches could cost Broward County businesses up to 

$15 million a day. 

In the bigger picture, Nathaniel Karp, chief U.S. economist for the Birmingham-based 

BBVA Compass Bank, released a study in early May estimating the total economic 

impact of the Deepwater Horizon oil spill to be $4.3 billion. He is working on new 

numbers and said the estimate will surely rise. He further explained that the impact will 

be huge on the Florida Panhandle, if the situation worsens because of its dependence 

on tourism. He said the region will suffer, and he was particularly concerned about 

long-term perception issues the area will face moving forward. And I quote: "Even if 

you manage to clean what your eyes can see in front of you, if people don't feel safe, 

it's going to be very difficult to bring them back." 

Karp's estimates are mirrored by the Harte Research Institute for Gulf of Mexico 

Studies, which conducted an early analysis of the impact last month that put the annual 

damage at $1.8 billion. The center is working on a new estimate now. 

Page 6 of 7 
42 

Compensation Funds 

Clearly, compensation funds are needed to fight the spill and its long-term impacts. But, 

funds also are badly needed to mount marketing efforts now to mitigate potential 

business losses and in the future to attract travelers back to a region after a spillaffected property or natural resource has been restored. 

Although the Oil Pollution Act of 1990 holds responsible parties liable for the loss of 

profits or earning potential, I've shared today that there are often intangible impacts of 

an oil spill that can be hard to measure or document. As in the case of the Exxon 

Valdez spill in Alaska, overly negative or inaccurate media coverage can lead to public 

misperceptions about the actual impacts of an oil spill. As a result, people may choose 

not to book travel to a destination they wrongly perceive to be threatened or impacted 

by an oil spill. Such losses of travelers and business are hard to accurately assess and 

document. Additional challenges to claiming economic damages under the Oil Pollution 

Act include lengthy processing times for claims and the per incident caps on economic 

damages. 

It makes no sense, given the facts I have presented today, to place any cap on claim 

damages resulting from this or any other major oil spill. When we face such an 

uncertain yet undoubtedly staggering economic and environmental impact, why place a 

specific cap on damages? Who will cover these costs once that cap is reached for the 

responsible party? And what do we tell those who have suffered irreparable losses 

when claims reach that cap? 

Put very simply, it's about fairness: if BP is unable to cap their well, then why should we 

be forced to put a cap on the damages they are responsible for paying? This is not a 

rhetorical question---it's a very serious, real world question whose answer will have far 

reaching consequences for years to come. 

To wrap up my remarks this morning, I want to hit one last important point. Florida is 

home to some of our most unique and iconic environmental treasures. To place any cap 

on damages to protect and/or restore those national treasures is a travesty that we 

really don't want to write into the history that our grandchildren will one day read. I 

certainly do not want that on my shoulders, and I hope that none of you here today 

want to leave that as our legacy. 

Page 7 of 7 
43 

Visit St. Petersburg/Clearwater 

U.S. Senate Committee on Environment and Public Works 

Senator Barbara Boxer 

The BP Deepwater Horizon spill in the Gulf of Mexico bas been ongoing for weeks 

and could continue many weeks or even months more. Mr. Minich, in your testimony you 

highlight that impacts will continue well after the oil spill ends. Can you describe what 

impact the tourism industry would experience if economic and natural resource damages 

remain capped at $75 million under the Oil Pollution Act? 

• This is an enviromnental and economic disaster that is simply unprecedented in its scope, 

and our industry will undoubtedly feel the impact of this for years to come. Tourism is a 

$6 billion a year industry in our county alone, so a $75 million cap is simply 

unacceptable. Therefore, there should be no cap. 

'- 250 W. Coventry Court. Milwaukee, WI 53217. 414.228.1990 
44 

Visit St. Petersburg/Clearwater 

U.S. Senate Committee on Environment and Public Works 

Senator Thomas R. Carper 

I. As you all know, under the Oil Pollution Ad of 1990, Congress capped liability for 

damages for individual oil and gas companies at $75 million, but spread liability across 

the entire oil and gas industry through the Oil Spill Liability Trust Fund. Under Senator 

Menendez's bill, he significantly raises the liability limits on the individual company. 

Can you each comment on what the implications might be if we significantly raised the 

liability across THE ENTIRE offshore oil and gas industry versus raising liability for just 

individual companies? Should we be looking at raising both? 

• Since we now know that the exact same kind of accident occurred in the Gulf in 1979 

and was treated with the same unsuccessful measures to try to stop the flow, the 

liability cap should be raised across the entire industry---particularly after last week's 

testimony from the heads of all the major oil companies showed that they all have the 

same "cookie cutter" emergency response plans BP is using. 

2. Based on your experiences as business owners being negatively impacted by the oil 

spill in the Gulf of Mexico, do you think that the Economic Development Administration 

has the right tools and processes in place to deal with the economic damages claims that 

it has and will receive? 

• I am not qualified to respond to this question and lack the knowledge to address this 

query. 

3. How are you receiving information about the clean-up? How could communication be 

better? 

• Our concern is not about communication regarding clean up···we have no oil on our 

shores, and we hope to remain that way. But the truth is that, in the realm of public 

opinion, that does not matter: the perception exists worldwide that the entire Gulf of 

Mexico is awash in oil, and our tourism industry is suffering because of that perception. 

So our concern about communication is that we communicate our "business as usual" 

status to potential visitors. 

4. What might Congress do to ensure that economic damages claims are processed in a 

fair and timely manner and that those impacted receive proper compensation for their 

losses? 

• The $20 billion President Obama secured from BP for claims is a very good start, and it 

demonstrates a serious commitment to make things right on behalf of BP. Also, the 

experience that Kenneth Feinberg brings to the role of Claims Administrator is extensive. 

We hope for this process to continue in a proactive and professional manner until all 

claims have been addressed. 

9 '-250W. Coventry Court. Milwaukee. WI 53217.414.228.1990 

2 
45 

Senator LAUTENBERG [presiding]. Thank you very much. 

Mr. Frenette. 

STATEMENT OF MIKE FRENETTE, CAPTAIN, 

VENICE CHARTER FISHING 

Mr. FRENETTE. As you can see, there will be some pictures that 

will be scrolling with my testimony here. 

First of all, I would like to thank everyone on the Committee for 

the opportunity to express my comments relative to the modification of caps on liability in the Oil Pollution Act of 1990. We are all 

aware of BP’s tragic accident that occurred April 20, 2010. At this 

time I would like to extend my sincere condolences to the 11 families who immediately saw the effects of these lost 11 lives. I think 

that is very important. 

Twenty-nine years ago I pursued my dream, turning a passion 

into a business, and today I own a lodge located in Venice, which 

is in the heart of the Mississippi Delta, the area where the impact 

of this oil spill hit immediately and is affecting us until this day. 

It will continue to affect us. 

The rich estuary feeds into the Gulf of Mexico and creates life 

for more than 400 marine and coastal fish in addition to wildlife 

species. The near-offshore waters of the Gulf as well as the intricate inshore waters incorporate a complex system of bays, bayous, 

canals, and marshland that are the breeding grounds for the majority of these species. 

The delta is the spawning grounds for countless numbers of marine life, mammals, and birds. Included in this beautiful one of a 

kind estuary the ecosystem is brought to a full circle. It all begins 

in this estuary, starting from the plankton and the invertebrates, 

to the eggs and larva of numerous marine lives, to the delicious 

seafood that the entire country, as well as the rest of the world, 

enjoys. Yes, this estuary is home to 30 percent of the seafood that 

is cultivated for the United States and is the area where 70 percent 

of Louisiana seafood is cultivated. 

This is the home for jumbo shrimp, oysters, blue crabs, and more 

fish than I have time to mention. Within this delta region thousands of commercial fishermen, charter fishermen and guides, recreational fishermen have a strong economic impact on Louisiana’s 

economy. 

Let’s put this into perspective. The following industries which are 

directly impacted by this disaster contribute the following sums annually to the local economy: oyster industry, $317 million; the 

shrimping industry, $1.3 billion; blue crab industry, $293 million; 

Louisiana’s charter boat and guide industry, $419 million; recreational fishing alone in Louisiana, over $1 billion. And again the 

area that is affected the most was Plaquemines Parish, where I am 

from, where 70 percent of the seafood is cultivated and harvested. 

At this point oil covers many miles of the estuary, and quite honestly a large part of it is dying daily as a result of the spill. Vegetation that was once green is now covered with oil, and more and 

more areas are dying as I speak. As the oil saturates the delta area 

it is saddening to see the devastation that I have personally observed. Oiled birds, oiled crabs, and dead fish floating in oil satu-
46 

rated areas are sights that quite honestly have brought tears to my 

eyes. 

This devastation is not a natural disaster. This disaster—and it 

truly is a disaster of great magnitude—was created by man, a disaster that I truly feel could have been avoided. Oil companies at 

this time have the opportunity to hide behind a veil of a $75 million liability cap, a cap that obviously would not cover the economic 

losses that the hard working people of this beautiful part of the 

United States are currently experiencing and will continue to experience for quite some time. 

I am sure that there will be arguments from the oil industry side as to how they will be affected if the $75 million cap is lifted. But 

I ask: Should corporations that net billions of dollars annually be 

allowed to hide behind a protective veil of liability cap even while 

their actions devastate thousands of lives? 

The possibility truly exists for many livelihoods to cease, livelihoods that have existed for generations, and now are on the brink 

of financial disaster because of poor decisions by a super-corporate 

entity that has created the worst oil spill in the history of the coast 

of Louisiana. 

Profits in the oil industry can be tremendous, and of course I understand for super-corporate companies to make great profit they 

need to take a great financial risk as well. But the risk should be 

just that, financial. Why should our environment, our way of living, 

our livelihoods be included in those risks? Our industry as well as 

other industries that I have previously mentioned have come to a 

halt. 

Fishing, both commercial as well as recreational, is shut down. 

Our estuary, or I should say your estuary, is under siege at this 

moment by chemicals that could have permanent devastating results not only to the fisheries but catastrophically to humans in the 

form of a collapse of a strong economic catalyst that drove not only 

Plaquemines Parish but unfortunately stretches across the Gulf 

and now in a rippling effect that covers the United States. 

At a minimum BP or any other oil company that is deemed responsible for damages to wetlands, wildlife, and fisheries and for 

the economic damages to individuals and businesses should be held 

accountable for these damages. The wetlands, wildlife, and fisheries should be returned to their original condition or even better 

that existed prior to any spill. 

It is impossible to clean these wetland areas, and BP should be 

held accountable for restoring the productivity, vibrancy, and reintroducing the water and sediments of the Mississippi River that 

can make these areas sustainable. Additionally, every human being 

or business that was affected as a result of the oil spill and governed under the OPA should be compensated for every current and 

further loss that is attributed to this accident. 

Please do not allow my dream and that of many others, including 

my two sons, to vanish. BP, including Mr. Tony Hayward himself, 

has stated on many occasions that they will restore the wetlands, 

wildlife, and fisheries back to the original condition, in fact, if they 

can, even better than before, and they will make every individual 

or business who has been affected and experienced a loss as a result of this tragedy whole no matter what. 
47 

If Mr. Hayward stands by this statement, then I say to each and every one of you, it is time to lift the $75 million liability cap and 

truly hold any company that recklessly creates such a disaster responsible for their actions. 

Thank you. 

[The prepared statement of Mr. Frenette follows:] 
48 

Testimony of Captain Michael A Frenette 

Owner/Operator of the Redfish Lodge of Louisiana 

www. venicefishing.net 

Professional Tournament Angler/Guide 

President: Venice Charter Boat and Guide Association 

Board of Directors: Louisiana Charter Boat Association 

President: CCA Chapter of Plaquemines Parish Louisiana 

Before the 

U.S. Senate Committee on Environment and Public Works Committee 

Legislative hearing to considerS. 3305, Big Oil Bailout Prevention Liability Act of 2010 

June 9, 2010 
49 

First of all, [would like to thank everyone on the committee for the opportunity to express my 

comments relative to the modification of caps on liability in the Oil Pollution Act of 1990. 

We are all aware of BP's tragic accident that occurred April20, 2010, specifically the explosion 

that occurred on the Deep Water Horizon drilling platform owned by Trans Ocean America, 

which was located approximately 50 miles from the mouth of the Mississippi River, south of 

Venice, Louisiana. That being said, I would like to extend my sincere condolences to the 11 

families that were immediately affected as a result of that explosion which tragically took II 

men's lives. 

Twenty-nine years ago I pursued my dream, turning a passion into a business and today f own a 

lodge, located in Venice, which caters to anglers from all over the world pursuing their dream of 

experiencing the best fishing that the United States has to offer. 

Twenty-nine years ago Venice was virtually unknown, other than to the citizens of the 

surrounding New Orleans area. Venice is located in Plaquemines Parish, in the heart of the 

richest estuary that the United States has, an area called the "Mississippi Delta." 

This rich estuary feeds into the Gulf of Mexico and creates life for more than 400 marine and 

coastal tish, in addition to wildlife species. The near off shore waters of the Gulf as well as the 

intricate inshore waters, incorporate a complex system of bays. bayous, canals, and marsh land 

that are the breeding grounds for the majority of these species. 

The Delta is the spawning grounds for countless numbers of marine life, mammals, and birds. 

Included in this beautiful, one of a kind estuary, the ecosystem is brought to a full circle. It all 

begins in this estuary, starting from the plankton and the invertebrates, to the eggs and larva of 

numerous marine lives, to the delicious seafood that the entire country-as well as the rest of the 

world--enjoys. 

Yes, this estuary is home to 30% of the seafood that is cultivated for the United States and is the 

area where 70% of Louisiana's seafood is harvested. This is home for the jumbo shrimp, oysters, 

blue crabs, and more fish than I have time to mention. 

Within this delta region thousands of commercial tishermen, charter fishermen and guides, and 

recreational fisherman, have a strong economic impact on Louisiana's economy. Let's put this 

into perspective, the following industries which are DIRECTLY impacted by this disaster, 

contribute the following sums annually to the local economy: 

• The Oyster industry, $317 million (Louisiana supplies 70% of the oysters to the entire 

United States); 

• The Shrimping industry, $1.3 billion; 

• The Blue crab industry, $293 million; 

• Louisiana's Charter Boat and Guide industry, $419 million. 
50 

Venice's Charter Boat and Guide industry was the first to be impacted by this oil spill. Today 

virtually all waters inshore or offshore south of Venice are closed and will be closed for an 

indefinite period for all types of fishing. The severity of this is that Venice, Louisiana, has earned 

the right and is duly noted as the number one fishing destination in the continental United States. 

It is considered to be in the top five fishing destinations in the world. Over 400,000 anglers are 

licensed, creating a total economic impact to the state, just in saltwater fishing of over $1 billion. 

Also keep in mind that 70% of Louisiana's seafood harvest comes from Plaquemines Parish, the 

area that has been hit the hardest from the Deep Water Horizon oil spill, affecting again, what 

was the richest estuary that existed in the United States. 

At this point oil covers many miles of this estuary and quite honestly a large part of it is dying 

daily as a result of this spill. Vegetation that was once green, are now covered with oil and more 

and more areas are dying as I speak. As the oil saturates the Delta area, it is saddening to see the 

devastation that I have personally observed. Oiled birds, oiled crabs, and dead fish floating in oil 

saturated areas are sights that quite honestly have brought tears to my eyes. 

This devastation is not a "natural" disaster, this disaster, and it truly is a disaster of great 

magnitudes, was created by man. A disaster that I truly feel could have been avoided. 

Oil companies at this time have the opportunity to hide behind the "veil" of a $75 million 

liability cap, a cap that obviously will not cover the economic losses that the hard working 

people of this beautiful part of the United States are currently experiencing and will continue to 

experience for quite some time. I am sure that there will be arguments from the oil industry side 

as to how they will be affected if the 75 million dollar cap is lifted. But I ask: should 

corporations that net billions of dollars annually be allowed to hide behind a protective "veil" of 

a liability cap, even while their actions devastate thousands of lives'? 

The possibility truly exists for many livelihoods to cease, livelihoods that have existed for 

generations and now are on the brink of financial disaster, because of poor decisions by a super 

corporate entity that has created the worst oil spill in history off the coast of Louisiana. 

Profits in the oil industry can be tremendous and of course I understand for super corporate 

companies to make great profits, they need to take great financial risks as well. But the risks 

should be just that, financial. Why shouldn't our environment our way of living, our livelihoods, 

not be included in their risks') 

Our industry, as well as the other industries that I have previously mentioned, have come to a 

halt. Fishing, both commercial as well as recreational is shut down, our estuary and I should say 

YOUR estuary is under siege at this moment by chemicals that could have permanent 

devastating results not only to the fisheries but catastrophically to humans, in the form of a 

collapse of a strong economical catalyst that drove not only Plaquemines Parish, but 

unfortunately stretched across the gulf coast, with a continuing ripple effect that covers the entire 

United States. 

We are also concerned about the chemicals contained within the dispersant that BP is using, 

which has saturated our area of the gulf. It is now present in our estuary, as well, and by way of 

2 
51 

currents. Large plumes of toxic contamination aimlessly drift off Louisiana's coast. further 

exemplifying the "state of emergency" that our Delta region is in. 

Why should any super corporate oil company, or for that matter any oil company, be allowed to 

operate and not be responsible for their actions? Their actions are causing As a result of their 

actions, could cause again, total devastation to the environment as well as total economic loss to 

humans? 

At a minimum, BP, or any other oil company, that is deemed responsible for damages to 

wetlands, wildlife and fisheries and for the economic damages to individuals and businesses, 

should be held accountable for these damages. The wetlands, wildlife and fisheries should be 

returned to their original condition, or even better than what existed prior to any spill. It is 

impossible to clean these wetland areas, and BP should be held accountable for restoring their 

productivity and vibrancy by re-introducing the water and sediment from the Mississippi River 

that can make these areas sustainable. Additionally, every human being or business that was 

affected as a result of the oil spill and governed under the OPA should be compensated for every 

current and further loss that is attributable to the accident. 

Please do not allow my dream and that of many others, including my two sons to vanish. 

BP, including Mr. Tony Hayward himself has stated on many occasions that they will restore the 

wetlands, wildlife and fisheries back to its original condition, in fact if they can, even better than 

before and they will make every individual or business that has been affected and experienced a 

loss as a result of this tragedy WHOLE, NO MATTER WHAT. 

If Mr. Hayward stands by his own statements, then I say to each and every one of you, it's time 

to lift the 75 million dollar cap of liability and truly hold any company that recklessly creates 

such a disaster responsible for their actions. 

3 
52 

Questions for Frenette 

Questions from: 

Senator Barbara Boxer 

1. Mr. Frenetre. your testimony described the impact this oil spill could have on the 

people in Louisiana who depend on the Louisiana marshes and coastal ·waters for 

their livelihood5. Your heartfelt testimony explained the harsh reality that 

fisherman in the Gulf" are already facing and could conj"ront for many more years. 

What would happen to the livelihoods of all those that live on the coast if those 

responsible for this spill aren't heldfully liable.fhr the economic damages that it 

may cause? 

Senator Boxer, if in fact the responsible party is not held fully liable for the economic 

damages that it has incurred on individuals or businesses that have been truly impacted 

by the oil spill, the results will in tum be catastrophic. It will be devastating to the fact 

that many will lose their homes, personal assets, and certainly their businesses including 

business assets would be lost. Take just a couple concerns that are directly impacting my 

life at this time; I only have 6112 years to pay for my house that I bought as an investment 

for part of my retirement. This is a property that is worth over $600,000.00 and one that I 

owe less than $150,000.00 for. Certainly foreclosure would be devastating to my family. 

I am responsible tor vehicles lor my two sons, my wife as well as myself. Health 

insurance for my family. education for my two sons and I could go on and on but I think 

you understand. I have worked extremely hard over the years to develop my business. 

one that truly exemplifies "The American Dream" and truly I have a chance to lose all 

that I have worked tor. My business as well as my lite is at '"ground zero" and I am 

losing it because a company and the individuals that work for this company (BP) made 

horrible decisions that created this disaster. This is not a "natural" disaster but it is '"man 

made:· Certainly you and I are responsible for our actions and without a doubt BP should 

as well. If BP does not step up and correct the financial devastation that they have 

brought to my area, then in tum you will see a rippling effect that will begin to affect 

many other businesses as well. Banks, mortgage companies, schools, grocery stores, 

insurance agencies, gas stations, as well as many more will shortly see delinquent 

accounts, which eventually are just going to create further economic damages to the 

entire Gulf Coast as well as the rest of the nation. This cannot be allowed to happen. I 

understand that the clean up efforts are imperative, but compensation to the victims (we 

truly are victims) whose livelihoods and way of life have been halted need to be 

addressed IMMIDIA TEL Y! Our industry is completely shut down and quite honestly, 

especially in my area and our industry will probably be lost forever. 
53 

Questions from: 

Senator Thomas R. Carper 

I. As you all know. under the Oil Pollution Act()( 1990, Congress capped liabilityfbr 

damagesfi>r individual oil and gas companies at $75 million. but spread liability across the 

entire oil and gas industry through the Oil Spill Liability Trust Fund Under Senator 

Menendez's bill. he significantly raises the liability limits on the individual company. Can you 

each comment on what the implications might be if we significantly raised the liability across 

THE ENTIRE off~·hore oil and gas industry versus raising liabilityfor just individual 

companies? Should we be looking at raising both? 

My answer would simply be stated: that if a company large or small cannot afford the 

potential risks involved with the undertaking of drilling in deep water, then affording permits 

for drilling should not be allowed to any company. I am not in favor of banning drilling as I 

understand how valuable it is not only to our entire country but to Louisiana as well. That 

being said, why should a company be able to enjoy the financial rewards of a great "find" in 

deep water exploration but not accept the responsibility for its actions. 

Simple. if you cannot afford the entire costs of doing business and part of that cost of business 

is being responsible for your actions. then you should not be allowed to conduct business. 

2. Based on your experiences as business owners being negatively impacted by the oil spill in 

the Gulf of' Mexico, do you think that the Economic Development Administration has the right 

tools and processes in place to deal with the economic damages claims that it has and will 

receive? 

I would have to follow up the second question with a similar answer to number one. 

The responsible company for the disaster should be the party responsible for the 

economic losses. Why should the tax payers be responsible for the careless actions of any one. 

much less a super corporate company? I have very I ittle knowledge of the Economic 

Development Administration and would have to search further to answer the part whether or 

not they have the right tools in place to handle the claims that exist as well as further claims. 

3. How are you receiving iJ?f'ormation about the clean-up? How could communication be 

better? 

I receive the information about the clean up on the news like I am sure most do. Un 

fortunately I am not sure we have a better source. Maybe a panel constructed of local. state 

and federal agencies, as well as individuals that are directly impacted by this disaster to 

review, critique and possibly help with suggestions that pertain to the clean up could be 

beneficial. It just does not seem like there is anyone that is in total control. Each area that is 

and will be impacted should have someone in command from that area that is not afraid to 

make decisions. 
54 

-1. What might Congress do to ensure that economic damages claims are processed in af'air 

and timely manner and that those impacted receive proper compensation for their losses? 

Good question. Personally I feel that our government needs to hold BP totally accountable. 

BP has already agreed that they will make everyone "'whole." What they have not stated, is 

when they will do this. The government should issue some parameters as to when this will 

take place. Set up, what I would call a "'tier" system. Start with the individuals and businesses 

that are impacted the most such as charter fisherman/guides and your commercial fisherman 

that are shut down completely and some have permanent losses. These should be addressed 

immediately as it is just as important as the clean up. 

Then from there you address other industries that have some sort of economic loss. 

Depending on the percentage of loss, would dictate the time it needs to be paid hy BP. 
55 

Senator BOXER. Thank you very much. And I might thank you 

for providing these photographs, and thank you for your heartfelt 

testimony. 

Mr. R.J. Kopchak is a commercial fisherman for over 35 years in 

Prince William Sound. 

Mr. Kopchak. 

STATEMENT OF R. J. KOPCHAK, CORDOVA DISTRICT FISHERMEN UNITED AND PRINCE WILLIAM SOUND SCIENCE CENTER 

Mr. KOPCHAK. Thank you, and again our hearts go out to those 

who lost their lives and to our fellow fishermen and their families 

and assorted businesses in the Gulf. 

In 1989, when the Exxon Valdez ran aground, I was the Vice 

Mayor of Cordova. I organized the Cordova Oil Spill Response Center to coordinate immediate community-based response and also incorporated the Prince William Sound Science Center where I 

served as their President. 

The Center is home for the Oil Spill Recovery Institute, which 

was created in OPA 90 to complement State and Federal efforts 

over the long timeline of oil spill recovery. I have served on the 

Public Advisory Committee of the Oil Spill Trustees and organized 

and chaired the Herring Recovery Planning Team in an effort to 

better understand why Pacific herring have yet to recover from the 

spill. 

I was an owner and board member of the Copper River Fishermen’s Cooperative, a small fisherman-owned processor. I am a 

board member of and active in the local fishermen’s organization, 

Cordova District Fishermen United, and recently rejoined the 

Science Center as their Development Director. 

My background offers unique perspectives, but I speak today on 

my own behalf and represent no organization. 

I share with you a real life example of the potential impact to 

the Gulf fisheries from the long-term oil damage and what level of 

liability might arise from the loss of just one fishery to just one 

community if in fact we were to make fishermen whole. 

Like the timing of the Gulf of Mexico spill, the Exxon Valdez spill 

coincided with the spring reproductive season. Like the shrimp in 

the Gulf, our herring were about to spawn. Herring eggs were laid 

on oiled beaches, and emerging herring larva drifted with the 

chemical soup that was a result of the spill, the dispersants and 

the recovery operations. 

Studies following the oil spill revealed that fish eggs and developing embryos and larva could be damaged at exposures to oil as 

small as parts per billion, not in the parts per million as we previously thought prior to Valdez. Herring mortality skyrocketed over 

the next 4 years, resulting in the collapse of the herring population. 

Twenty-one years later, herrings are still listed as damaged and 

not recovering from the spill. 

Once over 1,100 people directly participated in our herring fishery. Small and mid-sized family fishing vessels with between two 

and five crewmen harvested herring and herring egg-covered kelp 

for special markets in Japan. In addition to 500 herring harvest 

permit owners, who operated about 300 vessels, about 40 spotter 
56 

pilots and about 300 folks who picked kelp and harvest by hand 

participated in the fishery. Fish processors employed another 200 

in shoreside jobs that depended on the herring fishery as much as 

the commercial fishermen. 

The value of the herring permits that were owned in 1989 by commercial fishermen exceeded $34 million. Today those permits 

are worth nothing, zero. Since 1994, the year litigation ended and 

the Exxon appeals began, herring fishermen have lost over $166 

million. No compensation for these losses, they were post-litigation. 

In addition to what fishermen were not paid, the impact to the regional seasonal economy is estimated at over $650 million. That 

is about a 4-time multiplier. They use 10-times multipliers in the 

Great Lakes region: wholesalers, retailers, packaging, shipping, 

local grocery stores, marine repair, restaurants and hotels, fuel distributors, longshoremen, to name a few. Lost fish tax revenue 

added another $6 million of losses to my community, or if you 

added all of the lost fish tax, about $18 million to all of the impacted communities. 

My family is representative of those still being impacted. Our two herring permits have gone in value from $145,000 to zero. Herring equipment once worth over $50,000 is today of no value. As 

an average fisherman I wasn’t a high-liner. We made about 

$28,700 a year. If you count it up, over $460,000 in lost revenues 

in the 16 years. If you add it all together, the equipment, the permit value, and the lost revenues, $650,000 in lost revenues to my 

family. 

In addition to herring we lost our fisherman-owned processing 

cooperative, the Copper River Fishermen’s Co-op had 135 fishermen-owners and depended on the banks for financing. That is the 

money we needed each year to buy, process, market, and distribute 

our fishery products. With the interruptions in product availability, 

the banks withdrew their financing, and we lost our equity, over 

$3 million. 

Cordova used to wake up from the winter sleep in mid-March 

each year when the herring fishermen began to arrive to prepare 

for the season. It is now early May. A 6-month economic window 

is now only 4 and a half months long, and one of our major economic drivers is gone. 

A $75 million limit in liability is a disservice to the working class 

men and women most impacted by the careless and maybe perhaps 

criminal actions of one of the world’s most profitable businesses. 

One last comment. Limiting liability also affects restoration, recovery monitoring, and punitive damages. Courts could limit these 

awards to a percentage of liability, severely restricting the funds 

available for recovery and recovery monitoring. 

And what about long-term liability? The herring fishermen have 

experienced 16 years of collapse; no compensation for those liabilities. 

We encourage you to deal with this. Limiting liability in oil spills 

transfers economic impact from those responsible and most able to 

pay to those who are victimized; who have lost their way of life and 

perhaps their ability to make a living. 

Thank you. 

[The prepared statement of Mr. Kopchak follows:] 
57 

US Senate Committee on Environment and Public Works 

Washington, DC June 9, 2010 testimony (prepared June 6, 2010) 

My name is RJ Kopchak, and for over 35 years I have commercially fished for 

Crab, Halibut, Salmon and Herring in Prince William Sound, the Copper River 

Delta and Northern Gulf of Alaska. 

In 1989 when the Exxon Valdez ran aground I was Vice Mayor of Cordova. I 

organized the Cordova Oil Spill Response Center to coordinate immediate 

community based response, and incorporated the Prince William Sound Science 

Center, where I served as President. The center is home to the Oil Spill 

Recovery Institute, created in OPA 90 to complement state and federal efforts 

over the long timeline of spill recovery. I have served on the Public Advisory 

Committee for the Oil Spill Trustees, and organized and chaired the Herring 

Recovery Planning Team in an effort to better understand why Pacific Herring 

have yet to recover from the spill. 

I am a board member of and active in our local fishermen's organization, 

Cordova District Fishermen United, and recently rejoined the Science Center as 

Development Director. My background provides me with a unique perspective on 

Oil Spill Liability, and I am speaking here today on my own behalf from my own 

perspective. 

I share with you a real life example of the potential impacts to gulf fisheries from 

long term oil damage, and what level of liability might arise from the loss of just 

one fishery to one fishing community if in fact we were to make fishermen 

"whole". 

Like the timing in the Gulf of Mexico, the Exxon Valdez spill coincided with the 

spring reproductive season. Like the shrimp in the Gulf, our Herring were about 

to spawn. Herring eggs were laid on oiled beaches, and emerging herring larva 

drifted with the chemical soup that was the result the spill, the dispersants, and 

the recovery operations. Studies following the oil spill revealed that fish eggs and 

developing embryos could be damaged at exposures to oil as small as parts per 

billion, not parts per million as was previously thought. Herring mortality 

skyrocketed over the next four years, resulting in the collapse of herring 

populations. Twenty-one years later herring are still listed as damaged and not 

recovering from the spill. 

Once, over 1,100 people directly participated in the Herring fishery. Small and 

mid sized family fishing vessels, with between two and five crewmen harvested 

herring and herring egg covered kelp for special markets in Japan. In addition to 

500 herring harvest permit owners operating over 300 vessels, about 40 spotter 

pilots, and 300 hand harvesters participated in the fishery. Fish processors 

employed another 200 or more. Other shore side jobs were as dependent on the 

herring fishery as the fishermen. 
58 

The value of Herring fishing permits in 1989 exceeded$ 34 million. Today they 

are worth zero. Since 1994, the year litigation ended and the appeals began 

herring fishermen have lost over $166 million. No compensation for these losses. 

In addition to what fishermen were not paid, impact to the regional seasonal 

economy is estimated at $650 million - wholesalers, retailers, packaging, 

shipping, local grocery stores, marine repair, restaurants and hotels; fuel 

distributors and longshoremen to name a few. Lost fish tax revenue adds another 

$6 million in losses, directly to the community. 

My family is representative of those still being impacted. Our two herring permits 

have gone from a value of $145,000 to zero. Herring equipment, once worth over 

$50,000, is today of no value. As "average" fishermen our continuing losses 

accrue at about $28,700 a year; over $460,000 for 161ost seasons and counting. 

To date, over $650,000 in income, equipment and permit value forever lost. 

In addition to Herring we lost our fishermen owned processing cooperative. The 

Copper River Fishermen's Co-Op had 135 fishermen owners, and depended on 

the banks for "pack financing", the money needed each year to buy, process, 

market and distribute products. With interruptions in product availability the banks 

withdrew financing after the spill, and lost equity exceeded $3 million. Cordova 

used to "wake-up" from the winter in mid March each year, when the herring 

fishermen began to arrive to prepare for the season. Now it is early May. A six 

month economic "window" is now only 4 'Y2 months long, and one of the main 

economic drivers is absent. 

A $17 million limit in liability is a disservice to the working class men and women 

most impacted by the careless and perhaps criminal actions of one of the world's 

most profitable businesses 

Limiting liability could affect restoration, recovery monitoring, and punitive 

damages. Courts could limit these awards to a percentage of "liability", severely 

restricting the funds available for recovery and recovery monitoring. What about 

the long term liability? The Prince William Sound Herring Fishery has 

experienced 16 years of collapse, and no compensation for these losses has 

been made. 

Limiting liability in oil spills transfers economic impacts from those responsible 

and most able to pay for the tragedy to those who are victimized; who have lost 

their way of life, and perhaps their ability to make a living. 

Robert(RJ)Kopchak 

PO Box 1126 

Cordova, Alaska 9957 4 

503-961-3578 
59 

The Facts about the Collapse ofthe 

Prince William Sound Herring Population 

by Richard E. Thorne (rthome(ii•pwssc.org) Senior Scientist 

Prince William Sound Science Center- \'IIWW.pwssc.om: 

Cordova, Alaska 

The 20th anniversary of the Exxon Valdez Oil Spill (EVOS) has again focused attention 

on the Prince William Sound (PWS) ecosystem and the legacy of the spill. There is 

increasing interest in the story behind the PWS herring population, since it is one of only 

two species listed as non-recovering. The official EVOS Trustee Council position is that 

the cause of the herring collapse is largely unknown. However, I strongly believe the 

facts show otherwise. After several scientific papers and numerous interviews, I think it 

is timely to spell out the facts on this subject so the public can be well informed about the 

link between the oil spill and the subsequent collapse of the PWS herring population. 

It is well documented and widely accepted u'lat the herring population was at a relatively 

high level in 1988, about 100,000 metric tons. During 1990-92, about 40,000 tons of 

herring were harvested. The population level for 1993 was forecast at 133,000 tons by 

the age-structured assessment (ASA) model used by management agencies. However, 

commercial fishers were unable to locate fishable concentrations of herring during spring 

1993. Subsequent research, including surveys by the Prince William Sound Science 

Center during fall1993, documented that the population had collapsed to around 20,000 

tons. Indications of disease were found in the population. Lacking any other 

information, agencies concluded that the population had catastrophically collapsed 

between 1992 and 1993 as a result of a disease outbreak. The four-year interval from the 

EVOS appeared to remove the oil spill as a factor in this one-year collapse. 

Nearly a decade later in 2002, my PWSSC colleague Gary Thomas and I began to write a 

paper documenting the assessment technology that we had initiated in falll993 and had 

applied annually since that time to monitor the herring population. As we developed the 

paper, including comparisons with other indications of herring abundance, we noted that 

one relatively obscure index of herring abundance showed excellent agreement with our 

10-year data set. The index was an aerial survey of the extent of herring spawn 

(specifically milt) along beaches that had been conducted by the Alaska Department of 

Fish and Game every year since 1973. When we looked closer at the index, we noted 

that it began to decline in 1989 and declined consistently from 1989 to 1994, in contrast 

to the official description of the collapse, a one-year event between 1992 and 1993. 

Further, we noted that the aerial survey index and the estimates from the ASA model 

differed substantially only during 4 years over a nearly 30 year span. Those years were 

1989, 1990, 1991 and 1992. The most likely explanation for a divergence is an 

undetected increase in the mortality of adult herring, which would cause the ASA model 

to overestimate the herring abundance. 

We had not previously challenged the timing of the collapse, although we, like many 

others, found the coincidence of an oil spill and a subsequent herring collapse to be 

suspicious. Further, we were aware of a potential mechanism for damage to herring. In 
60 

1990, Gary Thomas and I had published a paper that described surfacing behavior by 

herring. At the time, the paper did not seem to apply to oil spill consequences in PWS, 

since the herring population collapse had not been detected. After the discovery of data 

indicating a 1989 initiation of the decline, we went back and examined this surfacing 

behavior in more detail. We discovered that several other scientists had subsequently 

described the behavior in more detail. It had become well documented that herring 

needed to come to the surface to replace air lost from their swim bladders, probably on a 

daily basis. One especially elegant experiment had blocked herring access to the surface, 

with the result that herring progressively lost air and subsequently sank to the bottom and 

died. We were aware from other data that the oil spill covered the surface of most of the 

typical adult herring distribution in PWS during March. Consequently, there were only 

two possibilities: either herring came to the surface and directly encountered toxic oil 

concentrations, or they were blocked from the surface by the oil, lost gas from their swim 

bladders, and eventually sank to the bottom and died. Even without the evidence that the 

herring population decline began in 1989, it is inconceivable that herring could have 

avoided serious damage from the oil spill under these circumstances. 

in subsequent journal-published research we described other arguments that supported 

the linkage and timing with respect to the oil spill. These include the simultaneous 

decline in the numbers of Steller sea lions, a major predator on herring, in PWS during 

the winters of 1989-93 and the unlikely circumstance that 1.5 billion herring could have 

died from disease in one year without any observed corpses. The bottom line, in my 

opinion, is that the evidence is overwhelming that the Exxon Valdez Oil spill damaged 

the PWS herring and initiated a substantial decline in the population. Reasons for the 

lack of subsequent recovery are less apparent. It is very possible that the population, 

once damaged and reduced to less than 20% of their previous abundance, have been 

unable to escape the consequences of a still intensive predation by marine mammals, 

seabirds and other fishes. 
61 

Herring losses based on historic average value/Prince William Sound 

Dollar values from the State of Alaska Commercial Fishenes Entry Commission website 

VALUES THROUGH 2010 Seasons 

Inflation Adjustment Calculations: http://vvww.westegg.com/inf!ation/Jnf!.cgi 

Lost production based on a comparative analysis of Sitka Sound herring fisheries. 

Annual Ex Vessel Average value by harvest type 

WILD KELP HARVEST 

POUNDED Herring 

FOOD and Bait 

GILLNET 

$232,000 Using$ 1 = $1 for 1980-1995 

SEINE 

Average value per year 

not inflation adjusted 

$2,100,000 

$244,000 

$299,000 

$4,600,000 

$7,475,000 

16 !ost seasons $119,600,000 

Adjusted 1995 $ to 2009 $ 

166,738, ?06 

Each individual permit holder lost the following revenues-by permit 

Adjusted for Inflation for 1995-2005 

Gillnet 24 permits 

Seine 107 permits 

Pounding 129 permits 

Wild harvest 263 permits average 

Food and Bait 10 average 

HERRING PERMIT VALUES 1989 

24 Gillnet (G34E) Permits 

107 Seine (G01E) Permits 

129 Pound (L 21E) Permits 

(263 average) Hand (L 12E) 

(10 average Food/Bait) 

$ 92,600 

$245,000 

$ 48,000 

Not Limited 

Not Limited 

Total Value 1989 

$ 2,222,400 

$ 25,480,000 

$ 6,192,000 

Total1989 Herring Permit Value $ 33,894,400 2010 value: ( 0) 

Losses inflation 

adjusted 

TATAL permit and revenue losses to date: 

$171,200,000 $200,633,106 

SOURCES: State of Alaska Data sites for herring fisheries below: 

Inflation Adjusted 

Query Permit Data by gear-type: Seine G01 E Gill net G34E Pound L21 E Hand L 12E 

Historic Permit Values: http://www.cfec.state.ak.us/pmtvalue/mnuherr.htm 

Herring Ex-Vessel Values and Production: http://www.cfec.state.ak.us/quarti!e/rnnuherr.htm 

lnflation Adjustment Calculations: htto://www.westegg.com/inf!ation/infl.cgi 

The above table prepared Qy:_fu_Kopchak Cordova. Alaska .. 907-424-7178 

Robert (RJ) Kopchak 

PO Box 1126 

Cordova, Alaska 99574 

223,853 

772,472 

292,511 

15,848 

438,435 
62 

Committee Response 

RJ Kopchak 

Po box 1126 

Cordova, Alaska 99574 

Senator Barbara Boxer 

I. Mr. Kopchak, the Oil Pollution Act of 1990, which was enacted in response to the 

Exxon Valdez spill, limits liability for economic and natural resource damages to only 

$75 million. 

Given your experience with the damages caused by the Exxon Valdez spill, what impact 

do you believe this liability limit would have on the livelihoods ofthose in the Gulf of 

Mexico that depend on the oceans and the coasts? How will it impact their ability to 

fully recover from this spill? 

RJ Kopcbak responds: Liability limits need to reflect the potential cost of impacts. 

These change dramatically across geographic regions. Looking at the long timeline of 

potential impacts from oil spills, and the potential costs to not only fishing, but other 

businesses, would argue for what would amount to limitless liability. Limitless liability is 

what commercial fishermen face for their operations. 

The difficulty comes in structuring the requirements for compliance. If an operator wants 

to work in a fragile area where potentia/liability is significant, capacity to meet the 

potential costs needs to be established Perhaps this is through shared liability from 

industry operations in the area. The bollom line is that those responsible for damages 

need to pay all of the bills. This might be for decades if resources do not recover. 
63 

Senator Thomas R. Carper 

I. As you all know, under lhe Oil Pollution Act of 1990, Congress capped liability for 

damages for individual oil and gas companies at $75 million, but spread liability across 

the entire oil and gas industry through the Oil Spill Liability Trust Fund. Under Senator 

Menendez's bill, he significantly raises the liability limits on the individual company. 

Can you each comment on what the implications might be if we significantly raised the 

liability across THE ENTIRE offshore oil and gas industry versus raising liability for just 

individual companies? Should we be looking at raising both? 

RJ Kopchak Response: There needs to be a mechanism that ties industry together when 

damages from oil spills and gas development are at high levels. Individual oil companies 

need to meet high liability limits. The oil and gas industry in general needs to be the 

additional deep pocket. There should significant shared liability within the industry 

before the oil spill liability fund is brought into play. If not, the bean counters will figure 

when the risks are met by the fund, and operations will cut corners on safety because 

there will be no direct cost to operations. 
64 

Senator BOXER. Thank you very much. 

Mr. Kenneth Murchison, Professor of Law at the Paul Hebert 

Law Center, Louisiana State University. 

STATEMENT OF KENNETH M. MURCHISON, PROFESSOR, PAUL 

M. HEBERT LAW CENTER, LOUISIANA STATE UNIVERSITY 

Mr. MURCHISON. Chairman Boxer, Ranking Member Inhofe, 

members of the Committee, thank you for inviting me to appear before you today. As the Chairman indicated, my name is Ken Murchison. I am the James E. and Betty M. Phillips Professor at the 

Paul M. Hebert Law Center of Louisiana State University. 

The views I express today are my personal opinions. They do not 

necessarily represent the views of the Law Center, the University, 

or the State. 

I have been a member of the faculty at the Law Center since 

1977, and I have regularly taught environmental law since the 

early 1980s. 

My written statement briefly describes the liability provisions of 

the Oil Pollution Act. I will not repeat that summary except to note 

that the Oil Pollution Act creates strict liability subject to very narrow defenses for removal costs and damages, which includes damages to natural resources and property, as well as most economic 

losses suffered by individuals, businesses and government. The $75 

million cap that S. 3305 proposes to raise applies only to damages 

under the Oil Pollution Act when the damages result from a spill 

from an offshore facility. 

S. 3305, as you know, changes the limitation of this liability 

damages by increasing that amount for which a responsible party 

can be held liable from $75 million to $10 billion. In my judgment, 

both economics and morality support the proposed change. 

The economic case for increasing or eliminating caps on liability 

is relatively straightforward. Immunizing a commercial actor from 

bearing all the economic costs associated with its operation has the 

effect of under-deterrence. That is, the actor will engage in conduct 

that would not be profitable if the actor bore the full economic cost 

or would forego safety or environmental controls that would be 

cheaper than paying the costs the actor is avoiding. 

The question of immunizing economic actors from full liability 

also has a moral dimension. If a disaster occurs the amount of 

damages that individuals and property owners suffer does not decline because an actor is not required to pay the full cost associated 

with the economic activity. 

Instead some people suffering the injury are not compensated at 

all, or each person suffering injury recovers only a portion of the 

damage. In either event individuals with no connection to the economic activity suffer injury and are forced to bear the costs of the 

loss. The cap is, in effect, a contingent tax on a group not directly 

involved with the economic activity. 

A basic principle of justice suggests that it is fair to make the 

party who experiences economic gain of the activity bear the loss, 

rather than the innocent bystander. This principle of fairness 

seems to be particularly applicable to the present spill in the Gulf 

of Mexico, where many thousands of innocent property owners and 
65 

businesses have suffered losses that threaten their livelihood and 

financial well being. 

Some have expressed concern that eliminating the limits on liability will preclude smaller companies from drilling operations 

and lead to further domination of drilling activities by a small 

group of major companies. But even if one assumes the domination 

of drilling activities by major companies could increase because of 

the liability risk associated with unlimited damages, a damages 

cap is a particularly inappropriate way of responding to that market imperfection when other fairer methods of spreading the risk 

are available. 

Obviously, smaller companies could establish contractual arrangements that would share the risk. If those private arrangements are inadequate, the Government could create mandatory 

pooling arrangements to which all participants in drilling activities 

contribute in proportion to their involvement in drilling activities. 

Some others who oppose responding to the Gulf tragedy with an 

initial focus on the damage cap argue the cap is a minor aspect of 

the problem revealed by the Gulf release. In making this argument 

they emphasize the several reasons that BP’s liability for the Gulf 

bill will greatly exceed $75 million. These opponents of the statutory change in the liability cap are correct that the $75 million 

limit is not an absolute cap on all liability for releases in the Gulf 

of Mexico. I think they underestimate the impact of the cap, and 

so I support the change proposed in S. 3305. 

My comments to this point reflect my views as an environmental 

law professor whose career is nearer its end than its beginning, but 

I am also a citizen of Louisiana with deep roots in the State. I 

think I am like most Louisianans in my reaction to the catastrophe 

unfolding in the Gulf. We are dismayed by the horrific damages to 

one of the richest ecosystems, but we are not primarily concerned 

with fixing blame, and we are emphatically not looking for a handout. 

We are interested in seeing fair compensation for the tremendous 

loss we have suffered and seeing meaningful reforms that will lessen the likelihood of a similar disaster and provide an improved response when the next oil spill occurs. 

Thank you for the opportunity to appear today. If you have any 

questions regarding the matter, I will certainly be happy to try to 

answer. 

[The prepared statement of Mr. Murchison follows:] 
66 

Statement of Kenneth M. Murchison 

James E. and Betty M. Phillips Professor 

Paul M. Hebert Law Center 

Louisiana State University 

on 

S.3305 

before the 

Senate Environment and Public Works Committee 

June 9, 2010 
67 

I. Introduction 

Chairman Boxer, Ranking Member Jnhofe, members of the committee, thank you for 

inviting me to appear before you today. My name is Ken Murchison, and I am the James E. and 

Betty M. Phillips Professor at the Paul M. Hebert Law Center of Louisiana State University. The 

views I express today are my personal opinions; they do not necessarily represent the views of 

the law center, the university, or the state of Louisiana. 

l have been a member of the faculty at the law center since 1977, and I have regularly 

taught environmental law since the early 1980s. I have been a visiting professor at the University 

of Richmond, the United States Military Academy, and the University of Alabama; I also spent a 

year as the Natural Resources Law Fellow at the law school at Lewis and Clark College. Before I 

entered the legal academy, I was first introduced to environmental law as a Judge Advocate in the 

United States Air Force; and I continued to work on environmental issues as a reserve Judge. 

Advocate until I retired as a Colonel in 2001. I have written extensively on a variety of 

environmental law topics including the Clean Water Act. 

The catastrophic consequences of the oil release that began on April 20 in the Gulf of 

Mexico have prompted all those interested in environmental protection to reconsider the legal 

regimes that govern deep-water oil operations. One of the most important of those regimes is the 

Oil Pollution Act of 1990, which was enacted following the Exxon Valdez oil spill in Alaska in 

1989. Given the differing nature of the Alaska spill in 1989 and the continuing release in the 

Gulf of Mexico, it is appropriate for the Congress to reconsider whether existing law provides a 

satisfactory framework for tbe contemporary risks from offshore drilling activity. One important 
68 

aspect of the liability scheme of the Oil Pollution Act is a provision that limits liability for certain 

damages to $75 million. S. 3305 would raise that limit to $10 billion. 

II. Brief Description of Oil Pollution Act Liability Provisions 

Title I of the Oil Pollution Act (OPA), 33 U.S.C. §§ 2701-20, establishes a liability 

scheme for oil spills. When oil is discharged from a vessel or facility into the navigable waters 

of the United States, adjacent shorelines, or the exclusive economic zone, each "responsible 

party" is liable for "removal costs" and "damages." OPA § I 02(a), 33 U.S. C. § 2702(a). 

Removal costs are broadly defined to include actions that are "necessary to minimize or mitigate 

damage to the public health or welfare, including, but not limited to, ±ish, shellfish, wildlife, and 

public and private property, shorelines, and beaches.'' OPA § 1001(30), 33 U.S.C. § 2701(30). 

The damages recoverable under the statute are: 

• Injury to, destruction of, loss of, or loss of use of natural resources. 

• Injury to, or economic losses from, destruction of property. 

• Loss of subsistence use of natural resources. 

• Net loss of taxes and other revenue from injury or loss of property. 

• Loss of profits from damage to property or natural resources. 

•Net costs of governments providing increased or additional public services. 

The Fifth Circuit has ruled that this specific enumeration of damages precludes the award of 

punitive damages under the Oil Pollution Act. South Port Marine, LLC v. Gulf Oil Limited 

Partnership, 234 F.3d 58 (1st Cir. 2000). 

2 
69 

Modeled on Section 311 of the Clean Water Act and the Comprehensive Environmental 

Response, Compensation, and Liability Act, the Oil Pollution Act explicitly adopts the standard 

of liability of Section 311. OPA § 101(17), 33 U.S.C. § 2701(30). As with those statutes, 

liability under the Oil Pollution Act is strict and responsible parties can be jointly and severally 

liable subject to vary narrow defenses. OPA § 103, 33 U.S. C. § 2703. 

The Oil Pollution Act differs from the Section 311 of the Clean Water Act and the 

Comprehensive Environmental Response, Liability, and Compensation Act because it imposes 

caps on some damages that can be recovered under the statute. For an offshore facility (other 

than a deepwater port), the liability limit is "the total of all removal costs plus $75,000, 000." 

OPA § 1004(a), 33 U.S.C. § 2704(a). However, the limit on liability for damages does not apply 

• When the incident was "proximately caused by" the "gross negligence or 

willful misconduct of," or "the violation of an Federal applicable safety, 

construction, or operation regulation" by the responsible party or 

• When the responsible party fails to report the incident, to provide 

reasonable cooperation and assistance, or- without sufficient cause -to comply 

with a cleanup order. 

OPA § 1004(c), 33 U.S.C. § 2704(c). 

The Oil Pollution Act does not provide an exclusive basis for awarding damages for an 

oil spill. Section 1018,33 U.S. C.§ 2718, preserves the power of states and local governments to 

impose greater liability for "the discharge of oil or other pollution by oil within such State" or for 

"any removal activities in com1ection with such a discharge." In addition, Section 6001, 33 

3 
70 

U.S.C. § 2751, provides that the Act does not affect admiralty and maritime law "[e]xcept as 

otherwise provided.'' 

III.S.3305 

S. 3305 changes the limitation ofliability for damages in Section 1004(a)(3) of the Oil 

Pollution Act, 33 U.S.C. § 2704(a)(3), by increasing the amount for which a responsible party 

can be held liable from $75 million to $10 billion. It also makes the new limit effective on April 

15, 2010, a date that would make it applicable to the ongoing release of oil in the Gulf of 

Mexico. Increasing the damages for which a responsible party is liable should encourage 

responsible parties to exercise greater care in offshore drilling activities; eliminating the cap 

altogether would encourage even greater care. Increasing or eliminating the cap would also 

reduce or eliminate the unfairness of imposing the burden of the uncovered damages on innocent 

victims of an oil spill or on the general taxpayers. 

The economic case for increasing or eliminating caps on liability is relatively 

straightforward. Immunizing an economic actor from bearing all the economic costs associated 

with its operations has the effect of under deterrence. That is, the actor will engage in conduct 

that would not be profitable if the actor bore the full economic costs or will forego safety or 

environmental controls that would be cheaper than paying the costs that the actor is avoiding. 

Given the possibilities of huge economic gains, the cap in the Oil Pollution Act probably does 

not induce drilling that would be unprofitable without the cap on liability; the drilling would 

almost certainly occur with or without the cap on liability for damages. The protection from 

4 
71 

economic loss may, however, have the unconscious effect of discouraging some additional safety 

and environmental protections. 

A cap as low as $75 million seems particularly inappropriate in the case of offshore oil 

facilities. The capital costs involved in those operations and the large potential for gain make the 

current cap a relatively minor aspect of the overall cost of operation even if the cap is adjusted to 

reflect changes in the consumer price index. (Section 1004(d)(4) of the Oil Pollution Act 

requires such revisions every three years, but I was away from my office while preparing these 

remarks and was unable to check to see whether the Department of the Interior had actually made 

those revisions for offshore facilities.) 

The question of immunizing economic actors from full liability also has a moral 

dimension. If a disaster occurs, the amount of damages that individuals and property owners 

suffer does not decline because an actor is not required to pay the full costs associated with its 

economic activity. Instead, some persons suffering injury are not compensated at all or each 

person suffering injury recovers only a portion of the damage. In either event, individuals with 

no connection to the economic activity suffer injury and are forced to bear the cost of the loss. 

The cap is, in effect, a contingent tax on a group not directly involved with the economic activity. 

Alternatively, of course, the government could compensate those whose losses were not covered, 

but that approach would amount to taxpayers providing a subsidy to the economic activity that 

was shielded from complete liability. 

A basic principle of justice suggests that it is fairer to make the party who experiences the 

economic gain of the activity bear the loss rather than the innocent bystander. This principle of 

fairness seems to be particularly applicable to the present spill in the Gulf of Mexico. Many 

5 
72 

thousands of innocent property owners and business have suffered losses that threaten their 

livelihoods and financial well being. It is unjust to require them to subsidize an oil company that 

is still likely to reap huge profits from the oil field as the affected states and the people in them 

struggle economically and environmentally. Avoiding this injustice by governmental payments 

to individuals who have been harn1ed dilutes the unfairness by transferring the cost to all 

taxpayers, but it does not change the general proposition that persons not directly benefitting 

from the economic activity are being required to bear the cost of the damages rather than the 

economic actor. 

At least two objections have been raised against the effort to eliminate the Oil Pollution 

Act's limit on liability for offshore facilities. On the one hand, some have expressed concern that 

eliminating the limits on liability will preclude smaller companies from drilling operations and 

lead to further domination of drilling activities by the small group of major oil companies. 

Others contend that the cap on damages under the Oil Pollution Act is a minor problem that 

should not be the focus of legislative response to the problems revealed by the Gulf catastrophe. 

Neither objection changes my view that S. 3305 is a desirable change to the Oil Pollution Act. 

Initially, one might question the empirical premise that the cap on damages has allowed 

smaller companies to bid on projects on which they could not have bid if the cap had not been in 

place. Given the huge capital and operating costs involved in offshore drilling, intuition suggests 

that the cap on damages is a relatively small factor in the decision to bid on leases and to engage 

in exploratory drilling. Only the companies have the information that would support the premise 

that the damages cap is crucial, and they should be required to provide that information before 

the premise is accepted. 

6 
73 

Even assuming that domination of drilling activity by major companies could increase 

because of the liability risks associated with unlimited damages, a damages cap is a particularly 

inappropriate means of responding to that market imperfection. As explained above, that 

approach amounts to a hidden tax on innocent victims of the drilling activity; and other fairer 

methods of spreading the risk are available. Obviously, smaller companies could establish 

contractual arrangements that would share the risks that were greater than they could bear 

individually. If those private arrangements are inadequate, the government could create 

mandatory pooling arrangements to which all participants in drilling activities contributed in 

proportion to their involvement in drilling activities. Such governmental approaches are 

preferable on both economic and moral grounds. If the industry as a whole has to bear risks, it 

will support stronger safety and environmental controls to minimize those risks. Iflosses do 

occur, they will be shared among those who benefit from the economic activity. 

Others who oppose responding to the Gulf tragedy with an initial focus on the damages 

cap in the Oil Pollution Act argue that the cap is a minor aspect of the problems revealed by the 

Gulf release. In making this argument, they emphasize the several reasons that BP' s liability for 

the Gulf spill will greatly exceed $75 million. First, the cap only applies to "damages," not 

"removal costs;" and as noted above- the Oil Pollution Act broadly defines removal costs. 

Second, the Oil Pollution Act does not apply at all if the company was guilty of gross negligence 

of the violation of a safety, construction, or operating regulation. Third, the cap only applies to 

damages awarded under the Oil Pollution Act, not those imposed under state law or admiralty or 

maritime law. 

7 
74 

These opponents of a statutory change in the liability cap for offshore facilities are correct 

that the $75 million limit is not an absolute cap on all liability for the release in the Gulf of 

Mexico. I believe, however, they underestimate the impact of the cap, and so I support the 

change proposed inS. 3305 or a complete abolition of the cap. Some victims of the release in 

the Gulf may avoid the cap after years of litigation regarding the definition of removal actions 

under the Oil Pollution Act. the applicability of the exceptions to the cap, and the reach of the 

savings clauses with respect to state law claims and admiralty claims. But I believe the basic 

idea of the Oil Pollution Act is the principle that federal law should provide a relatively prompt 

and certain remedy for damages to natural resources and property as well as the economic losses 

that individuals and governments experience as a result of oil spills. 

The question of full recovery is particularly important with respect the current Gulf spill. 

Coastal lands and marshes have already been extensively damaged in Louisiana, and their 

recovery will take at least a generation. Even if individuals and property receive compensation 

for their direct losses, failure to restore those areas will eliminate the livelihoods -indeed, the 

entire way of life- for thousands of Louisiana citizens. Such a result would be equivalent to 

making a huge part of the state an economic and ecological dead zone. Louisiana is a small state, 

but it deserves fair treatment. Imagine the outcry if a similar fate threatened San Francisco 

Harbor, Martha's Vineyard, or the Chesapeake Bay. Reducing or eliminating the cap on 

damages will be a major step toward beginning the process of remediation and restoration. 

8 
75 

IV. Additional Needed Reforms 

For the reasons described above, I think I would be remiss ifi did not emphasize that 

raising the cap on damages in the Oil Pollution Act is not a silver bullet that solves either the 

present crisis in the Gulf or prevents future disasters. After the Exxon Valdez spill, Congress 

made sweeping prospective changes regarding oil spills from tankers. The Gulf release has now 

demonstrated that the proper question for spills from offshore facilities is when they will occur 

rather than if they will occur. Thus, Congress should also consider additional reforms to reduce 

the risk from, and to mitigate the efiects of, those spills. One might appropriate consider a 

variety of additional changes in the Oil Pollution Act and other federal statutes. 

Desirable additional changes in the Oil Pollution Act include other provisions relating to 

compensation. With respect to compensation, the most obvious candidates are the other damage 

caps found in Section I 004, 33 U.S.C. § 2714; the economic and moral arguments applicable to 

the cap on offshore facilities also applies to these provisions. In addition, the savings provision 

for state law, OPA § 1018,33 U.S. C.§ 2718, should be amended to apply explicitly to all 

damage from oil pollution that occurs within the state; and Congress should consider expanding 

the availability of punitive damages under federal law, either by providing for them in the Oil 

Pollution Act or by expanding the narrow punitive damages allowed by the United States 

Supreme Court in Exxon Shipping Co. v. Baker, 554 U.S. 128 S. Ct. 2605 (2008). 

Not surprisingly, the provisions on prevention adopted by the Oil Pollution Act in 

response to the Exxon Valdez spill focused on improving tanker safety. A similar set of 

prevention requirements should be adopted for offshore facilities. At a minimum, further 

9 
76 

environmental analysis (at least an environmental impact statement) should be required for all 

offshore wells now that we know what serious environmental harm is possible. Equally 

important, the statute should contain explicit requirements for stronger contingency plans for 

serious oil spills, so that initial containment of a future release will not be delayed for weeks. 

Congress should also give serious attention to a funding mechanism for ongoing research into 

remediation of oil pollution. By necessity, we are likely to learn a great deal about cleaning oil 

pollution from coastlines and marshes over the next twenty to thirty years. How much better it 

would be if we had begun that research in the 1990s. 

Although I recognize that amendments to other statutes will often be beyond the 

jurisdiction of this committee, I would encourage committee members to support additional 

changes to other federal statutes when they are proposed to Congress. Chief of these reforms has 

to be radical changes in the Minerals Management Service. The nation has a right to expect that 

the regulatory agency governing oil development will protect the public interest in safety and 

environmental protection, and the Minerals Management Service has failed to provide that 

protection. Additional desirable statutory changes include amending the citizen suit provision of 

the Clean Water Act, 33 U.S.C. § 1367, to make clear that citizen suits may be brought to redress 

oil spills and leaks and to eliminate the Outer Continental Shelf Lands Act provision that 

establishes a 30-day limit to complete the environmental review and act upon applications for 

permits to explore for undersea oil and gas reserves. See 43 U.S.C. § 1340. Finally, state like 

Louisiana that have assumed the risk (and now the reality) of environmental damages from 

offshore drilling operations should receive a fairer share of the royalties that those operations 

produce. 

10 
77 

IV. Conclusion 

This brief statement has tried to outline the liability provisions of the Oil Pollution Act 

and to describe the effect of S. 3305 and to describe the economic and moral arguments in favor 

of increasing or eliminating caps on liability. It also explains why I reject the two principal 

arguments against the proposed legislation. At the same time, I have tried to caution the 

committee against assuming that this legislation alone will solve or prevent the repetition of the 

current catastrophe in the Gulf of Mexico. Further revisions of the Oil Pollution Act as well as 

other statutes are also necessary, and I hope the Senate will pursue as many ofthem as possible. 

My comments to this point reflect my views as a law professor whose career in 

environmental law is nearer to its end than its beginning. But I am also a citizen of Louisiana 

with deep roots in the state. I was bom in Louisiana, and I have physically resided in the state for 

more than fifty of my sixty-three years. I think I am like most Louisianans in my reaction to the 

catastrophe unfolding in the Gulf of Mexico. We are dismayed by the horrific damages to one of 

the richest ecosystems in the world, but we are not primmily concemed with fixing blame and we 

are emphatically not looking for a handout. We are interested, however, in receiving fair 

compensation for the tremendous losses we have suffered, in seeing meaningful reforms that will 

lessen the likelihood of a similar disaster and provide an improved response when the next oil 

spill occurs, and in ensuring that we receive a fair share of the revenues generated by the 

environmental risks that we have taken on behalf of the nation. I supportS. 3305 because it is a 

small step in the direction of fair compensation, but it must not be the total legislative response to 

disaster we have experienced. 

11 
78 

Thank you for the opportunity to appear today. If you have any questions regarding any 

of the matters I have addressed, I will be happy to try to answer them. 

12 
79 

Questions for Murchison 

Questions from: 

Senator Barbara Boxer 

I. Mr. Murchison. your testimony states that "increasing the damages for which a 

responsible party is liable [under the Oil Pollution Act] should encourage responsible parties to 

exercise greater care in offshore drilling activities." 

Could you please go into that concept in a little greater detail and describe what benefits 

for safety could be gained by lifting the liability limits? 

A basic assumption of economics is the premise that economic actors are mtional; that is, 

they will act in their own self interest. (This assumption is particularly powerful for 

corpomtions, which- as Senator Whitehouse pointed in one of his questions at the hearing - are 

created for the purpose of advancing the economic interests of their shareholders.) A mtional 

actor will compare the benefits of a proposed action to the potential costs of the action and will 

undertake those actions in which the benefits exceed the costs. If the actor is immunized from 

some of the costs of the action, the actor will proceed if the benefits exceed the costs it is asked 

to bear. In the case of offshore drilling, capping the cost of damages will encoumge companies 

to forego expensive procedures to promote safety and to protect the environment when those 

procedures would reduce the overall profitability of the operation. This danger seems 

particularly great in a high-risk activity like oil explomtion where companies routinely take large 

risks in hopes of large rewards. 

Recent news reports confirm that this danger is not merely theoretical or hypothetical. 

BP emails and other documents indicate that the company frequently neglected safety and 

environmental procedures because they were costly in terms oftime or money. The result was to 

take the increased risks that lead to the catastrophe in the Gulf. Placing the total cost of the risks 

on the company would discoumge those drilling in the future from taking similar risks. 
80 

Senator Thomas R. Carper 

I. As you all know, under the Oil Pollution Act of 1990, Congress capped liability for 

damages for individual oil and gas companies at $75 million, but spread liability across the entire 

oil and gas industry through the Oil Spill Liability Trust Fund. Under Senator Menendez's bill, 

he significantly raises the liability limits on the individual company. 

Can you each comment on what the implications might be if we significantly raised the 

liability across THE ENTIRE offshore oil and gas industry versus raising liability for just 

individual companies? Should we be looking at raising both? 

I believe the appropriate starting point for reforming the liability provisions of the Oil 

Pollution Act is the one taken in S. 3305, to eliminate the cap on economic damages for the 

person responsible for the spill. As I explained in my original statement and my response to the 

question from Senator Boxer, that approach places the economic incentive to optimize safety 

where it should be- on the person engaging in the drilling activity. In addition, it avoids the 

morally indefensible position that innocent victims should subsidize the drilling activity by 

denying them the ability to recover their damages from the responsible party. 

Once the basic liability issue is settled, one can make a strong argument that the Oil 

Pollution Act could require the entire industry to fund a system that will insure adequate funds 

exist to pay for any damages that occur. Imposing backup liability on the entire industry should 

prompt the industry to support regulatory standards that emphasize safety and environmental 

protection and thus minimize the risk of another catastrophe. 

2. As an expert in environmental law, can you please elaborate on some of the other 

aspects of the offshore oil and gas industry beyond liability that you think need reforming in the 

wake of this terrible accident? 

As I noted in my original statement, raising the cap on damages in the Oil Pollution Act 

is not a silver bullet that solves either the present crisis in the Gulf or prevents future disasters. 

Congress should also consider additional reforms to the Oil Pollution Act and other 

environmental statutes. 

One can identify a number of desirable additional changes in the Oil Pollution Act. 

These changes include provisions relating to compensation as well as those designed to minimize 

the risk of future accidents and to mitigate the effects of future spills. 

With respect to compensation, my answer to your previous question indicated the 

desirability of requiring the industry to fund a system to insure adequate funds will be available 

to pay for spill damages. The elimination of the cap on economic damages would provide scant 

comfort to an injured person or property owner if the responsible party lacked the resources to 

pay the damages; a more robust liability fund could preclude this tragedy from happening. 

Equally important, Congress should amend the claims procedure provided in Section in 

Section 1013 of the Oil Pollution Act, 33 U.S.C. § 2713. The absence of a clearly delineated 

system for immediate payment of interim claims has placed many individuals and small business 

in extreme financial difficulty. Indeed, for interim claims, Congress should give consideration to 

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having them paid initially from an adequately funded trust fund rather than forcing the victim to 

wait until the responsible party has established an adequate claims procedure. 

My original statement suggested other needed changes with respect to compensation, and 

I would reiterate them at this point. Congress should also reconsider the other damage caps 

found in Section 1004 of the Oil Pollution Act., 33 U.S.C. § 2714. The same economic and 

moral arguments applicable to the cap on offshore facilities apply to these provisions as well. In 

addition, the savings provision for state law, OPA § 1018,33 U.S. C.§ 2718, should be expanded 

to apply explicitly to all damage from oil pollution that occurs within the state regardless of 

where the discharge occurs. Finally, Congress should consider expanding the availability of 

punitive damages under federal law, either by providing for them in the Oil Pollution Act or by 

expanding the narrow definition of maritime punitive damages that the United States Supreme 

Court adopted in Exxon Shipping Co. v. Baker, 554 U.S._, 128 S. Ct. 2605 (2008). 

As explained in my original statement, the prevention and mitigation provisions included 

in the Oil Pollution Act in response to the Exxon Valdez spill understandably focused on 

improving tanker safety. Now Congress should adopt a similar set of requirements for offshore 

facilities. At a minimum, further environmental analysis (at least an environmental impact 

statement) should be required for all offshore wells now that we know what serious 

environmental harm is possible. Equally important, the statute should contain explicit 

requirements for stronger contingency plans for serious oil spills, so that initial containment and 

remediation of a future release will not be delayed for weeks. Congress should also give serious 

attention to a funding mechanism for ongoing research into remediation of oil pollution. By 

necessity, we are likely to learn a great deal about cleaning oil pollution from coastlines and 

marshes over the next twenty to thirty years. How much better it would be if we had begun that 

research in the 1990s. Finally, Congress should add a citizen suit provision to the Oil Pollution 

Act to make certain that government bureaucrats do not ignore their new statutory 

responsibilities. 

Further reforms would require changes to other federal statutes. The most obvious need 

is a radical change in, or elimination of, the Minerals Management Service. The nation has a 

right to expect that the regulatory agency governing oil development will protect the public 

interest in safety and environmental protection, and the Minerals Management Service has 

completely failed to provide that protection. It allowed drilling to proceed without 

environmental analysis, accepted inadequate remediation plans without question, and ignored its 

statutory duty to revise the damages cap every three years. 

Additional desirable statutory changes include eliminating the Outer Continental Shelf 

Lands Act provision that establishes a 30-day limit to complete the environmental review and act 

upon applications for permits to explore for undersea oil and gas reserves. See 43 U.S.C. § 1340. 

Finally, states like Louisiana that have assumed the risk (and now the reality) of environmental 

damages from offshore drilling operations should receive a fairer share of the royalties that those 

operations produce. 

Of course, each of these additional reforms will prompt disagreement and debate in 

Congress. Implementation of any substantial number of them will require many months of 

negotiation. By contrast, S. 3305 simply tries to insure that the ultimate costs of offshore spills 

fall on the responsible parties, not innocent victims. Congress should not, therefore, delay 

passage ofS. 3305 until it reaches agreement on these other issues. 

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Senator Sheldon Whitehouse 

During the hearing, we discussed briefly that at least one district court has held, whether 

correctly decided or not, that the bar on economic damages in federal maritime law trumped state 

law. We then discussed whether this case demonstrated a risk of assuming that businesses along 

the Gulf Coast will recover economic damages above the Oil Pollution Act's $75 million cap. 

The case I mentioned (In re Ballard Shipping Co.) was reversed by the First Circuit. However, I 

am concerned, given the basis for the First Circuit's decision, that risk of nonrecovery remains. 

The First Circuit began its analysis with the three prong test in the Supreme Court case Southern 

Pacific Co. v. Jensen: that state legislation affecting maritime commerce is invalid "if it 

contravenes the essential purpose expressed by an act of Congress, or works material prejudice 

to the characteristic features of the general maritime law, or interferes with the proper harmony 

and uniformity of that law in its international and interstate relations." The Court then 

commented that "[w]here substantive law is involved, we think that the Supreme Court's past 

decisions yield no single, comprehensive test as to where harmony is required and when 

uniformity must be maintained. Rather, the decisions however couched reflect a balancing of the 

state and federal interests in any given case." 

1. There does not appear, then, to be a bright line rule in Supreme Court jurisprudence, 

where a state law related to maritime law would not be considered preempted by federal 

maritime law. Given the lack of a bright line, is it fair to say that some risk remains in litigants 

seeking damages under a state law that are not allowed to be recovered under federal maritime 

law? 

I generally agree with your analysis of the current law. The First Circuit approach in 

Ballard is a good one, but I am less than completely confident that the current Supreme Court 

would embrace it. Moreover, resolution of the issue is likely to take many years. The Supreme 

Court did not resolve the punitive damages issues in the Alaska oil spill until nineteen years after 

the spill occurred. If injured individuals and businesses in Louisiana and other Gulf Coast states 

were forced to wait a similar time to resolve the economic damages issue under maritime law, 

they would lose even if their attorneys prevailed in the litigation. 

2. When conducting the state-federal balance of interests, the First Circuit stressed Rhode 

Island's interest in avoiding pollution in its navigable waters and on its shores. The spill at issue 

was a spill of home heating oil that occurred when the oil tanker MV World Prodigy ran aground 

just off of Newport, Rhode Island. The current oil spill, on the other hand, began 48 miles otT 

shore, in federal waters. Do you agree that this factual distinction could create some risk for 

litigants seeking to invoke state statutes to recover economic damages, whether as to their claim 

surviving at all, or as to the extent of damages they can recover? Why or why not? 

Certainly, the cases are factually distinguishable, and one can expect BP's attorneys to 

press those distinctions. Moreover, the case for deferring to state law is arguably greater when 

the actual discharge occurs within the state. Once again, the distinctions create uncertainty and 

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83 

the potential for years of litigation. Ultimately, the litigation might be resolved in favor of the 

victims, but they would lose regardless. 

3. The Oil Pollution Act did not apply to the First Circuit case, because the spill had 

occurred in 1989, prior to the Oil Pollution Act's enactment. However, the Court observed that 

"we think that the statute is compelling evidence that Congress does not view either expansion of 

liability to cover purely economic losses or enactment of comparable state oil pollution regimes 

as an excessive burden on maritime commerce." 

lf after the $75 million cap was reached under the Oil Pollution Act, plaintiffs sought 

additional economic damages under a state statute, is there some risk that a Court would rule that 

Congress struck a balance by capping economic damages under federal law, and that recovery 

under state law in excess of this amount might either "contravene the essential purpose" 

expressed by the Oil Pollution Act, or "interfere with the proper harmony and uniformity" of 

federal maritime law? Why or why not? 

If one looks to the Oil Pollution Act as support for a new maritime rule allowing recovery 

of economic damages, one might also look to the same statute for the principle that those 

damages should not be unlimited. One might contend that the "essential purpose" of the Oil 

Pollution Act is to allow limited recovery of economic damages and that providing uncapped 

damages based on state law would interfere with the "proper harmony and uniformity" of federal 

maritime law. My own judgment would reject those 'arguments and describe the "essential 

purpose" of the Oil Pollution Act to provide a prompt recovery of economic damages without 

proof of fault from an actor with resources to pay at least $75 million of damages. However, one 

must acknowledge the issue as uncertain with the prospect that resolution might be delayed for 

years while litigation continued. 

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84 

Senator BOXER. Thank you so much, Mr. Murchison. 

Mr. Barry Hartman, a Partner with the law firm of K&L Gates 

and former Acting Assistant Attorney General, welcome. 

STATEMENT OF BARRY M. HARTMAN, PARTNER, K&L GATES 

Mr. HARTMAN. Thank you very much, Madam Chairman, Ranking Member Inhofe, and members of the Committee. I appreciate 

the opportunity to be invited here today. I will keep my remarks 

very brief. 

My perspective on the cap issue comes from my experience, and 

I speak today only of my personal experience, not my clients’ views 

or my firm’s view. 

In 1989 when I was at the Justice Department, I was responsible 

for overseeing and ultimately negotiating the final plea and civil 

and criminal agreements in the Exxon Valdez case. Since that time 

I have had the privilege of representing the Rhode Island 

Lobstermen’s Association in Senator Whitehouse’s State in connection with the North Cape oil spill back in 1996, so I have seen this 

from the viewpoint of the victims as well. 

I have also represented individuals and companies who are on 

the receiving end of civil and criminal charges. So I will try to provide you with a perspective of seeing this from many different 

views. 

The purpose of my testimony is to briefly provide you with my 

views on the question of whether the current cap on liability under 

OPA should be changed, and if so by how much. Needless to say, 

this is an important issue. The liability scheme under OPA and 

other laws is extraordinarily complicated and detailed, and you 

must carefully consider how changing that liability scheme and the 

cap affects other provisions of the law because I am sure nobody 

wants to change one provision and have an unintended bad effect 

on another. So I will simply raise the following issues that should 

be taken into account. 

First of all, is the existence of this cap under OPA the real issue 

given the many other bases for liability that exist under the law? 

What is the relationship of the cap to the current trust fund which 

has, I believe, $1.6 billion available to back up a party who may 

not be available to pay for its own damages? 

If the purpose of the liability cap is to ensure there is a source 

of payment for damages, some suggest that it would create a disincentive if the cap were removed to engage in conduct that would 

be risky. My experience is that under current Federal laws there 

are extraordinarily more effective civil and criminal remedies that 

already provide a much greater financial and personal incentive, 

not the least of which is the Alternative Fines Act. And those 

things are the things that are going to cause companies and individuals to act properly, I believe, as opposed to a liability cap that 

might or might not be real in the first place. 

Is the reason for increasing the cap because it doesn’t cover most 

spills? That is something I think the Committee should look at very 

carefully. The Coast Guard did a study from 2004 to 2009 which 

I read to say that there were no spills that resulted in damages 

where they were not paid as a result of the cap being exceeded. It 
85 

is not to say the cap shouldn’t be changed. It is simply a fact that 

I think you should take into account. 

What is the relationship between the cap and the current financial assurance requirements that exist under OPA? Under OPA, a 

company must show that it can pay what the cap is. If there is no 

cap, what will be the financial assurance requirement? I learned in 

law school my first day in civil procedure that you can’t get blood 

from a stone. So you can have unlimited liability, but if the people 

who are responsible don’t have the money to pay and don’t have 

financial assurance, I am not sure what that gets you. A study by 

Resources for the Future suggested this as well. 

The OPA liability limits are part of a much more complex structure, as I mentioned. There are civil and criminal remedies available. There are State law remedies available. 

In the current Gulf situation, I would submit the following observation. I think that the OPA statute and the liability cap have been 

rendered kind of irrelevant. I believe there have been over 6,000 

lawsuits filed so far in State courts, and I think some Federal 

courts along the Gulf States where there are no limits on liability. 

So the question is if you want to increase the liability limits 

under OPA, it might be a good idea, but do you want people to get 

into the OPA compensation process which was designed to get compensation for people more quickly? And are there going to be incentives created to cause people to want to go into that process rather 

than simply going to court? If they are just going to go to court, 

it kind of doesn’t matter that there is an OPA at all because there 

is no liability limit there. 

Thank you very much for the opportunity to testify. I am happy 

to provide any answers to questions, and as others have said, my 

heart goes out to those in Louisiana and other places who have 

been impacted by this. 

[The prepared statement of Mr. Hartman follows:] 
86 

Senate Committee on Environment and Public Works 

Legislative Hearing on S. 3305 and Issues Relating to Modifications on 

Caps on Liability in the Oil Pollution Act of 1990 

DC-1441357 v4 

June 9, 2010 

406 Dirksen Senate Office Building 

Testimony of Barry M. Hartman 

Partner, K&L Gates LLP 

Washington, DC 
87 

Good Morning, 

My name is Barry Hartman and I am a partner with the firm of K&L Gates LLP. 

am here today to provide the Committee with infonnation that may assist it in connection 

with its consideration of S. 3305, including issues relating to the modification of caps on 

liability in the Oil Pollution Act of 1990. I understand I have been asked to testify because I 

previously served as Acting Assistant Attorney General, at which time I oversaw the Exxon 

Valdez civil and criminal prosecutions and represented the Department of Justice with 

respect to the development of Oil Pollution Act ("OPA"), and because since that time I have 

represented various interests in oil spills that involved OPA. 

Please note that the views I am giving you today are based on my past experience in 

this area. I am not representing any clients on this matter nor do my views reflect those of my 

firm. 

Summary 

Everyone would like the world to be free from all risks associated with any activity, 

be it providing medical care, building a house, driving a car, or producing oil. But none of us 

is perfect, nor can we guarantee that there will never be an accident or mistake made that will 

harm innocent persons, and after all, most of us benefit in some way from these activities. As 

a result, we create liability regimes that are designed to assure, for example, that businesses 

interested in benefiting from the production and transport of oil in our waters are ready, 

willing and able to be fully responsible for damages and harm that might be caused by their 

business activities. 

Currently, there are multiple mechanisms available for addressing liability from oil 

spills. These include federal, state, civil, criminal, private, and administrative regimes. 

These various mechanisms are complex and interrelated in subtle ways, so changing one 

could impact the effectiveness of another. 1 In addition, there are very different kinds of 

entities that would be potentially subject to these regimes, including domestic and 

international vessels, and domestic and international fixed platforms. I am familiar with 

many of these but by no means an expert in all of them. For example, I am not addressing 

international liability schemes that might be relevant to your consideration. 

I respectfully suggest that before adding additional liability structures, changing 

current ones, or removing any, there must be a thorough examination of whether the existing 

ones work. One must also define the criterion for what it means to "work." Sadly, there have 

been a number of spills since enactment of OPA, and so a solid assessment based on actual 

1 For example, increasing liability limits could impact the bidding process for offshore leases 

by vastly reducing eligible bidders. 

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experience should be possible. GAO Report 04-ll4R, "Oil Spill Liability Trust Fund 

Claims" (2003) might provide a starting point on some aspects of this issue. For the most 

part, I think it is just too early to make an informed decision with regard to how these various 

regimes will work with respect to the Gulf Spill. It would be unfortunate to make changes 

without the necessary information and unwittingly impact this regime in unintended ways. 

Background 

My experience regarding the U.S. liability regime surrounding oil spills is severalfold. My c.v may be found at 

http://www.klgates.com/professionals/detail.aspx?professional=856. 2 I have represented the 

federal government, companies, and individuals in connection with oil spills. For example: 

• From 1989 to 1992, I served as Deputy Assistant Attorney General (DAAG) and then 

Acting Assistant Attorney General (AAAG) for the Environment and Natural 

Resources Division at the United States Department of Justice. Among other things, 

during my tenure I was responsible for overseeing and managing the civil and 

criminal cases arising from the Exxon Valdez oil spill. In addition, in my capacity as 

DAAG and AAAG, I led the DOJ group that advised the Administration regarding 

the development of the Oil Pollution Act of 1990. 

• In 1996, my partner Tom Holt and I represented the over 100 businesses, mostly in 

the lobster industry, seeking damages as a result of the North Cape Oil Spill off Pt. 

Judith, Rhode Island. These claims were initially processed under the system 

established by the Oil Pollution Act. 

• In 2006, I was named to serve on a group established under the Federal Advisoty 

Committee Act by the Department of Interior to review issues relating to the 

assessment of natural resource damages ("NRD"). While that Committee focused 

primarily on NRD issues arising under the Superfund law, the same issues exist with 

respect to NRD issues under OP A. 

2 K&L Gates LLP comprises nearly 2,000 lawyers who practice in 36 offices located on three 

continents: Anchorage, Austin, Beijing, Berlin, Boston, Charlotte, Chieago, Dallas, Dubai, 

Fort Worth, Frankfurt, Harrisburg, Hong Kong, London, Los Angeles, Miami, Moscow, 

Newark, New York, Orange County, Palo Alto, Paris, Pittsburgh, Portland, Raleigh, 

Research Triangle Park, San Diego, San Francisco, Seattle, Shanghai, Singapore, 

Spokane/Coeur d'Alene, Taipei, Tokyo, Warsaw and Washington. For more information, 

please see www.klgates.com. 

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• In 2008, my partner Jeff Bornstein and I represented the pilot of the Cosco Busan in 

connection with the criminal prosecution resulting from the allision of the vessel with 

the Oakland Bay Bridge. Capt. Cota was named in multiple proceedings. 

Overview of Liabilitv Issues Arising from Oil Spills 

This hearing is focusing on S. 3305, which would increase the liability cap under the 

Oil Pollution Act from $75,000,000 to $10,000,000,000. That law addresses one of the many 

liability regimes that currently exist. I define "liability regime" to include all available legal 

processes through which responsibility, compensation and punishment for the spill might be 

determined. Defined this way, the liability regimes are multi-dimensional, and many of these 

dimensions overlap. One way to list them might be as follows: 

• Liability under federal law 

o Civil liability to the government ("regulatory liability," such as OPA); 

o Criminal liability (e.g., Clean Water Act, Migratory Bird Treaty Act, Refuse Act, 

Endangered Species Act, Title 18); 

o Civil liability to "victims" of the spill under OPA. 

• Liability under state law 

o Civil liability to the government; 

o Criminalliability; 

o Common law liability (to private parties); 

o Commercial liability involving other business entities (insurers, contractors). 

The scope and extent of remedies available under these liability regimes is also multidimensional. They include: 

• requiring response and removal action by the responsible party to address immediate 

effects of the spill; 

• obtaining financial recoveries to ensure that those damaged by the spill are 

compensated for their losses; 

• obtaining restoration of natural resources damaged by the spill either through projects 

to restore or replace resources, and providing financial payments or other 

compensation to mitigate for interim losses, until the resources can be restored or 

replaced; 

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90 

• punishing those responsible for the spill by imposing civil and or criminal sanctions. 

To fully assess whether the liability scheme (or caps) works, one must understand the 

scope of remedies that those liability schemes cover. In the case of OP A, that scope is not 

necessarily clear to those unfamiliar with it. An example best illustrates the many-layered 

nature of the remedies issues. These layers are both vertical and horizontal. Suppose a fish 

was killed. That fish represents several values of "vertical" losses. Most obviously, it 

represents lost profits to fishermen. But the same fish may have a different, intrinsic value as 

a natural resource. That value is lost to the trustee of that resource, which may be a state, the 

federal government, an Indian tribe, or all three. Further, that fish may also have cultural 

value to particular groups. Each of those groups may be victims entitled to recover separate 

damages equal to the lost value of that resource to each of them. Monetization of those 

differing losses is difficult. While the lost profits for the fisherman (pure economic losses) 

are well understood, the lost natural resources value is more complex. In many cases it is 

measured by the cost ofrcplacing the resource. 

However, the person causing the loss is not only liable for replacing the value of that 

fish as a natural resource and for compensating the victims for the interim losses suffered 

until the resource is replaced or restored. Depending on the nature of the damage, there 

could be generations of fish that are lost. (For example, the North Cape spill damaged a 

very large and valuable lobster nesting area that impacted not just catchable lobsters, but 

juveniles, eggs, and nesting areas, meaning that several generations (and seasons of fishing) 

would be impacted before the population returned to its pre-spill levels.) 

There are also "horizontal losses" associated with the dead fish. Obviously, the 

fishermen lost profits when the fish died as a result of the spill. But what about the bait and 

fuel shop because the fishermen could not fish? What about the restaurants that fed the 

fishermen? What about the municipality and state that collected sales tax on these 

transactions? Many of these economic losses are compensable under OP A. 

Prior to OPA there really was no established way to assess some of these losses and 

quantify them. Many people (including the trustees of natural resources) were frustrated by 

the slowness of the compensation process. Essentially, they had to file suits and go through a 

formal legal process to be compensated. Lawsuits are slow, and rarely address immediate 

needs arising from direct losses. They require proof of liability. In addition, those seeking 

natural resource damages had to determine how to present these claims in ways that would be 

acceptable in court, under formal rules of evidence. The government, meanwhile, wanted to 

make sure there was a clear responsible party who was financially able and ready to respond 

to a spill and to claims for damages. 

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How the Oil Pollution Act addresses these issues 

For purposes of this discussion, in its broadest sense, OPA was in part designed to 

create a mechanism that would (a) assure that those responsible for oil spills had the financial 

ability to pay the damages; (b) make it easier and quicker for persons suffering these losses to 

obtain recovery of losses, by eliminating the need to prove negligence (or some other theory 

of liability) and by lessening the evidentiary burden that exists in a court for documenting 

losses; and (c) identify the responsible party and assure its financial soundness, so that 

neither the government nor anyone else has to chase after multiple parties in order to ensure 

that someone is responsible for liability issues. This last point is key. The theory behind the 

designation of a responsible party is to give the government and others a single clear and 

viable target. Prior to OPA, that did not really exist. Under OPA, it may be possible for a 

responsible party to be reimbursed by others, but that does not delay its responsibility to the 

government, to victims, and to the public. 

Under OP A, a process was also set up to address certain compensation concerns 

through use of the Oil Spill Liability Trust Fund ("Fund"). The National Pollution Funds 

Center is the entity that was created to administer this. Basically, the responsible party sets 

up a claims process for people to file claims for losses. The documentation requirements are 

less stringent than required by a court and provide for immediate and interim payments for 

immediate losses. If the claimant is unhappy, he or she can proceed to the Fund for 

consideration. (If the Fund pays, the Fund may then seek recovery from the responsible 

party.) In exchange for that presumably easier process, the law also provides that if a person 

decides to go to court, they cannot take advantage of this process, and if they settle their 

claims in this process, they cannot then go to court. Also, in exchange for this quicker and 

easier process, the OP A process through the Fund does not pay nonfinancial losses such as 

punitive damages. 

The Fund has been in place for almost 20 years. As I understand it, it has been used 

for a number of oil spills. In 2003, the GAO did a report concluding that it was functioning 

effectively but needed controls to reduce the risk of improper payments. ("GA0-04-114R 

Oil Spill Liability Tmst Fund Claims"). 

Must current laws be amended because the current liability regime does not work right? 

An assessment of the current liability regime requires that several questions be 

answered, including: 

I. Have there been instances in which responsible parties have not adequately 

addressed claims for damages? 

2. To what extent are those who have pursued claims under the OPA structure 

satisfied with the results? 

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3. Has there ever been a prosecution or other enforcement action arising from a 

spill that has been lost or declined because of the lack of adequate legal 

remedies? 

4. Does the current system, which allows for multiple federal and state civil and 

criminal claims, and private civil claims, need additional liability 

mechanisms? 

Without answers to these questions, it would difficult to make an informed decision 

on whether the system needs to be changed, and if so, what kinds of changes would be 

appropriate. 

While there is some existing research addressing some of these questions, findings 

are far from conclusive. Some studies criticize caps for (at least in theory) allowing 

companies to avoid full liability for their activities and, as a result, for providing incentives 

for risky or dangerous behavior. 3 Other researchers suggest that the cap is irrelevant because 

of the various alternative mechanisms for imposing liability listed above. 4 Still others argue 

that without a reasonable cap, liability may be so high that it will bankrupt companiesleading to little or no compensation at all-or unreasonably increase the costs of insurance 

or render it unavailable 5 A study by Resources for the Future points to the OPA's financial 

assurance provisions, which require companies to show that they can meet the liability 

obligations within the cap, as a model for international lawmakers, because those provisions 

allow compensation for victims without allowing or encouraging responsible parties to avoid 

3 See Michael Faure & Hui Wang, Financial Caps for Oil Pollution Damage: A Historical 

Mistake? (Maastricht Working Papers No. 2007-6, 2007), available at 

http://www.unimaas.nllbestand.asp?id=9883; Inho Kim, Who Bears the Lion's Share of a 

Black Pie of Oil Pollution Costs? 41 OCEAN DEV. A)'.;'D lNT'L L., 55-76 (2010), abstract 

available at 

http://www .informaworld.com/smpp/ content-content=a9193 3 2913-db=all-jumptype=rss. 

As the Committee knows, under Section 1004(c) ofOPA, the current cap can be pierced if, 

among other things, the responsible party or its agent violates any applicable Federal safety, 

construction, or operating regulation or fails to provide all reasonable cooperation and 

assistance requested by a responsible official. These provisions would seem to be a 

counterweight to the theory that caps create incentives for risky behavior. 

4

E.g., NATHAN RICHARDSON, DEEPWATER HORIZON AND THE PATCHWORK OF OIL SPILL 

LIABILITY LAW (Resources for the Future, 2010), available at 

http:/ /www.rff.org/pub lications/pages/publicationdetails.aspx?pub licationid=21163. 

5 See generally Richard R.W. Brooks, Liability and Organizational Choice, 45 J. OF L. AND 

ECON. 91-125 (2002), available at www .sfu.ca/-allenlbrooks.pdf. 

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93 

liability through bankruptcy6 These studies and others illustrate the enormous complexity of 

this issue and underscore the need for careful and thorough analysis in order for informed 

judgments to be made. 

There is one area in which it appears that OPA may not be working the way it should 

be. One purpose of OP A was to create an administrative mechanism to ensure prompt and 

complete settlement of claims for damages, and avoid the spectre of years of litigation. 

Unfortunately, there have already been hundreds of lawsuits filed as a result of the Gulf Spill, 

potentially rendering those plaintiffs essentially ineligible for the OPA fund process 7 One 

cannot help but wonder whether they were advised of the consequences of following this 

route. I raise this issue because if the OP A cap is increased, one should also consider whether 

there should be greater incentives to have damage claims processed through the OPA system 

rather than through typical civil litigation. 

The other question that should be considered is more fundamental: OPA requires that 

anyone subject to liability demonstrate financial assurance that it can meet its liability. Under 

the proposed legislation, that would mean demonstrating the ability to pay $10,000,000,000. 

Current regulations impose specific requirements for demonstrating that financial ability. 33 

C.F.R. Part 138. What will be the impact on competitive bidding for off-shore leases if there 

are few entities that can qualify financially to meet higher liability caps? Will there be 

concern that only foreign companies can qualify? 

I hope this information has been helpful. Please let me know if you have any 

questions. 

6 JAMES BOYD, GLOBAL COMPENSATJON FOR OIL POLLUTION DAMAGES: THE INNOVATIONS 

OF TilE AMERICAN OIL POLLUTION ACT (Resources for the Future, Discussion Paper No. 04-

36, 2004), available at http://www.rff.org/Publications/Pages/Global-Compensation-for-OilPollution-Damages.aspx. 

7 Section 1013(b)(2) of OPA provides, "No claim of a person against the Fund may be 

approved or certified during the pendency of an action by the person in court to recover costs 

which are the subject of the claim."" 

8 
94 

Ms. Heather Majors 

June 17,2010 

Page2 

Senator Thomas R. Carper 

I. As you all know, under the Oil Pollution Act of 1990, Congress capped liability for 

damages for individual oil and gas companies at $75 million, but spread liability 

across the entire oil and gas industry through the Oil Spill Liability Trust Fund. 

Under Senator Menendez's bill, he significantly raises the liability limits on the 

individual company. Can you each comment on what the implications might be if we 

significantly raised the liability across THE ENTIRE offshore oil and gas industry 

versus raising liability for just individual companies? Should we be looking at raising 

both? 

Answer: As a legal matter. I am not sure the questions I raised regarding 

raising the "liability cap" of$75,000.000 would be relevant to an across-theboard increase in the tax paid by the industry for the Trust Fund. However. 

as I did note, both of these matters are relevant to the extent injured parties 

seek damages under OPA. If claimants do not seek damages through the OPA 

process. and instead pursue more conventional litigation, then neither the 

"cap" nor the Fund is implicated. If the cap and the Fund were to be 

increased. it would seem logical that there would be some effort to encourage 

damaged parties to seek recovery through this process since these funds are 

only availahlefhr OPA claims. 

2. Do you think that the $75 million liability cap adequately reflects the economic 

damages that will result from the oil spill in the Gulf of Mexico? 

Answer: I have no basisfbr guessing what the economic damages will be 

as a result olthe oil.spill. As I understand it. BP has already paid outfar 

more than the $75 million. 
95 

Ms. Heather Majors 

June 17,2010 

Page 3 

Senator Shddon Whitehouse 

During the hearing, I mentioned that at least one district court found that the bar on economic 

damages in federal maritime law trumped state law. I asked you whether this decision, 

whether correctly decided or not, demonstrated the risk of assuming that businesses along the 

Gulf Coast will recover economic damages above the Oil Pollution Act's $75 million cap. 

Following the hearing, you sent my office the First Circuit decision that overturned that case, 

and implied that you felt that circuit court case settled the law. 

The First Circuit began its analysis with the three-prong test in the Supreme Court case 

Southern Pacific Co. v. Jensen: that state legislation affecting maritime commerce is invalid 

"if it contravenes the essential purpose expressed by an act of Congress, or works material 

prejudice to the characteristic features of the general maritime law, or interferes with the 

proper harrnony and uniformity of that law in its international and interstate relations." The 

Court then commented that ''[w]here substantive law is involved, we think that the Supreme 

Court's past decisions yield no single, comprehensive test as to where harmony is required 

and when uniformity must be maintained. Rather, the decisions, however couched, reflect a 

balancing of the state and federal interests in any given case." 

l. There does not appear, then, to be a bright line rule in Supreme Court 

jurisprudence, where a state law related to maritime law would not be 

considered preempted by federal maritime law. Given the lack of a bright 

line, is it fair to say that some risk remains in litigants seeking damages under 

a state law that are not allowed to be recovered under federal maritime law? 

Answer: Given my other obligations and the limited time available to 

respond. I cannot comment on whether the bright line you refer to is an 

accurate assumption. I am not aware of claims arisingji·om an oil spill since 

the enactment o/OPA 1990 that have been brought under state law and then 

preempted hy maritime law. In the case we hand!edfor some victims of the 

North Cape spill, Rhode Island law was not preempted. 

Of'course, all litigation isfi'aught with risk. That is one reason, I understand, 

OPA was enacted-- to give claimants a way of recovering economic damages 

while reducing the usual risks and delays.fi'om litigation. 
96 

Ms. Heather Majors 

June 1 7, 20 I 0 

Page4 

2. When conducting the state-federal balance of interests, the First Circuit 

stressed Rhode Island's interest in avoiding pollution in its navigable waters 

and on its shores. The spill at issue was a spill of home heating oil that 

occurred when the oil tanker MV World Prodigy ran aground just off of 

Newport, Rhode Island. The current oil spill, on the other hand, began 48 

miles off shore, in federal waters. Do you agree that this factual distinction 

could create some risk for litigants seeking to invoke state statutes to recover 

economic damages, whether as to their claim surviving at all, or as to the 

extent of damages they can recover? Why or why not? 

Answer: I have not had sufficient time to research this question. As a 

result, J have no basisfor agreeing or disagreeing that the referencedfacts 

create the risk described in the question. 

3. The Oil Pollution Act did not apply to the First Circuit case, because the spill 

had occurred in 1989, prior to the Oil Pollution Act's enactment. However, 

the Court observed that "we think that the statute is compelling evidence that 

Congress does not view either expansion of liability to cover purely economic 

losses or enactment of comparable state oil pollution regimes as an excessive 

burden on maritime commerce." 

If after the $75 million cap was reached under the Oil Pollution Act, plaintitfs 

sought additional economic damages under a state statute, is there some risk 

that a Court would rule that Congress struck a balance by capping economic 

damages under federal law, and that recovery under state law in excess of this 

amount might either "contravene the essential purpose" expressed by the Oil 

Pollution Act, or "interfere with the proper harmony and unifonnity" of 

federal maritime law? Why or why not? 

Answer: As J understand it, if the $75 million cap is reached. parties can 

still look to the $1.7 billion (approx.) Trust Fundfor recovery of damages, 

rather than going immediately to court. OPA provides very spec(fically that 

settlement o,j'these claims does not preclude obtaining other recoveries for 

other losses. In addition. I believe Sections 1013 and 10!8 ofOPA address 

this question, at least in part. 
97 

Ms. Heather Majors 

June 17,2010 

Page 5 

4. In your testimony, and when answering questions, your main point was that 

Congress should think through all the consequences of changing federal 

maritime law. But you otherwise did not state a position. Are you 

categorically against any change to the Oil Pollution Act's cap on damages? 

Answer: I have not taken a position for or against any change to the cap on 

damages. As I indicated in my testimony, I offered my views to assist the 

Committee in being as ji.il!y informed as possible. so that its ultimate actions 

do not create unintended adverse consequences to those it intends to benefit. 
98 

Ms. Heather Majors 

June 17,20!0 

Page6 

Senator James M. Inhofe 

1. The Oil Spill Liability Trust Fund currently holds about $1.7 billion. In light of the 

BP oil spill, it's very clear that the fund is not being capitalized at an adequate level. The tax 

extenders bill currently on the Senate floor would increase the tax the oil and gas industry 

pays into the fund from 8 cents to 41 cents per barrel which would grow the fund to $15 

billion by 2020. 

We've heard that without unlimited strict liability the American taxpayer and those suffering 

injury from a spill would pay the price for damages in excess of the liability caps. Doesn't 

this ignore the fact that one of the main purposes of the Oil Spill Liability Trust Fund, which 

once again is funded by a tax on the oil and gas industry, serves as a backstop to the liability 

caps which then kicks in and pays both damages and clean up costs? Couldn't a very robust 

trust fund coupled with higher yet sensible liability caps ensure that liability damages are 

paid to those affected? 

Answer: As with my other answers, I have had verv little time to evaluate 

this. The premise of the question does seem logical. It is my understanding 

that the current structure/or the nuclear industry under the Price Anderson 

Act has this kind of approach. 

2. There seems to be an awful lot of confusion about the relationship between the way 

the cunent claims process is operating and the current liability cap. Would this bill as 

written or any other bill that simply raised or removed the liability cap all together have any 

eftcct on the claims process? 

Answer: I do not think the hill that J reviewed would have an impact on the 

claims process. 

3. Under the current system as I understand it, the trust fund is a backstop if a claimant 

does not get full payment of their claim from BP. For example, if a tishennan was to file a 

claim documenting losses of $20,000 and BP was to deny all or part of the claim, the 

claimant could then turn to the tmst fund for full payment of that claim. 
99 

Ms. Heather Majors 

June 17,2010 

Page 7 

a. Does this properly describe the claims process as you understand it? And 

Answer: Yes. A claimant also has the option of'going to court if' he or she 

is dissatisfied with the Trust Fund decision. Those that have already gone to 

court may not be able to use the OPA process at all. 

b. Could you please elaborate on where the money in the trust fund originated 

from as well as the subrogation principles that allow the fund to recover any 

compensation paid by any claimant'? 

Answer: As I understand it, the Fund is funded by a tax on barrels of' oil 

produced. I assume that this tax is considered a cost of doing business and is 

passed on to consumers who buy oil products as well. I am onl)J generally 

f'amiliar with the subrogation principles contained in OPA, but in plain 

language they seem to provide that if' the Fund pays compensation to a 

claimant, then the Fund assumes that claimant's rights to sue others jilr the 

reimbursement of' the damages paid to the claimant, to the extent the claimant 

had rights against that third party. 
100 

Senator BOXER. Thank you so much, sir. 

Mr. Ron Baron, Executive Vice President, Willis Global Energy 

in Texas. 

Correct, sir? 

Mr. BARON. Yes. 

Senator BOXER. Welcome, sir. 

STATEMENT OF RON BARON, EXECUTIVE VICE PRESIDENT, 

WILLIS GLOBAL ENERGY, WILLIS OF TEXAS, INC. 

Mr. BARON. Good morning, Madam Chair Boxer, Ranking Member Inhofe, and members of the Committee. On behalf of Willis I 

would like to thank the Committee for inviting me to testify. 

My testimony is focused on the energy insurance market capacity 

for two kinds of risk related to offshore exploration and production 

activities. They are third party liability, including pollution and 

control of well risk. 

There is a worldwide insurance market for offshore energy risk. 

The traditional leading market is Lloyds of London. There is a finite amount of capacity available from the market which varies depending on the type of insurance coverage being provided as well 

as other factors. Generally speaking third party liability insurance 

provides coverage for property damage and bodily injury liability 

arising from a company’s operations. Control of well insurance provides coverage for costs and expenses in controlling a well, re-drilling, pollution clean up, and containment. 

Another product offered by the market is oil spill financial responsibility certification. This product is typically backed by corporate indemnities and/or control of well and excess liability insurance maintained by the company. 

When talking about capacity, I will use two descriptive words: 

theoretical and working. Theoretical capacity is the maximum dollar amount that the market could commit to any single risk. Working capacity is the dollar amount that the market would actually 

commit to any single risk. 

For working capacity the third party liability insurance coverage 

offshore of the United States is in the range of $1.25 billion to $1.5 

billion. The theoretical capacity for third party liability is close to 

$1.9 billion. The working capacity for well risk is in the range of 

$600 million to $750 million. Theoretical capacity for these risks is 

closer to $1 billion. 

It is important to note that here is a standard provision in both 

the third party liabilities and control of risk policies that reduces 

the limits of coverage provided by the insurance market. That provision spells the limit of coverage to the percentage interest that 

the insured has in a well. 

As an example, if a company has a 50 percent interest in a well, 

and their policy provides $400 million of limit, then the limit of 

coverage for that well under their policy would scale down to $200 

million. The working capacity for all spill financial responsibility 

certification is even more limited, and I would estimate the top 

range to be no more than $200 million. 

As a consequence of the Macondo well incident, there was a reduction in the capacity being offered by the insurance market to 

third party liability and control of well coverage. Also, the cost for 
101 

this coverage has increased. The magnitude of increased premiums 

has and will vary dramatically on the profile of the particular insured, which would include their exposures, operating areas, and 

loss experience. 

We have begun to see some new capacity coming to the market 

due to the higher premiums that are being charged. In particular 

we know of one insurance company who has provided some pricing 

indications to a number of interested buyers for additional limits 

of excess third party liability. And we understand those amounts 

are in the range of $500 million to $1 billion. 

We have heard that another insurance buyer has given their broker an order to secure coverage in the amount of $1 billion overall limit for their control of well coverage. But to date that placement has not been completed due to lack of capacity. 

In addition to the capacity available from the commercial insurance market, there is an oil industry association in Bermuda. 

There are 54 member companies, half of which are engaged in exploration and production activities. The coverage provided by OIL 

includes property damage or loss, control of well, and pollution 

risk. However, OIL membership is restricted to companies with a 

minimum of $1 billion of gross assets, and some companies are not 

comfortable with the mutual concept. 

The actual working capacity in the insurance market as of today 

is in a state of flux. And although increased premiums could attract additional capacity over a period of time, it will not be sufficient to satisfy the liability and financial responsibility limits being 

proposed under Senate Bill 3305. 

Thank you. 

[The prepared statement of Mr. Baron follows:] 
102 

Testimony of Ron Baron 

Executive Vice President 

Willis, Global Energy Practice 

Energy Insurance Market Capacity for Third Party Pollution Liability and Control 

of Well Risks in Respect of Offshore Exploration and Production Activities 

Before the Senate Committee on Environment and Public Works 

June 9, 2010 

Good morning Chairman Boxer, Ranking Member Inhofe, and Members of the 

Committee. My name is Ron Baron and I have over 39 years of work experience in the 

insurance industry. I am currently an Executive Vice President of Willis' Global Energy 

Practice. On behalf of Willis, I would like to thank the Committee for inviting me here to 

testify today. Willis is a major global risk management and insurance intermediary with 

an integrated network of about 400 offices in over 120 countries. Our Global Energy 

Practice services hundreds of energy client programs worldwide and those clients include 

Integrated Oil companies as well as Exploration and Production companies. My 

testimony is focused on the energy insurance market capacity for control of well risks and 

third party pollution liability in respect of offshore exploration and production activities. 

Testimony 

There is a worldwide insurance market for offshore energy risks with the traditional 

leading market being Lloyds of London. I would advise that there is a finite amount of 

capacity available from the market which varies depending on the type of insurance cover 

being provided as well as other factors. Generally speaking, third party liability (TPL) 

insurance provides coverage for property damage and bodily injury liability arising from 

a company's operations. Control of well (COW) insurance provides coverage for costs 

and expenses in controlling a well that is out of control as well as redrill, restoration, 

recompletion, pollution clean up and containment. Another insurance product offered by 

the market is Oil Spill Financial Responsibility Certification but they typically are backed 

up by indemnity agreements from the assured (Operator) and/or by evidence of TPL 

and/or COW insurance. A summary of these types of insurance covers can be found in 

the Appendix. 

When talking about capacity I will use two descriptive words being theoretical and 

working. Theoretical capacity is the maximum dollar amount that an insurer can commit 

to any single risk. Working capacity is the dollar amount that an insurer will typically 

commit to any single risk as insurers seldom commit their maximum capacity to any 

single risk. 

The working capacity for third party liability (TPL) including pollution coverage offshore 

the United States is in the range oL$1.25 billion to $1.5 billion. Theoretical capacity for 

TPL is closer to $1.9 billion and for risks not subject to U.S. jurisdiction the theoretical 
103 

capacity is closer to $2.4 billion. A number of insurance companies either do not 

entertain risks subject to U.S. jurisdiction or offer less capacity for same. 

The working capacity for control of well (COW) risks is in the range of $600 million to 

$750 million on a stand alone basis. Theoretical capacity for stand alone COW is closer 

to $1 billion. 

It is important to note that there is a standard provision in both the TPL and COW covers 

that actually reduces the limits of coverage provided by the insurance market. That 

provision scales the limit of coverage to the percentage interest that the assured may have 

in a well. As an example, if a company has a 50% interest in a well and their policy(ies) 

provides $400 million of limit than the limit of coverage actually provided by the insurers 

for that well would scale down to a $200 million limit. 

The working capacity for Oil Spill Financial Responsibility Certification is even more 

limited and I would estimate the top range to be no more than $200 million. 

As a consequence of the Macondo well incident we initially saw a contraction of the 

capacity being offered by the insurance market for TPL and COW coverage. The 

insurance market is also quoting higher premiums for these products since the incident. 

The magnitude of increased premiums has and will vary dramatically depending on the 

profile of the particular assured which would include their exposures, operating areas and 

loss experience. 

More recently, due to the increased premium that is being charged for certain of these 

risks we have seen some insurance companies considering offering more capacity. In 

particular, we know of one insurance company who has provided pricing indications to a 

number of interested buyers for additional limits of excess third party liability in the 

amounts of $500 million and alternatively $1 billion (a portion of this "additional" limit 

already formed a part of the theoretical capacity noted above). Also, we are aware of an 

insurance buyer who is looking to purchase overall limits of $1 billion for their control of 

well coverage but to date that placement has not been completed. 

In addition to the capacity available from the commercial insurance market there is an oil 

industry mutual insurance company domiciled in Bermuda called Oil Insurance Limited 

(OIL). As of January 1, 2010 there were 54 member companies of which about half were 

engaged in exploration & production activities. OIL provides a limit of $250 million per 

occurrence to it's members. The coverage provided by OIL includes property damage or 

loss, control of well and sudden & accidental pollution risks. Although this cover is 

typically used to cover property damage loss to the extent the limit of cover is not 

exhausted by a single event the balance of the limit would be available to fund costs and 

expenses arising from a control of well event and or a sudden and accidental pollution 

event. However, OIL membership is restricted to companies with a minimum of $1 

billion of gross assets and a number of companies are not comfortable with the mutual 

concept, which requires sharing losses of the group amongst the members. 
104 

The actual working capacity available in the insurance market as of today is in a state of 

flux and although increased premiums should attract additional capacity over a period of 

time it will not be sufficient to satisfy the liability/financial responsibility limits being 

proposed under S. 3305. 

Appendix 

A. Third Party (Excess) Liability Policy- Summary 

General Information: 

This summary is based on XL-004 which is a stand-alone indemnity Excess 

Liability Policy which is not subject to the terms and conditions of any other 

insurance. 

Coverage applies, subject to the terms, conditions and exclusions of the policy, 

only if Notice of Occurrence is first given to the Company during the policy 

period. 

Defense costs are included within and are not in addition to the limits of liability. 

Insuring Agreements - Coverage: 

Indemnifies the Insured for Ultimate Net Loss the Insured pays by reason of 

liability imposed by law, or of a person or party who is not an Insured assumed by 

the Insured under contract or agreement, 

For Damages on account of Personal Injury, Property Damage, Advertising 

Liability, 

Encompassed by an Occurrence, provided, notice of the Occurrence is first given 

by the Insured during the Policy Period in accordance with the Notice provisions 

of the policy. 

Limits of Liabilitv: 

Limits available on this policy form are in the area of $1 billion to $1.25 billion 

per Occurrence and in the aunual aggregate. However, in joint venture situations 

these limits will usually scale down (be reduced) based on the percentage interest 

of the Insured in the liability of the joint venture. 
105 

The limits of this policy are excess of the greater of the amounts indicated as the 

limits of the underlying insurances or the per Occurrence retention amount 

Pertinent Definitions (Including but not limited to): 

"Personal Injury" means Bodily Injury, mental injury, mental anguish, shock, 

sickness, disease, disability, false arrest, false imprisonment, wrongful eviction, 

detention, malicious prosecution, discrimination, humiliation, and libel, slander or 

defamation of character or invasion of rights of privacy. 

"Bodily Injury" means physical injury to the body of a person including death at 

any time resulting there from. 

"Property Damage" means: 

(1) physical damage to or destruction of tangible property, including the Joss 

of use thereof at any time resulting there from; 

(2) loss of use of tangible property which has not been physically damaged or 

destroyed arising from physical damage to or destruction of other tangible 

property; or 

(3) losses consequent upon evacuation arising from actual or threatened 

Bodily Injury or destruction of tangible property. 

An "Occurrence" exists if, and only if: 

(a) except with respect to actual or alleged Personal Injury or Property 

Damage arising from the Insured's Products, there is an event or 

continuous, intermittent or repeated exposure to conditions which event or 

conditions commence on or subsequent to the Inception Date, or the 

Retroactive Coverage Date, if applicable, and before the Termination Date 

of Coverage A, and which cause actual or alleged Personal Injury, 

Property Damage or Advertising Liability. 

(b) actual or alleged Personal Injury to any individual person, or actual or 

alleged Property Damage to any specific property, arising from the 

Insured's Products takes place on or subsequent to the Inception Date, or 

the Retroactive Coverage Date, if applicable, and before the Termination 

Date of Coverage A. 

"Ultimate Net Loss" means the total sum which the insured shall become 

obligated to pay for Damages on account of Personal Injury, Property Damage 

and/or Advertising Liability which is, and/or but for the amount thereof would be, 

covered under this Policy less any salvages or recoveries. 
106 

"Discharge" means discharge, emission, dispersal, migration, release or escape 

(or any series of such of a similar nature at the same site) but does not include any 

discharge, emission, dispersal, migration, release or escape to the extent that the 

Pollutants involved remain confined within the building or other man-made 

structure in which they initially were located. 

"Pollutant" means any solid, liquid, gaseous or thermal irritant, contaminant or 

toxic or hazardous substance or any substance which may, does, or is alleged to 

affect adversely the environment, property, persons or animals, including smoke, 

vapor, soot, fumes, acids, alkalis, chemicals and Waste. 

Pollution Exclusion and Limited Give Back: 

This Policy does not apply to actual or alleged:-

POLLUTION 

(I) (a) liability for Personal Injury, Property Damage or Advertising 

Liability arising out of the Discharge of Pollutants into or upon 

land or real estate, the atmosphere, or any watercourse or body of 

water whether above or below ground or otherwise into the 

environment; or 

(b) liability, loss, cost or expense of any Insured or others arising out 

of any direction or request, whether governmental or otherwise, 

that any Insured or other test for, monitor, clean up, remove, 

contain, treat, detoxifY or neutralize Pollutants. 

This Exclusion applies whether or not such Discharge of such Pollutants: 

(i) results from the Insured's activities or the activities of any 

other person or entity; 

(ii) is sudden, gradual, accidental, unexpected or unintended; or 

(iii) arises out of or relates to industrial operations or the Waste 

or by-products thereof. 

(2) Paragraph (1) of this Exclusion does not apply to: 

(a) Product Pollution Liability; or 

(b) (i) liability of the Insured for Personal Injury or Property 

Damage caused by an intentional Discharge of Pollutants 

solely for the purpose of mitigating or avoiding Personal 

Injury or Property Damage which would be covered by this 

Policy; or 
107 

(ii) liability of the Insured for Personal Injury or Property 

Damage caused by a Discharge of Pollutants which is not 

Expected or Intended, but only if the Insured becomes 

aware of the commencement of such Discharge within 

seven (7) days of such commencement; 

provided that the Insured gives the Company written notice in accordance 

with Section D of Article V of this Policy of such commencement of the 

Discharge under Subparagraphs (2)(b)(i) or (ii) of this Exclusion within 

forty (40) days of such commencement. Such notice must be provided 

irrespective of whether notice as soon as practicable otherwise would be 

required pursuant to Section A of Article V of this Policy. 

B. CONTROL OF WELL INSURANCE 

1. Combined Single Limit over three (3) main coverage sections: 

A) Control of Well 

B) Redrill/ Restoration I Recompletion 

C) Pollution Clean-up and Containment 

2. Limit typically "scales to interest" 

3. A brief description of the basic coverages provided by this policy follows below: 

Control of Well 

Reimburses costs and expenses incurred for attempting to regain control of any well 

insured which gets out of control, including any other well that gets out of control as 

a direct result of a well insured getting out of control. Subject always to the combined 

single limit provided under the policy. 

Redrilling/Restoration/Extra Expense 

Reimburses costs and expenses incurred to restore or redrill a well which has been 

lost or otherwise damaged as a result of an occurrence which would be recoverable 

under the Control of Well section of the policy. Coverage can be extended to cover a 

well which has been lost or damaged as a result of physical loss of or damage to the 

drilling and/or work-over and/or production equipment resulting from specific named 

perils. 

In respect of drilling wells, Underwriters liability ceases when the well is restored to a 

condition comparable to that existing prior to the occurrence, subject to the combined 

single limit provided under the policy. 
108 

Seepage and Pollution/Clean-up and Contamination 

This section indemnifies the insured against: 

All sums which the insured shall be liable to pay for the cost of remedial measures 

and/or as damages for bodily injury or damage to property caused directly by 

pollution above the surface of the ground and arising from a well insured; 

The cost of, or attempt at, removing or cleaning up pollution emanating from a well 

insured including the cost of containing and/or diverting and/or preventing the 

pollution from reaching the shore; 

Costs and expenses incurred in the defense of any claim resulting from actual or 

alleged pollution arising from a well insured. 

The pollution incident must meet the sudden and accidental definition of the policy. 

Subject always to the combined single limit provided under the policy. 

C. OIL SPILL FINANCIAL RESPONSIBILITY 

The operator is required under OP A to maintain financial responsibility either in 

the form of self-insurance, bonds, letters of credit or stand-alone pollution 

insurance with liability limits that are adequate to meet its maximum statutory 

liability. 

The pollution insurance liability coverage offered by the insurance market is not 

true risk transfer as the operator typically agrees to indemnify the insurer for claims 

paid out under such covers. These indemnifications are backed up by a 

guarantee letter from the corporation as well as evidence of control of well 

insurance and/or third party liability insurance. 
109 

Environment and Public Works Committee Hearing 

June 9, 2010 

Follow-up Questions for Written Submission 

Questions for Baron 

Questions from: 

Senator Thomas R. Carper 

I) As you all know, under the OIL Pollution Act of 1990, Congress capped liability 

for damages for individual oil and gas companies at $75 million, but spread 

liability across the entire oil and gas industry through the Oil Spill Liability Trust 

Fund. Under Senator Menendez's bill, he significantly raises the liability limits 

on the individual company. Can you each comment on what the implications 

might be if we significantly raised the liability across THE ENTIRE offshore oil 

and gas industry versus raising liability for just individual companies? Should we 

be looking at raising both? 

I believe that this subject is not in my area of expertise and I would defer to 

the oil producers to respond to what the effect would be. 

2) Do you think that the $75 million liability cap adequately reflects the economic 

damages that will result from the oil spill in the Gulf of Mexico? 

No, I think the economic damages will exceed this amount. 
110 

Senator BOXER. Thank you so much. 

I want to read to the panel what BP said on its permit application when it applied to get a permit for this particular well. It said 

the following: ‘‘In the event of an unanticipated blowout resulting 

in an oil spill, it is unlikely to have an impact, based on the industry-wide standards for using proven equipment and technology for 

such responses and implementation of BP’s regional oil spill response plan which addressed available equipment and personnel, 

techniques for containment and recovery and removal of the oil 

spill.’’ 

That is what they said. They said they had the ability to respond 

with proven equipment and technology. 

Then after it happened, this is what they said: ‘‘All the techniques being attempted or evaluated to contain the flow of oil on 

the sea bed involves significant uncertainty because they have not 

been tested in these conditions before.’’ 

So before they got their permit they said everything was fine. 

They had proven ‘‘equipment and technology’’ for such responses. 

I quote them. 

Eight Members of the Senate—I think all on this Committee— 

sent a letter to the Justice Department asking for an investigation, 

criminal and civil investigation, into whether these were false 

statements. I want to know if any member of the panel disagrees 

that there ought to be an investigation into whether or not BP told 

the truth in the permit. Does any member of the panel disagree 

that there ought to be an investigation into this? 

OK. Thank you. 

Mr. Minich, the size and importance of the tourism industry to 

Florida’s economy is remarkable. In my home State of California, 

coastal tourism, recreation, and fishing generate $23 billion in economic activity and 388,000 jobs. Now, I just have a simple question 

because frankly I am married to a lawyer. My father is a lawyer. 

My son is a lawyer. Will they listen to Mr. Hartman and all the 

technicalities? 

I would like to strip that away and ask a direct question so we 

keep our eye on what we should be doing here, in my opinion, and 

that is, again, do you think that those who caused the disaster 

should be held accountable? 

Mr. MINICH. Absolutely, 150 percent, they should be held accountable. 

Senator BOXER. OK. Then you think they should be held accountable whoever they are if they did this damage. 

Mr. MINICH. Absolutely. There is no question. 

Senator BOXER. Does anybody have a disagreement with that on 

the panel? 

Well, then I think we are speaking, I mean the panel is basically 

saying by your silence to this that we ought to move and hold people accountable. And I guess I am going to try, Mr. Hartman, in 

an attempt to understand better what you were saying. 

Don’t you think it would be a good idea to simplify what we are 

doing here because if there is a lot of confusion surrounding it, you 

wind up 21 years in court? Now, I know you have represented Halliburton in the past. Are you representing them, your company, in 

this particular matter? 
111 

Mr. HARTMAN. Madam Chairman, my firm does not represent 

anybody involved in this spill at all. 

Senator BOXER. OK. That is good. We had your client list. They 

were on it, but you don’t represent them in this, so that is good. 

So you don’t have any conflict, so I am going to ask you this question. 

If we had a very straightforward bill that simply said to the oil 

companies who undertake this, or gas companies, that you are responsible not only for the full clean up, which they are now under 

law, the clean up they are responsible for, but also to make whole 

the Mike Frenettes, the R.J. Kopchaks. Don’t you think it is cleaner to just say you caused the damage, you pay the damage, period, 

end of quote. 

And don’t you think it will be, as the panel so testified, because 

we would have that simple approach, a way to avoid this from happening in the future? Because don’t you agree, because you are an 

attorney who has represented people, you said yourself, who get 

sued, that many times, and we learned this from a lot of the automobile crash tests, that companies put into their balance sheets 

what the costs are if there is an accident? 

If they have no limit, and they just have to step up and pony up 

to make people whole, won’t that be a deterrent from what happened? 

Mr. HARTMAN. Well, Madam Chairman, as somebody who is related to many lawyers, I am sure you will appreciate that I am 

going to say it is a complicated question. But fundamentally I think 

that is what the laws currently do. Do they all work right? No. Are 

they complicated? Yes. There have been issues for years and years 

about should you preempt State laws and make one simple Federal 

remedy. Twenty years ago when I was involved with OPA, for the 

Justice Department these were the same issues. And they are legitimate questions. They are just complicated. 

Senator BOXER. OK. Well, let me just finish by asking Mr. Murchison how he feels. Because in my view if you say that is what 

the law is supposed to do, and 21 years later in Alaska they still 

haven’t cleaned up the mess, and people got $15,000, people who 

lost $650,000. Do I remember that right? That did not resolve. The 

current law did not resolve anything. That is why we changed it, 

but it still has problems. 

And I would just close and ask Mr. Murchison to respond to 

whether or not a very straightforward, simple deal: you make the 

mess, you clean it up, and you make people whole. 

Mr. MURCHISON. The short answer I would give would be yes, 

but I would agree that there are complications in terms of the financial responsibility that the Committee will need to deal with 

going forward. But I would start with the problem of saying that 

those who cause the injury—and not the innocent people—ought to 

bear the loss. 

Senator BOXER. And that is what has happened in Alaska. We 

heard it right here. 

Mr. MURCHISON. That is what is happening right at this moment 

in the State of Louisiana. 
112 

Senator BOXER. It can’t happen in Louisiana because we are 

going to hold BP’s feet to the fire on it, and I am going to do everything I can, with my colleagues, to make sure it doesn’t. 

I am going to ask Senator Inhofe to go next, and I am going to 

give the gavel to Senator Lautenberg because I have to be at a 

12:30 meeting with the Majority Leader. 

Senator INHOFE. And since I wasn’t invited to the 12:30 meeting 

with the Majority Leader, I will go next. 

[Laughter.] 

Senator INHOFE. First of all, I have eight documents, four from 

the insurance industry, two from industry, and two from expert 

witnesses and ask consent that they be made part of the record. 

Without objection, so ordered. 

Senator LAUTENBERG [presiding]. Without objection. 

[The referenced documents follow:] 
113 

May 10,2010 

Honorable Robert Menendez 

U.S. Senator 

528 Senate Hart Office Building 

Washington, DC 20510 

Dear Senator Menendez: 

a')lll/iant 

We are retail insurance brokers. Among our clients are offshore contractors, operators and non-operators, 

both small and large market cap independent entities, with interests in the US Gulf of Mexico. Our 

clients are involved in almost every aspect of offshore exploration and development work. We have been 

asked to comment upon the amount of insurance that is available from the commercial insurance market 

for third party pollution liability for operators and non-operators before and after the Macondo well 

incident. Prior to the incident, we estimate the maximum working capacity available in the commercial 

insurance market (i.e., the limit which could be purchased) was $1.5 billion (for 100% interest- i.e. the 

limit to be shared between operators and non-operators in any common endeavor). Subsequent to the 

Macondo incident, we believe the available working capacity has reduced by -15% and the cost involved 

in procuring this capacity is and will be significantly higher than the pricing prior to the incident. 

If, as we understand, there is legislation under consideration which would materially increase the liability 

cap for economic damages from its current level of $75 million, based on our experience operators and 

non-operators in the US Gulf of Mexico will be unable to obtain adequate protection from insurance. The 

increase of the liability cap will impact the economic structure of Gulf of Mexico operations. If the 

liability cap is increased to the levels we understand are under consideration, the fact that adequate 

insurance protection is not available will dramatically limit the participants in ongoing exploration and 

production activities- in our view only major oil companies and NOCs (National Oil Companies) will be 

financially strong enough to continue current exploration and development efforts. 

Yours very truly, 

BenJamm ~~I D. Wo cox 

Executive Vice President and 

Director Marine and Energy 

BDW:jb 

cc: Honorable Barbara Boxer 

Chairman 

Senate Committee on Environment & Public Works 410 Dirksen Senate Office Building 

Washington, DC 20510 

Honorable James M. fnhofe 

Ranking Member 

Senate Committee on Environment & Public Works 

456 Dirksen Senate Office Building 

Washington, DC 20510 

A !Liane Insurance Set·viccs, Inc. • 5847 S,1n 

PHONE (832) 485-4000 • lAX (832) 

Honorable Jeff Bingaman 

Chairman 

Senate Committee on Energy a& Natural Resources 

304 Dirksen Senate Office Building 

Washington, DC 20510 

Honorable Lisa Murkowski 

Ranking Member 

Senate Committee on Energy a& Natural Resources 304 Dirksen Senate Office Building 

Washington, DC 205 I 0 

2750 • Houston, TX 77057·3265 

'" www.alliantinsurance.com 
114 

it 

Re; Oeepwoler Horizon 1 Mocon® Well !ncldi!nf 

Abov! Uoyd & Portner~ 

A~railoble Uabi~ty lnJYtonce Capacity under normallnsurance eondlliM£ (policies wilt! 

n.:Hmol term1 and cond!lion$ ). 
115 

Available UabUily !nsurcmce Capacity under OPA "c~:trtlllcofet;" 

Pricing 

Proposed changes to lllgfs!allon. 

Ji~~ Johnlloyd / 

'crlnlfmClfl ond CEO 

[) 
116 

Monday, June 07. 2010 

The Honorable Barbara Boxer, Chair 

Environment & Public Works Committee 

4!0 Dirksen Senate Building 

Washington, DC 205!0 

The Honorable Jim Inhofe, Ranking Member 

Environment & Public Works Committee 

456 Dirksen Senate Building 

Washington, DC 20510 

Dear Senators Boxer and Inhofe, 

This Wednesday, the Environment and Public Works Committee will hold a hearing on S. 3305, the "Big 

Oil Bailout Prevention Liability Act." in response to the current oil spill crisis in the Gulf of Mexico 

(GOM). The Independent Petroleum Association of America (IPAA) is opposed to the proposal in its 

current form. 

It is important to note that the tragic events surrounding the Deepwater Horizon incident in the GOM will 

have a significant impact on American offshore oil and gas exploration and production for years to come. 

Our thoughts and prayers go out to the families and communities affected by the tragedy in the Gulf of 

Mexico and we stand ready to help them as we move forward. 

Independent producers have operated responsibly in the GOM for decades and hold roughly 90 percent of 

the leases, producing about 30 percent of GOM oil and more than 60 percent of GOM natural gas. GOM 

production represents a significant amount of energy supply for consumers all across America, and it 

remains an essential component of America's energy portfolio. The entire industry is dedicated to 

working together to protect the environment and to contain the damage from the spill. Many of our 

member companies have offered supplies and services; others are directly helping with the clean-up 

efforts. 

Controlling the well and protecting the environment are the main priority of the industry today. We 

support President Obama' s independent commission investigating the Deepwater Horizon incident. It is 

important that a thoughtful, thorough and timely investigation and analysis of the incident is conducted to 

fully understand what caused the accident and to ensure the proper, improved safety measures are 

identified and put into practice to prevent incidents in the future. IP AA supports the following principles 

to address this important issue: 

l. Any company operating offshore or onshore should be fully responsible (financial and otherwise) 

for all clean-up efforts. 

2. There must be a fund to ensure that those affected by such incidents (i.e., fishermen, tourism. 

local businesses, etc.) will be able to fairly recoup lost costs without being caught in fierce 

litigation with large corporations. 

3. The oil industry, collectively, should contribute to this fund and ensure its long-term viability. 

Independent Petroleum Association of America+120115'' Street, N.W., Suite 300+Washington, DC 20005 

(202) 857·4722 + Fax (202) 857·4799 + www.lpaa.org 
117 

These principles are already a part of federal law in the Oil Pollution Act of 1990 (OPA 90) and the Oil 

Spill Liability Trust Fund (OSL TF). Changes may be needed to update out-of-date OSLTF limits with 

additional industry funding. However, we are strongly opposed to S. 3305 and other legislative proposals 

being discussed in Congress that would have negative consequences for independent producers. These 

changes include increasing offshore liability limits to unrealistic levels that will preclude nearly every 

company operating in the U.S. offshore from getting insurance to cover their operations. Without the 

proper insurance coverage, there will not be independent producers with offshore exploration and 

production it is that simple. These consequences are not justified based on the performance of 

independent producers operating in the offshore, who have an outstanding safety and environmental 

record. 

The Congress should not make hasty decisions and advocate legislative and regulatory initiatives that will 

result in severe limitations to offshore drilling in the United States consequences that can further harm 

the Gulf Coast economy. IPAA looks forward to working with the Committee and the entire Congress to 

find solutions that will allow American producers to continue to operate in the U.S. offshore and explore 

for the oil and natural gas that is vital to our nation's energy security. 

A significant aspect of OPA 90 was the creation of a trust fund filled by crude oil taxes that is intended to 

be used by injured parties to compensate them for economic damages instead of requiring lengthy 

litigation. We support the expansion of this industry-wide fund to ensure that future costs and claims are 

covered and urge the Committee to work within the framework of OPA 90 before taking other actions 

that will impact American energy production. 

The Obama Administration also recently announced a six month moratorium on any offshore drilling in 

water depths greater than 500 feet. The moratorium includes wellbore sidetracks and bypasses; spudding 

of any new deepwater wells and is designed to allow the presidential commission investigating the spill to 

prepare its recommendations. While we understand that many Americans are rightfully concerned about 

the environmental risks and the safety of offshore drilling, the federal government should methodically 

review this matter and follow the facts in the incident before taking actions that could impact oil and 

natural gas production from the offshore for years to come. 

A recent analysis conducted by Wood MacKenzie predicted that the moratorium and new regulations will 

push back into later years 80,000 barrels a day of production scheduled for 2011. The impact of the spill 

becomes harder to ignore further into the decade. By 2015, Wood MacKenzie predicts stiffer federal 

offshore permitting and safely regulations will result in more than 350,000 banels a day of production 

forecast for that year to be delayed. It is important to note, however, that these predictions assume 

available capacity for production in the GOM after the current moratorium is lifted. That is an issue that 

could be in serious jeopardy if rigs currently in the GOM are sent to various parts of the world to begin 

operations on other projects. and then are not available to return once the moratorium is lifted. 

Congress must continue to recognize the importance of energy development in the United States. Rather 

than enacting legislation such as S. 3305 that will destroy the ability of independent, American oil and gas 

companies from exploring for energy resources in our nation's offshore areas, we need Congress to create 

a forward-looking. balanced energy policy that recognizes the role oil and natural gas will continue to 

play in our nation for years to come. Offshore oil and natural gas production creates jobs, revenues and 

helps stabilize energy prices for American consumers and helps reduce our reliance on energy supplies 

from unstable regimes across the globe. 

As the facts and information surrounding the Deepwater Horizon incident come forward, our nation must 

develop a reasonable regulatory program that will allow further offshore oil and gas exploration and 

2 
118 

production in the United States. Offshore oil and gas production must continue to be an integral part of 

America's energy portfolio and IPAA is dedicated to finding answers that will help us achieve that goal. 

Unfortunately, the implementation of S. 3305 into law would dramatically hinder American production of 

oil and gas. Thank you for your attention to this matter. 

Sincerely, 

Bruce Vincent 

Chairman 
119 

NATIONAL 

OCEAN 

INDUSTRIES 

ASSOCIATION 

I D:O G Str>'~ec NW 

Sulte90:0 

\Vashmgwn, DC '20005 

Te1202·347,b900 

f-.n 202.)4/ 8&50 

Tuesday, ,June 08, 2010 

The Honorable Barbara Boxer, Chair 

Senate Environment & Public Works Committee 

410 Dirksen Senate Building 

Washington, DC 20510 

The Honorable Jim Inhofe, Ranking Member 

Senate Environment & Public Works Committee 

456 Dirksen Senate Building 

Washington, DC 20510 

Dear Senators Boxer and Inhofe, 

Tomorrow, the Environment & Public Works Committee will be conducting a 

legislath·c hearing on S. 3305, the "Big Oil Bailout Prevention Liability Act of 

2010." The National Ocean Industries Association opposes this legislation in 

its current form. 

In the wake of the immense economic and environmental impacts still 

developing in the Gulf, we understand the desire of some in Congress to take 

immediate action, whether it be to re-impose outright drilling bans or raise 

liability caps on the offshore industry. As Congress and the Administration 

continue to investigate the Deepwater Horizon accident, it is very apparent 

that until we firmly understand what went wrong, it is premature to dictate 

broad and possibly counter-productive solutions. 

There are numerous hearings and investigations underway to delve into the 

root causes of the tragic explosion on the Deepwater Horizon and resulting 

loss of well controL This week alone, various Committees in Congress arc 

conducting nine separate hearings. Clearly, new information is pouring in. 

In the meantime, an unprecedented response and cleanup effort is underway 

involving over 17,000 people and thousands of private and government 

vessels. The offshore industry is participating fully and is also hard at work to 

stem the flow of oil and protect the shorelines and natural resources of the 

Gulf of Mexico. NOTA member companies are assisting BP in its response 

efforts, and stand ready to cooperate in hearings and investigations. 
120 

In addition, the Administration has initiated investigations through seYeral 

avenues, which should allow the federal government and the American people 

to put all the pieces of the puzzle together for a complete picture. Once 

complete, this picture will prmide valuable information on strategic, targeted 

measures for possible reforms in planning, permitting, inspections, regulatory 

and statutory regimes. 

The companies invoh·ed in the Deepwater Horizon traged~· hm·e indicated 

their intent to pay for damages and economic impacts beyond the current 

liability cap of $75 million, so calls for limitless liability may be a solution in 

search of a real problem. One thing that is clear is that raising the liability 

caps as high as $10 billion or beyond will driYc most non-international 

producers out of the Gulf of Mexico. This means less domestic energy 

production and more imports of oil from politically unstable regions, along 

with increased transportation of oil The resulting concentration of domestic 

offshore energy production will be in the hands of a few multinational or 

nationalized companies. 

ln addition, I encourage our policy makers to remember that, despite this 

tragedy, America's need for domestic energy has not changed and OCS 

de\'clopment remains a vital part of our oYerall national energy picture. 

Nearlv a third of our domestic oil comes hom the Gulf of Mexico. No one can 

argue the fact that demand for energy will only continue to increase for the 

foreseeable future. 

V\'e should resist the impulse toward knee jerk reactions and proceed carefully 

when making decisions that affcet the future of our nation's energy supply. 

Sincerely, 

Burt Adams 

Chairman 

National Ocean Industries Association 
121 

Testimony of Rawle 0. King 

Analyst in Financial Economics and Risk Assessment 

Congressional Research Service 

S. 3305, The Big Oil Bailout Prevention Liability Act of 2010 

Before the Senate Committee on Environment and Public Works 

June 9, 2010 

Chairman Boxer, Ranking Member lnhofe. and Members of the Committee, on behalf of the 

Congressional Research Service (CRS) I would like to thank the Committee for inviting me 

to testify here today. My name is Rawle King. I am an analyst in financial economics and 

risk assessment. You have asked CRS to provide testimony on the effects of raising the 

liability limit for damages to $10 billion and to review the amount of insurance that is likely to 

become available from the commercial insurance market for third-party pollution liability 

damages facing operators of oft:~hore energy facilities in the aftermath of the Deepwater Horizon 

accident. I should note that CRS does not advocate policy or take a position on specific 

legislation. 

Introduction 

In recent weeks, Congress has been called upon to address issues surrounding what has been 

characterized as the worst oil spill disaster in U.S. history in the aftermath of the Deepwater 

Horizon oil rig platform explosion, tire and sinking. The oil spill incident will likely result in 

costs associated with environmental liability, bodily i11jury and property damage liability claims, 

capping the well and clean-up, lost revenue, damage to marinas, vessels, and to property ashore. 

Early estimates of total insured losses are about $1.5 billion and actual losses could be much 

higher. Importantly, the future of offshore oil and gas exploration and production in the Eastern 

Gulf of Mexico and the Atlantic seaboard, an important source of energy for the nation, will be 

affected. Given the magnitude of the recent oil spill, parallels could be drawn between the 

Deepwater Horizon incident and the 1969 oil spill in Santa Barbara, California that led to the 

closing of much of the Outer Continental Shelf (OCS). 

S. 3305, the Big Oil Bailout Prevention Liability Act of20 I 0, would amend Section l 004(a)(3) of 

the Oil Pollution Act of 1990 (OPA)1 to increase the limit of liability on responsible parties for 

environmental liability from an oil spill from the current $75 million to $10 billion. Liability 

limits would not apply if the incident was "proximately caused" by "gross negligence or willful 

misconduct" or "the violation of an applicable Federal safety, construction, or operating 

regulation .... " If one of these circumstances is determined to have occurred, the liability would 

be unlimited. 

A key oil spill liability and insurance public policy challenge stemming from the Deepwater 

Horizon catastrophe involves reconciling two points of contention: ( l) the desire to increase the 

limitations of liability for operators of offshore energy facilities from $75 million to $10 billion or 

more for economic losses caused by oil pollution damage and raise the criteria for demonstrating 

oil spill financial responsibility (OSFR); and (2) the limited capacity of offshore energy insurance 

and reinsurance to cover loss of well control, cost to redrill a blowout well and pollution liability 

facing operators of offshore energy facilities. 

1 P.L. 101-380. primarily codified at 33 U.S.C. 2701. et seq. 
122 

With capacity in the offshore energy insurance market now at about $1.5 billion, there has been 

uncertainty about offshore facility operator's ability to obtain insurance certificates to 

demonstrate evidence of financial responsibility under Section 1061 of the OPA. Underlying this 

issue is the unique low-frequency, high-severity nature of oil spill catastrophe risk exposures and 

the difficulties insurers and reinsurers have in raising capital to insure such risks. Congress may 

wish to consider the feasibility of alternatives to traditional insurance and reinsurance products 

designed to spread catastrophe risks among capital market investors. The development of 

innovative catastrophe-linked securities and other alternative risk transfer (ART) instruments that 

transfer income received in the form of insurance premiums to the capital market for their 

assumption of risk is one proposed alternative to traditional o!Tshore energy insurance and 

reinsurance. 

The Deepwater Horizon Oil Spill Incident 

On April 20, 20 I 0, the ultra-deepwater, semi-submersible mobile offshore oil rig Deepwater 

Horizon experienced an explosion and fire and sank in the Gulf of Mexico off the coast of 

Louisiana. The rig was owned and operated by Transocean, a Swiss offshore drilling contractor. 

and leased to British Petroleum (BP). The explosion and fire, which resulted in 11 fatalities and 

several injuries, is currently being investigated but is believed to have been caused by the failure 

of specialized oil spill prevention equipment called a blowout preventer (BOP).2 The failure of 

the BOP left the well unsecured and leaking from the marine riser. The amount of oil and gas 

escaping from the subsurface well is a matter of dispute but an interagency federal panel of 

scientists led by the U.S. Geological Survey estimated the spill's size at 12,000 to 19,000 barrels 

of oil a day, making the recent incident the largest oil spill in U.S. history.' 

Oil Spill Financial Responsibility and Insurance Requirements 

Congress passed the OPA to strengthen the safety and environmental practices in the oil and gas 

exploration and production business and to create a system of financial responsibility laws and 

compulsory liability insurance combined with strict liability standards. The financial 

responsibility and compulsory insurance requirements provided funds to pay for damages; the 

strict liability rules allow third-party claims to be made directly against the insurer, irrespective of 

negligence. This regulato1y structure was designed to avoid time-consuming and costly litigation 

and the need for oil spill victims to prove negligence as the primary test of liability tor oil 

pollution damage. Operators of offshore energy facilities are held strictly liable and thus cannot 

argue that disaster victims contributed to the injury by their own negligence. Strict liability 

theories eliminate the necessity of establishing intent. The presumption is that oil pollution 

victims are incapable of protecting themselves against the exposure to oil pollution. Strict 

liability is therefore intended to distribute the economic burden of environmental-related damages 

while enhancing the speedy compensation of third-party oil pollution damages, property losses 

and bodily injury irrespective of fault or the defendant's solvency. 

Under Section 10 !6 of the OPA, oil and gas exploration and production (E&P) leases issued by 

the U.S. Minerals Management Services for operation in the Gulf of Mexico must establish and 

maintain oil spill financial responsibility (OSFR) capability to meet their liabilities for removal 

2 Blowouts occur during offshore drilling operations when pressure exceeds the weight of the drilling fluid in the well 

which results in an uncontrolled flow of oil. The blowout and subsequent oil !low could result in loss of the prope11y at 

the drill site. 

3 Tom Zeller Jr .. "Estimates Suggest Spill is Biggest in U.S. History." New York Times. May 27.2010. located at: 

[http ://www.n yti mes. com/20 I 0/05/28/us'28tlow. htm 1]. 

2 
123 

costs and damages caused by oil discharges from an offshore facility and associated pipelines:1 

OPA established a $75 million cap on the responsible party(s) for economic damages unless the 

damages were the resu It of acts of gross negligence or willful misconduct. 5 

Lease holders of a covered offshore facility (COF) must demonstrate a minimum amount of 

OSFR of$35 million per 35,000 barrels of"worst case oil-spill discharge" up to a maximum of 

$150 million for COF located in the OCS and $10 million in state waters. As an illustration, a 

worst case oil-spill discharge volume of 35,000 barrels (bbls) requires $35 million in OSFR while 

a volume of35,001 bbls requires $70 million. The MMS calculates the worst case oil-spill 

discharge volume for a facility. An exemption to the OSFR is provided for persons responsible 

for facilities having a potential worst case oil-spill discharge of l ,000 bbls or less. The OSFR is 

demonstrated in various ways including surety bonds, guarantees, letters of credit and self 

insurance, but the most common method is by means of an insurance cettificate. Claims above 

the current liability cap can be made to the Oil Spill Liability Trust Fund, which has about $1.6 

billion that can be used for cleanup costs and bodily injuries and property damage to third parties. 

The Fund is capitalized by a $.08 excise tax on every barrel of domestic and imported crude oil. 

The Fund is limited to payouts of$1 billion per incident and $500 million for natural resource 

damages. 

Offshore Energy Insurance and Reinsurance Market 

Prior to 1969, liability insurance was an internal matter of the companies that owned shipping 

vessels, including offshore energy facilities (oil rigs). Insuring potential liabilities facing mobile 

offshore drilling units (MODU), a type of vessel, was not made compulsory until the advent of 

the 1969 International Convention on Civil Liability for Oil Pollution Damage (CLC).6 The 

triggering event was the 1969 Torrey Canyon incident after which shipowners' liability insurance 

for oil pollution damage became commonplace. At about the same time, a specialty niche 

offshore oil and gas insurance market began offering insurance coverage for risks usually retained 

by the operator. Offshore international underwriting syndicates were expanded and began 

offering expanded coverage for pollution liability resulting from blowouts, costs of well control, 

damage to underground resources, liability to the employees of the operator, loss or damage to 

equipment lost while actively in use, and loss to drilling and servicing equipment from corrosive 

elements. 

The emergence of oil spill financial responsibility (OSFR) requirements and compulsory liability 

insurance combined with strict liability statutes did not occur until after the 1989 Exxon Valdez 

oil spills and the enactment of the OPA. The imposition of strict liability for large-scale oil spills 

dramatically increased demand for offshore energy facility liability insurance protection. Today, 

the offshore energy insurance market is well-syndicated, with the insured losses spread across a 

broad spectrum of global insurers and reinsurers based principally in London and Bermuda. 

The Marine Insurance Industry 

Operators of vessels, including mobile offshore drilling units (MODU) like the Deepwater 

Horizon oil rig, face multiple property and liability loss exposures which they use ocean marine 

insurance to cover. 

4 This requirement applies to the Outer Continental Shclf(OCS). state waters, and certain coastal inland waters. 

'CRS Report R41256. Oil Pollution Act of 1990 (OPA): Liability of Responsible Parties, by James E. Nichols. 

6 See International Convention on Civil Liability/or Pollution Damage, 1969, located at: 

fhttp://\l.;ww.imo.org/conventionslcontents.asp?doc_.id-660&topic __ iJ=256]. 

3 
124 

Marine insurance covers vessels and their cargoes tor both property and liability risk exposures. 

In the United States, marine insurance consists of two distinct branches: (I) inland (or "dry") 

marine that includes exposures related to properties in transit such as mobile equipment and 

jewelry; and (2) ocean (or "wet") marine that includes hull and cargo coverage. Ocean marine 

means the same as marine insurance in the global insurance market. Because of its unique loss 

exposures both ocean and inland marine insurance are exempt from state insurance rate and 

policy form filing requirements and state insurance premium tax. This allows a high degree of 

flexibility in modifying fonns and rates to cover unique loss exposures. A vessel owner's legal 

liability is subject to a specialized branch offederallaw known as admiralty or general maritime 

law.7 This favorable regulatory treatment was designed to encourage the development of the U.S. 

ocean marine insurance industry that was being outcompeted by British marine insurers. 

Marine insurance covers: 

• Liability for bodily injwy, illness, or death of: 

• Members of the vessel's crew 

• Shore workers, passengers, or other persons on board 

• Persons not on board the vessel 

• Liability for property damage to (and resulting loss of use of): 

• Other vessels, resulting from collision with the vessel 

• Vessel owners' own vessel 

• Cargo or other property on board other vessels 

• Cargo or other property of others on board the at-fault vessel 

• Bridges, piers, docks, navigational locks. and other structures 

• Liability for environmental impairment resulting from oil spills or other pollution 

incidents. 

Structure and Performance of Offshore Energy Insurance Market 

The offshore energy insurance market is one class of business (or sublines) within the ocean 

marine insurance market. The sublines within ocean marine are: cargo, hull, war, primary marine 

liabilities, excess liabilities, yacht, protection and indemnity (P&l), and offshore energy. Ocean 

marine insurance is typically purchased to cover risk exposures of shipowners (cargo and hull), 

marinas, wharves, ports, offshore oil and gas exploration and production firms, and onshore 

warehouse and retail establishments. Operators of offshore energy facilities typically self insure 

or purchase pollution liability coverage and excess liability limits in the surplus market or the 

international marine insurance market. Insurance sold in the surplus market is handled through 

specialized brokers. 

Stmcture 

The offshore energy insurance market is highly specialized and, because the limits of insurance 

are usually in excess of$1 billion, there is no single insurer who covers the entire risk exposure. 

Consequently, operators of offshore drilling units, production platforms, undersea pipelines and 

systems for loading oil onto vessels at offshore mooring points typically insure their property and 

liability risk exposures on a subscription basis through specialized brokers who negotiate with 

7 Admiralty law can be distinguished from common law that governs disputes and claims for other lines of business in 

that a marine dispute is tried before judges rather than juries. 

4 
125 

underwriters in the energy field. Most subscription transactions arc negotiated and placed in the 

London and Bermuda insurance market through, for example, Lloyds of London and scores of 

global reinsurance companies and intermediaries. 

In the last decade, the fonnal organizational structure of the ocean marine industry underwent 

significant cultural and institutional transformation. According to Conning Research and 

Consulting, the ocean marine insurance market has become more concentrated with fewer, larger 

insurers due to overall insurance industry consolidation. In 2009, there were I 06 groups 

underwriting ocean marine coverage compared to 189 in 19868 Moreover, the size of the ocean 

marine insurance industry, as a proportion of the overall property and casualty insurance industry, 

has declined from3% of total P&C insurance premiums in 1989 to 0.7% of overall writings in 

2009.9 

An industry once dominated by individual freestanding monoline underwriters (i.e., managing 

agencies/pools) is now dominated by small marine underwriting units subsumed within multiline 

insurers, either in the commercial or speciality lines divisions. In addition, offshore energy 

insurers, who traditionally were defined by their willingness to assume risk without relying on 

technical analysis, now require professional engineers to evaluate risk and quantifY exposures. 

Marine insurance underwriting is now guided not by experienced and knowledgeable 

underwriters but by computer simulation models and estimates on exposure promulgated by 

actuaries and quantitative approaches. 10 

Performance 

Table 2 shows ocean marine global premiums by class for first-party physical damage coverage. 

Importantly, these figures do not include third-party liability coverage for bodily injury and 

property damages and clean up and containment of oil spills. These data are not readily available 

because the main market players are based principally in London and Bermuda and beyond the 

reach of state insurance regulators. Based on conversations with off.~hore energy insurance 

brokers, the estimated total offshore energy property insurance premiums is in the range of $3 to 

$3.5 billion annually. There is an additional $500 million in third-party liability capacity. Most 

operators of offshore energy facilities (e.g., MODU) carry about $300 to $500 million of operator 

extra expense insurance. 

In 2009, the offshore energy insurance market experienced surplus capacity due to two main 

factors. First, mobile offshore drilling units (MODU) rig utilization and, hence, demand for 

insurance declined sharply in all oil and gas exploration and production areas of the world, but 

particularly in the Gulf of Mexico because of heightened hurricane activity in 2004, 2005, 2006, 

and 2008. According to the International Union of Marine Insurance (IUMI), the worldwide rig 

capacity utilization rate stood at 75% in 2009, down from 88% in 2008. 11 The Gulf of Mexico rig 

utilization rate was 49%, off from 75% in 2008. Second, the demand for ocean marine insurance 

has been adversely affected by the global economic downturn and the decline in world trade and 

the drop in market price for oil and natural gas. 

8 Conning Research and Consulting Strategic Study Series, ·~ocean Marine Insurance: Entering Ne\'i Waters: 2009", 

Hartford. Connecticut. p. 9. 

'Ibid. 

10 Ibid. 

11 International Union q(Marine Insurance. "Press Release: Sharp Drop in Offshore Rig Operation in 2009.'' located 

at: [http://www.iumi.comiindex.cfm?id=7198 ]. 

5 
126 

Table 2. Ocean Marine Global Insurance Premiums by Class 

($ in millions) 

Global Hull 

Transport/Cargo 

Marine liability 

Offshore/Energy 

Total 

Source: International Union of Marine Insurance 

2006 

$5,282 

10,724 

1,381 

2,736 

$20,124 

Typical Offshore Energy Insurance Coverage 

2007 

$5,919 

11,958 

I ,420 

2,806 

$22,103 

The ocean marine line uses several policy forms ranging from policies for cargo, brownwater 

(domestic U.S.) hull and bluewater (oceangoing) hull, war, primary liability, excess liability, 

yacht, P&l. and offshore energy. 

The main types of insurance coverage commonly used in the offshore energy insurance market 

that are relevant to the Deepwater Horizon incident include: ( l) offshore physical damage 

coverage for physical damage or loss to offshore fixed platforms, pipelines and production and 

accommodation facilitics: 12 (2) Operator's Extra Expense (OEE); (3) Excess Liability insurance; 

( 4) business interruption; and (5) workers' compensation. Another type of insurance coverage 

that provides third-party liability protection for owners and operators of vessels is Protection and 

Indemnity (P&l) insurance sold by P&l clubs, which are mutual associations of vessel owners. 

However, P&l policies sold by conventional insurers explicitly do not offer coverage to 

indemnify offshore energy facilities for oil pollution damages and supplemental pollution liability 

insurance must be obtained under a separate marine policy.u 

• Offshore Physical Damage. This coverage provides post-loss financing for any direct 

physical loss of or damage to fixed offshore drilling, production and accommodation 

facilities, including: (I) offshore energy drilling, production and accommodation 

facilities; 14 (2) pipelines; (3) subsea equipment; and (4) offshore loading. All risks are 

12 ISO Commercial Property Causes ofLoss -Special Form 10 30 04 02, located at: 

[http:/ /w\V'-V. end !ar.corn/Documents/Pol icy __ Forms/ Arhella%20C'P T 030%20Spccia!%)20Causc%20otl}020 Loss~·020F or 

m.pdfl. 

P In the l91

h century. shipowners banded together in mutual underwriting clubs to form shipowners' Protection and 

Indemnity (P&I) clubs to cover shipowners' third-party liabilities and expenses arising from the owning or operation of 

their ships. There arc thirteen separate and independent principal Clubs that form the International Group ofP&I 

Clubs. Some of these Clubs have affiliated and reinsured subsidiary associations. The American Steamship Owners 

Mutual Protection and Indemnity Association. Inc .. established in New York in 1917. is the only mutual P&f Cluh 

domiciled in the United States. It is a member of the International Group ofP&I clubs. a collective of thirteen mutua!s 

which together provide P&l insurance tOr some 90% of all world shipping. Members of the clubs are generaf!y levied 

an initial sum that is used to purchase reinsurance to cover their mutual liability risks. If a club experiences unfavorable 

losses. the members are assessed a supplementary premium. Th~ club attempts to build up Ioss reserves. 

14 It is impo11ant to distinguish between a mobile offshore drilling unit (MODU). such as the Deepwater Horizon. and a 

well drilled from a MODU. A MODU is classified as a vessel and well drilling from a MODU is classitied as a 

covered offshore facility (COF) under the OPA. The Secretary of Transportation has authority for vessel oil pollution 

financial responsibility and the U.S. Coast Guard regulates the oil-spill tlnancial responsibility program for vessels. 

Offshore drilling rigs arc classified into two categories: mobile offshore drilling units (MODUs) and fixed unites. 

MODUs are classified in terms of bottom-supported (shallow water) rigs and tloating (deepwater) rigs. In bottomsupported units. the rig is in contact \Vith the seafloor during drilling. \\,hilc a floating rig floats over the site while it 

drills. held in position by anchors or equipped with thrusters to be dynamically positioned. Both units float when 

6 
127 

covered unless specifically excluded but such risks are covered in OEE policies. For 

example, oil wells and regaining control of the well after a blowout and rcdrilling 

expenses are typically excluded. 

• Operator's Extra Expense (OEE)/Energy Exploration and Development (EED) 

Coverage Covers the costs of well blowout and indemnifies the offshore facility 

operator for third-party bodily injury claims, damage to and loss of third party property. 

and the cost of clean up and legal defense expenses as a result of a blowout. OEE covers 

evacuation expenses, the removal of wreckage and making wells safe, and the property of 

others in the insured's care custody and control. Coverage may also include the redrilling 

of a well after a blowout to the original depth and comparable condition prior to the loss, 

as well as the legal expenses emanating from an incident such as the sinking of a rig, or 

an oil spill. The oil pollution incident must be sudden and accidental and the occurrence 

must have taken place during the period when insurance coverage is in force. Also, the 

incident must become known to the insured within 90 days and the insured must report 

the claim to the underwriter within 180 days. OEE is sold as a "Combined Single Limit 

of Liability'' and covers actual costs and/or expenses incurred in regaining control of an 

unintended subsurface flow of oil. The operator is responsible for damage to drilling 

equipment as determined by the ''Operating Agreement" between the operator of the rig 

and the drilling contractor listing the risks the operator will cover. Under these 

Agreements the drilling contractor is typically held harmless with respect to pollution 

liability for underground resources and liability for damage to operator's property or 

injury to operator's personnel arising out of the employee/employer relationship. 

• Excess Liability Insurance. This coverage is purchased in layers that attach excess of a 

certain dollar limit. A typical operator would have many layers of excess liability that 

adds up to a certain aggregate level of protection. Although excess liability coverage is 

purchased as an additional layer of coverage in excess of the OEE pol icy it is subject to 

its own terms and conditions. Thus, whereas OEE covers pollution-related third party 

bodily injury and third party property loss or damage or loss of use on a strict liability 

basis, the excess liability insurance policy excludes pollution from wells. The policy 

generally has a limited "buy back,'' which requires the pollution event to be sudden, 

accidental and unintended and subject to strict discovery and reporting requirements. The 

offshore energy facility operator must purchase specific "pollution endorsements" that 

overrides the pollution exclusion provision in the excess liability policy. A point of note 

is that the use of pollution endorsements could have the effect of reducing overall 

insurance capacity for cleanup of pollution from wells because the insurer is potentially 

liable for higher levels of third party liability on each policy. 

• Business Interruption (BI)/Loss of Production Income (LOPI)- This coverage 

indemnifies the insured for lost net income that would have been earned had the damage 

not occurred, as well as for refunding fixed expenses incurred during the period of 

indemnity. Contingent business insurance coverage provides payments for damages 

based upon loss income due to damage to upstream facilities such as processing plants, 

trunklines, and refineries owned by third parties but upon which the insured's income 

depended. This coverage is usually written in conjunction with olfshore physical damage 

moved trom one site to another. Bottom-supported units include jack ups. tenders. submersibles. and barges. Floating 

units include semi-submersibles and drillships. Fixed units (or platform rigs) are drilling units that are placed upon a 

platform or other structures. Subsea floating production systems are employed in deeper water. The Dt:epwater 

Horizon \vas a tloating production system (FPS) or vessel that was connected to a subsea pipeline. while a floating. 

production, storage. and offloading vessel (FPSO) processed and stored oil on board a vessel prior to being offioaded 

into shuttle tankers. 

7 
128 

coverage on standardized forms published by Insurance Services Office, Inc. or those that 

resemble the ISO form. 15 Because of the standardization in contract language there tends 

to be more predictability in claim payments and, therefore, reduced potential litigation 

over contract interpretation. Companies filing a business interruption insurance claim 

must show that their business operation sustained actual direct physical loss of or damage 

to the insured property. Without this proof the Bl claim could be denied because, as 

many experts agree, the consequences of oil spill can be far reaching without any need 

for the oil itself to actually reach those affected. 

• Workers Compensation/Employers' Liability- Provides coverage for claims arising 

out of employee injuries or deaths incurred while the employees are in the line of duty. 

Policy Issue Considerations for Congress 

In the aftermath of the Deepwater Horizon incident, one issue that Congress may wish to consider 

is the willingness of the global offshore energy insurance market to participate in the OSFR 

program, given the proposed increase in the limit of liability required under OPA to $10 billion 

and also the proposal to increase the OSFR requirement to some higher level that is yet to be 

determined. If insurers were willing to continue to participate, another question might be whether 

the new limit of liability is supported by the availability of insurance coverage on adequate terms 

and conditions in the global commercial insurance market for offshore energy facilities given: (I) 

the insurability of future offshore oil spill hazards; and (2) the impact of the global financial 

market crisis on insurance market's capacity for underwriting "catastrophe" or "peak" risks, 

including oil spill damages. 

Future Insurability of Offshore Oil Spill Perils 

With respect to the insurability of oil spill risk, it is instructive to point to similarities with 

financing recovery of large-scale natural disasters, such as Hurricane Katrina. As a major source 

of post-disaster recovery financing, commercial insurance companies have been called upon to 

pay for catastrophe-related losses, in some cases beyond their contractual policy obligation. For 

example, after the September II, 200 I terrorist attacks at the World Trade Center, insurers faced 

pressure to interpret policy language liberally with respect to war risk coverage and the number of 

occurrences. After some negotiation between private insurers and reinsurers, legislators, and 

other industry par1icipants, which led to the passage of the Terrorism Risk Insurance Act (a predisaster risk financing scheme), insurers agreed to pay claims related to the 9/ll incident. 

Insurers did not charge an additional premium to cover that risk. Other notable examples include 

asbestos and Superfund environmental claims (continuum triggers) and Hurricane Katrina with 

the water exclusion provision in homeowners· insurance policies where some policies were 

reinterpreted by the courts to expand coverage for water damage though insurers maintained that 

coverage was explicitly excluded. Consideration of coverage expansion through the 

reinterpretation of insurance contract language by the courts could affect the availability of 

insurance for offshore energy facilities going forward. 

Availability of Offshore Energy Insurance for Oil Spills 

In the aftermath of the Deep~water Horizon incident, offshore energy insurance underwriters have 

begun to reassess their risk exposures in response to newly perceived operational risks involving 

blowouts, fires, explosions, lost control of well and other non-hurricane risks. Insurance experts 

expect offshore energy insurance rates to increase in the short term as a result of the perception of 

15 ISO Form CP 0030. 

8 
129 

greater potential risk exposure. Changes in the insurance market will likely not be driven by the 

windstorm component of the coverage; rather, they will be driven by reassessments of operational 

risks. Coverage for drilling contractors and control-ot~well expenses are the areas most likely to 

be targeted by underwriters for rate increases. 

The proposed increase in the limit of liability required under OPA to $10 billion carries at least 

four consequences in the offshore energy insurance and reinsurance market. First, some 

insurance market experts have asserted that the global commercial insurance capacity for thirdparty liability insurance- Operators' Extra Expense (OEE) and Excess Liabilities coveragethat is currently available to meet OSFR requirements is approximately $1.5 billion. This amount 

is likely to be far below the OSFR for the new $10 billion liability limits. Depending on an 

operator's operating earnings, the company may consider implementing a captive insurance 

program (self insurer), choose to increase risk retention, or join a mutual insurance company. 

Insurers have pointed out that the strict liability standard with direct access to the insurer serves to 

further limit overall industry capacity. The reason is that the insurer cannot control claims 

payment with contract terms and conditions. Moreover, the OEE coverage as currently structured 

provides a combined single limit for well control, well redrilling after a blowout, and sudden and 

accidental seepage and pollution clean-up. This means prioritizing the single limit, for example, 

by first using the insurance proceeds to hire a well control expert to retake control of the well 

and, if necessary and funds remain, drill a new well, with the balance of the OEE insurance limits 

used for pollution clean-up and containment of oil spills. 

Second, given basic economic supply-demand principles and the fallout from what may be 

characterized as the largest oil spill in U.S. history, most insurance market expetts expect the 

supply of insurance coverage for the new OSFR to only be available at a high premium, if 

coverage is available at all. The imposition of higher strict liability limits for large-scale oil 

pollution could have the effect of greatly increasing the demand for liability insurance protection. 

This situation could multiply the challenges insurers might have in evaluating risk exposures, 

defining reasonable limits for the coverage and calculating insurance prices. Operators may find 

themselves assuming or retaining higher levels of self-insurance, which might affect the MMS's 

offshore oil and gas lease bidding and ultimately the royalties earned for the U.S. Treasury. 

Third, if the past is an indication of the future, private commercial insurers may be reluctant to 

commit financial capital in underwriting unknown new risks in the post-Deepwater Horizon 

environment until there is greater clarity on the legislative and legal climate. Insurers would want 

to collect the necessary data for evaluation of risks associated with certain severity of loss and 

insurability, recalculate rates, policy tenns and conditions, and set limitations. Conduct of these 

normal activities, at least in the short tenn, will be affected by the uncertainty of the losses 

associated with the recent Gulf of Mexico oil spill. 

OPA's oil spill financial responsibility rule is a pre-disaster risk financing strategy that, in the 

wake of the Deepwater Horizon incident, could come under intense pressure because of capital 

shortages in the offshore energy insurance and reinsurance market. From an insurer's 

perspective, one issue that may arise is the potential for future massive environmental-related 

(strict liability) damages which leads to the question of whether offshore oil pollution will be 

insurable or insurable only with government suppott. Given the magnitude of losses and the 

uncertainty about future profitability in the energy insurance business, a "hard" energy insurance 

market -scarcity of coverage and high prices- may emerge following the Deepwater Horizon 

incident. Prior to this event, the third party pollution liability market was thought to be in a "soft" 

phase where rates were low as a result of oversupply of capacity. 16 

16 Willis Limited, "Energy Market Review: On the Edge of an AbyssT, March 2010. located at: 

9 
130 

Fourth, many insurance market expetts would likely support a more efficient pre-disaster risk 

financing approach to managing and financing large-scale oil spill disasters. The availability of 

alternative sources of insurance capacity for spreading financial risks associated with oil spills, 

perhaps through reinsurance sidecars, catastrophe bonds or energy insurance financial futures and 

options (i.e., derivative financial instruments that securitize insurance risk, turning an insurance 

policy or reinsurance contract into a security), could provide the added capital needed in the 

insurance marketplace to cover the higher liability and associated OSFR limits. For example, a 

reinsurance sidecar is a limited-life reinsurance company that is established to provide property 

catastrophe (quota-share) reinsurance for the upper layers of an insurance contract or the highestloss events. They are constructed as private-placements rather than tradable securities - like a 

catastrophe bond. 

[http://www. will is.corn/Media_ Room/Press_ Releases_( Browse_ All)/20 I 0/20 I 00324 _Willis_ Energy_I\1arket._ Review_ 

24 _Marcil_ 20 I 0/] 

10 
131 

STATEMENT OF 

MR. VINCENT J. FOLEY 

PARTNER, HOLLAND & KNIGHT LLP 

ON 

ISSUES RELATED TO THE MODIFICATION OF 

CAPS ON LIABILITY IN THE OIL POLLUTION ACT OF 1990 

BEFORE THE 

U.S. SENATE COMMITTEE ON ENVIRONMENT & PUBLIC WORKS 

JUNE 9,2010 

Good morning, Chairwoman Boxer, Ranking Member Inhofe and distinguished members 

of the Committee. I am Vincent Foley, a partner in the maritime practice group of Holland & 

Knight LLP. My specialty within the group is environmental liability and oil spill litigation. In 

practice, I have represented primarily ship owners, charterers, oil companies, and insurers of 

maritime risks. I have been asked to prepare this statement to identify issues which relate to 

modification of the limits of liability in the Oil Pollution Act of 1990 ("OPA"). 

1 describe below the compensation and liability scheme set up by the OPA. The OPA 

creates strict liability for designated responsible parties up to prescribed limits set forth in the 

statute. For vessels, the limits are calculated by multiplying a dollar figure by the gross tonnage 

of the vessel to arrive at the overall limit. For an offshore facility, the overall limit is set at $75 

million but there is no limit on removal costs. 

In the event oil pollution claims for a particular incident exceed the OP A limits, the 

National Pollution Fund Center ("NPFC") pays claims from the Oil Spill Liability Trust Fund 

(the "Trust Fund") up to a maximum of$1 billion per incident. The Trust Fund is sourced by an 

eight cents per barrel tax on petroleum produced in or imported into the United States. 

The OPA also has provisions which call for unlimited liability in the event the 

responsible party acts with gross negligence or willful misconduct, violates an applicable federal 

safety, construction or operating regulation, or after an oil spill fails to report or cooperate with 

authorities or without sufficient cause fails to follow a governmental order. State law may also 

provide unlimited liability for an oil spill. The OPA expressly provides that individual states 

may legislate to create supplemental liability for oil pollution damages. Twenty-six states and 

territories have enacted legislation imposing oil spill liability in excess of the OPA limits, and in 

several cases unlimited strict liability. 

As part of the liability scheme, participants in the industry are required to submit 

evidence of financial responsibility sufficient to pay claims up to the OP A limits. As a practical 

matter, this requirement is usually met by provision of a certificate from a qualified insurance 

company agreeing to act as a guarantor of the OPA liability limit for a vessel or facility. The 

guarantor must agree to direct action lawsuits from claimants. The financial responsibility 

requirement ensures that compensation funds are immediately available from the responsible 

party to pay claims for damages and removal costs. 

A dramatic increase in the OPA limits of liability or removal of current limits of liability 

entirely could seriously disrupt the existing compensation and liability scheme for oil spills. 
132 

STATEMENT OF VINCENT J. FOLEY 

JUNE 9, 2010 

Page 2 of7 

Such an increase also may jeopardize the ability of most companies to provide evidence of 

financial responsibility as required by the statute. Careful consideration should be given to study 

the effects of modifications to the OPA limits of liability including comparison to other 

prominent jurisdictions worldwide, which balance the interests of industry participants with 

protecting the environment and providing adequate compensation for oil pollution claims. 

Oil Spill Liability- Federal Law 

The OPA is the primary federal statute dealing with liability and compensation for the 

discharge of oil in navigable waters of the United States. The statutory scheme for oil pollution 

also includes the Federal Water Pollution Control Act (FWPCA) which provides for both 

mandatory and discretionary civil and criminal penalties against the owner, operator, or person in 

charge of a vessel that discharges a prohibited amount of oil or hazardous substances into 

navigable waters. In addition to the OP A limits described below, the FWPCA provides for civil 

and administrative fines on a per-day per-barrel basis under with no limit of liability. 

There are several other federal statutes which provide for criminal penalties arising out of 

an unlawful discharge of oil including, for example, the Act to Prevent Pollution from Ships 

(APPS), 33 U.S.C. § l908(a), the Refuse Act, 33 U.S.C. § 407,411-413, and the Migratory Bird 

Treaty Act, 16 U.S.C. §§ 703-711. Criminal prosecutions can have a decisive impact on 

enforceability of limitations of liability for two reasons. First, if the company is convicted, the 

civil standard to pierce limits of liability is often met. Second, if the company seeks to enter a 

guilty plea, the company will usually have to acknowledge facts which undermine what would 

otherwise be a right to limit liability. This statement will focus on the civil liability and 

compensation scheme created by the OPA. 

The primary objective of the OPA is to provide compensation to claimants from oil spills 

in U.S. navigable waters. Under the OPA, strict, joint and several liability is imposed up to 

statutory limits against the Responsible Party (RP) for a vessel or facility from which oil is 

discharged or which poses a substantial threat of discharge into navigable waters of the United 

States. For a vessel, the RP means any person owning, operating or demise chartering a vesseL 

Basically, this "operator" liability may be imposed on any person or corporation which exercises 

the day-to-day management or control over the vessel. For an offshore facility, the RP means the 

lessee or permittee of the area in which the facility is located or the holder of a right of use or 

easement under applicable state law or the Outer Continental State Lands Act for the area in 

which the facility is located. · 

OPA Compensation Scheme and Claims Process 

The OPA created the Oil Spill Liability Trust Fund (the Trust Fund) which provides 

compensation to injured parties for removal costs and damages resulting from an oil spill. The 

Trust Fund is managed by the National Pollution Funds Center (NPFC), an administrative 

agency of the United States Coast Guard. The NPFC administers the Trust Fund and acts as the 

implementing agency of the OPA. The Trust Fund is primarily sourced by an eight cents per 

barrel tax on petroleum produced in or imported to the United States. In addition, the Trust Fund 
133 

STATEMENT OF VINCENT J. FOLEY 

JUNE 9, 2010 

Page 3 of7 

receives income from transfers from other pollution funds, fines, penalties, accrued interest and 

cost recovery from RPs. 

Upon receiving notice of an oil spill, the NPFC designates one or more RPs for the oil 

spill, and provides notice to potential claimants of the RP's claims process in order to facilitate 

and expedite payments to injured parties. The OPA provides a two step process for claimants 

seeking compensation. First, a claimant may seek compensation directly from the strictly liable 

RP or its guarantor. Second, if the RP does not settle the claim within 90 days, the claimant can 

either seek compensation through litigation against liable parties (including the RP) or submit the 

claim to the NPFC for adjudication and payment from the Trust Fund. Upon payment, the Trust 

Fund will be subrogated to the rights of the claimant against the RP. The Trust Fund has a 

fiduciary duty to ensure that when payments are made it is done on the basis of adequate 

supporting documentation. Claimants requesting compensation for lost profits or earning 

capacity must establish that property or natural resources were injured or lost and that the 

claimant lost income as a result of the oil spill. 

In the event a RP is not immediately identified, the NPFC itself starts the claims process 

for potential claimants. The NPFC is also available for RPs to submit claims under 

circumstances where payments have been made by the RP in excess of its statutory OP A limits. 

In general, the maximum payout available from the Trust Fund for any one incident is$! billion 

or the balance of the Trust Fund, whichever is less. 

OPA Liability ofRP for Removal Costs and Damages 

Subject to certain statutory limitations addressed below, the RP is liable for all removal 

costs including the costs to prevent, minimize, or mitigate oil pollution, and the following 

categories of damages (including interest accrued on OPA claims prior to judgment): 

(i) injury to natural resources, 

(ii) injury to real or personal property (including economic losses resulting from that 

injury, and loss of subsistence use of natural resources); 

(iii) loss of revenues on the use of natural resources or real or personal property and 

(iv) loss of profits or impairment of earning capacity resulting from such pollution, 

and the costs of providing additional public services during or after removal 

activities. 33 U.S.C. 2702 (b). 

A RP has very limited defenses to liability, which are available only if the RP can 

establish, by a preponderance of the evidence, that the oil spill was caused solely by (I) an act of 

God, (2) an act of War, or (3) an act or omission of a third party (other than an employee, agent 

or contracting party of the RP). The RP is not entitled to these defenses if it fails to report the 

incident, fails to provide all reasonable cooperation in response to the spill, or fails to follow a 

governmental order. Even if the RP has a defense, it still must pay the removal costs and 

damages to any claimant, and may only recover its expenditures through subrogation against a 
134 

STATEMENT OF VINCENT J. FOLEY 

JUNE9,2010 

Page 4 of7 

third party or the Trust Fund after payment. In addition, an RP is not liable to a claimant if the 

injury resulted from the claimant's gross negligence or willful misconduct 

OPA Limits of Liability 

OPA imposes strict liability for removal costs and damages against an RP up to the 

statutory limits set forth in the statute. Pursuant to the statute, OPA's liability "shall be imposed 

notwithstanding any other provision or rule of law." This has been interpreted to mean that the 

Shipowner's Limitation of Liability Act of 1851 (the "Act") (which limits liability of the owner 

to the post-incident value of the vessel plus pending freight and creates a separate fund for 

personal injury claims) does not apply to limit or circumscribe OPA removal costs and damages 

claims. This Act may, however, be invoked by the vessel owner to limit non-OPA claims such 

as property damage or personal injury caused by the incident (as opposed to resulting from the 

oil spill). 

A Mobile Offshore Drilling Unit ("MODU") like the Deepwater Horizon may be 

considered a vessel or an offshore facility underthe OP A. The OPA's definition for "facility" 

includes any structure used for the purpose of "exploring for, drilling for, producing, storing, 

handling, transferring, processing, or transporting oil." For an offshore facility, the overallthe 

OP A limit is $75 million for damages plus the total of all removal costs. When the MODU is 

operating as an offshore facility (drilling a well as opposed to underway moving between drill 

assignments),the OPA allocates liability between the owner of the MODU and the lessee or 

permittee of the offshore facility. In this case, the MODU is first treated as a tank vessel and its 

limit of liability is calculated by multiplying its gross tonnage by $2,000. For excess liability 

over that limit, the lessee or permittee of the offshore facility is liable up to the overall limit of 

$75 million plus all removal costs. Although liability for removal costs for an Offshore Facility 

is unlimited, the limit of liability for damages of $75 million for an offshore facility has not been 

adjusted since the OP A was enacted in 1990. The current OP A limit for onshore facilities and 

deepwater ports is $350 million. 

In contrast, the OP A limits of liability for vessels have been the subject of two recent 

increases. The first was the Delaware River Protection Act of 2006 which increased existing 

OP A limits for vessels and increased payments to the Trust Fund by responsible parties. This 

Act also provided for inflation-based increases to the OP A limits to be implemented by 

regulation every three years and imposed additional reporting requirements to the Congress by 

the executive branch on the effectiveness of these increases. The second increase carne into 

effect when the Coast Guard adopted its final rule on February 2, 2010 to increase the limits of 

liability for vessels that apply under the OP A to reflect significant increases in the Consumer 

Price Index ("CPI"). 

A RP may lose its OPA limits of liability under the following circumstances: 

(i) gross negligence or willful misconduct; 
135 

STATEMENT OF VINCENT J. FOLEY 

JUNE 9, 2010 

Page 5 of7 

(ii) violation of applicable federal safety, construction or operating regulations by the 

RP, its agent or employee, or a person acting pursuant to a contractual 

relationship with the RP. 

There are a multitude of very specific federal safety, construction and operating regulations 

applicable to vessels and facilities which provide a basis to deprive an RP of the OPA limits for 

breach of a regulation which caused the oil spill. This broadly worded exception to the OP A 

limits has the potential to subject an RP to unlimited liability albeit without the financial 

guarantee in place to pay the excess liability. 

In addition, a RP may be considered to have waived its OPA limits for failure to report an 

oil spill, or failure to provide all reasonable cooperation requested by a responsible official, or 

failure without sufficient cause to comply with an order issued by a governmental authority. 

Evidence of Financial Responsibility for OPA limits 

The OPA requires vessels and offshore facilities to establish and maintain evidence of 

financial responsibility sufficient to meet the maximum amount of liability resulting from an oil 

discharge imposed under the statute. Financial responsibility may be established by one or any 

combination of the following methods: (1) evidence of insurance; (2) surety bond; (3) guarantee; 

(4) letter of credit; (5) qualification as a self-insurer. For guarantors, the OPA requires a 

statement agreeing to be subject to direct action claims from the government or injured claimants 

who have been denied payment by the RP. A vessel typically meets the financial responsibility 

requirement by carrying, and filing with the U.S. Coast Guard, a Certificate of Financial 

Responsibility (COFR) which identifies an approved guarantor to be liable up to the vessel's 

OPA limit. For an offshore facility, the Marine Mineral Service (MMS) has issued Oil Spill 

Financial Responsibility (OSFR) rules which extend the OPA requirements of financial 

responsibility to certain Covered Offshore Facilities (COFs). 

Supplemental State Law Liability for Oil Spill 

The OP A expressly preserved the rights of states to legislate beyond the federal limits set 

forth as the statute. Any state or its political subdivision may impose additional liability or 

requirements with respect to the discharge of oil or removal activities. As a result, there are local 

spill statutes which exist in twenty-six states and territories which contain liability provisions for 

oil spills. Several of the state oil spill laws contain provisions for unlimited strict liability for 

clean up and removal costs, for example Alaska, California, and Maine. Of the states potentially 

affected by the Gulf Coast Disaster, Texas, Louisiana, and Florida have laws imposing strict 

joint and several liability. Conversely, Mississippi and Alabama do not impose limitations on 

liability, nor do they have oil pollution laws imposing strict liability. 

Adequacy of OPA Federal Liability Scheme supplemented by State Law 

The industry experience with oil spill litigation under the above described federal and 

state law scheme has been positive. The federal OPA limits of liability in the vast majority of oil 

spill incidents provide adequate funds from the RP to compensate claimants injured by the oil 
136 

STATEMENT OF VINCENT J. FOLEY 

JUNE9,2010 

Page6of7 

spill. In the exceptional cases where liability exceeds the OPA limits, the NPFC is in place to 

make payments from the Trust Fund (sourced primarily by a petroleum tax) which becomes 

subrogated to the rights of such claimants to recover from RPs or third parties who may be 

responsible for the damages. 

A U.S. Coast Guard report on implementation of OPA 90 during the period of FY 

1993-FY 2004 indicated that there were seventeen (17) incidents during this period for which the 

costs of the incident are known to have exceeded the OPA limits. Report on the Implementation 

of OPA 90, http://ww.uscg.millnptc/docs/PDFs/Reports/osltf report.pdf. All of the incidents 

involved vessel spills. Seven (7) of the Seventeen ( 17) incidents generated claims to the Trust 

Fund for reimbursement from the RP for payments made in excess of the OPA limits. The 

remaining ten (l 0) incidents did not result in a reimbursement request from the RP due to 

criminal liability, DOJ settlement, gross negligence, and/or violation offederal regulations. 

Comparison of OP A Regime to International Civil Liability and Fund Conventions 

The OPA limits compare favorably to similar provisions of the Civil Liability and Fund 

Conventions (CLC), which have been adopted by most other jurisdictions worldwide (1 04 as of 

May 4, 2010) with the U.S. being a notable exception. One reason for the U.S. not acceding to 

the amendments to the CLC and Fund Conventions in 1992 was the higher OPA limits already in 

place at the time the conventions were amended. 

By way of example, the OPA limit for a 50,000 ton vessel (other than a tanker) would be 

$50 million (50,000 gross tons at $1000 per gross ton) and the CLC limit would be 

approximately $42 million (Special Drawing Rights (SDR) 4.51 million plus SDR 631 per every 

ton over 5,000 tons). For a tank vessel, the OPA limit would be $100 million (50,000 tons at 

$2,000 per gross ton), more than double the CLC limit. In both the OPA and CLC regimes, the 

Emergency Funds (i.e. Trust Fund and CLC Fund) which provide compensation to injured 

parties over and above the limits of liability are sourced by an industry tax on petroleum 

products. As noted above, for the Trust Fund, the maximum payout per incident is $1 billion 

while the CLC Fund has a multi-tiered compensation system providing compensation up to $305 

million with a supplementary fund available (for certain signatory states) for up to $1.126 billion. 

Consideration for Increase in OPA Limits 

In considering whether to increase the OPA limits of liability, it is important to 

thoroughly study the implementation of OP A and the overall liability and compensation regime. 

Industry participants including owners and operators of vessels, agencies such as the U.S. Coast 

Guard, and various stakeholders in the aftermath of an oil spill could be adversely affected by a 

precipitous change in existing OPA limits with no corresponding benefit in terms of victim 

compensation or deterrence of future spills. If such changes are not carefully studied and slowly 

implemented, the reaction from industry participants could have unintended consequences 

including disrupting U.S. oil imports. An increase in the OPA limits would require vessel 

owners to pay additional insurance premiums in order to continue to provide and maintain 

evidence of financial responsibility to meet the new increased limitations. As a practical matter, 

small and mid-sized independent tanker owners transport a majority of all imported petroleum 
137 

STATEMENT OF VINCENT J. FOLEY 

JUNE9, 2010 

Page 7 of7 

products to the United States. For these owners and operators, insurance and other evidence of 

financial responsibility required by the OPA are affordable only because of the relatively 

inexpensive and generally available mutual protection and indemnity pollution insurance of up to 

$1 billion per incident. Protection and indemnity clubs are associations of vessel owners joined 

together to pool mutual liabilities falling on their individual members. Mutual insurance 

provides security and stability to maritime trade because the claims of individual owners are not 

secured by a single insurer, but instead are collectively insured by the owners of 92% of the 

world's ocean-going tonnage if a claim exceeds a certain amount. 

A dramatic increase in the OP A limits and the concomitant requirement for these owners 

and operators to provide evidence of financial responsibility for higher limits could result in this 

insurance coverage not being available through protection and indemnity clubs, and therefore the 

necessary pollution insurance would not be available at all to small, mid-size, and even most 

large operators. Such excessive additional insurance costs would force many of these operators 

out of business leaving only major players (to the extent any are willing to engage in oil 

transport) who can self-insure or otherwise afford to meet the financial responsibility 

requirements. Ultimately, the additional premiums for increased liability limits will have to be 

passed on to consumers in the form of increased prices for oil products in the United States. 

Careful consideration should be given prior to legislating an increase in the present OPA 

liability limits which, based on industry experience, are an essential part of a functioning and 

reliable system for compensation of injured claimants. The OP A has built-in mechanisms to 

supplement liability for the exceptional oil spills including broadly worded exceptions to the 

OPA limits for violation of federal safety, construction, and operating regulations and the 

potential for unlimited supplemental state law liability. 

Thank you for the opportunity to provide this testimony. 

# 9510272_vl 
138 

Senator INHOFE. Mr. Baron, I don’t think there is a Member of 

Congress who doesn’t agree that the limits that were put in place 

back during the Exxon Valdez—I happened to be in the House at 

the time. I actually went up there. I am very familiar with the 

process that took place. But that $75 million is too low, we all understand that, and it certainly needs to be changed. And I made 

that very clear on the floor when I objected to the Menendez motion on the $10 billion. I think that is arbitrary. 

But let me just ask you, this is kind of hard to answer, but kind 

of guess with me on this. If we were to raise that to $10 billion 

or eliminate the caps altogether, about how many companies, 

roughly, would be left to explore and produce in the Gulf? 

Mr. BARON. I am really not in a position to comment about how 

many companies would be left. I can say that from an insurance 

market standpoint, there is not sufficient capacity to provide companies insurance protection to limits which are being proposed. 

Senator INHOFE. Well, the big five, I would contend, and this is 

an argument I made on the floor, may be the last ones, along with 

the national oil companies, if it were raised to $10 billion. Do you 

strongly disagree with that? 

Mr. BARON. No, I do not. 

Senator INHOFE. And BP is one of the big five. In other words, 

if we raised it up, I would say this would put them in a more advantageous position than they would be in today. That is my opinion. 

If that were raised up there, how many of the independents, let’s 

take the next step down below the five majors, would be able to 

purchase insurance to be able to operate? 

Mr. BARON. Well, again, there is not sufficient capacity from the 

insurance market to meet these proposed limits, and I believe that 

then you would have to rely on their balance sheets and their ability to demonstrate the financial responsibility test. 

Senator INHOFE. Yes. My concern and the reason for mentioning 

this is that I am one of these few in Congress who believes in order 

to run this machine called America we have to have fossil fuels. 

And one of the great sources is offshore. I know a lot of them, in 

fact we are suppliers in my State of Oklahoma, as are many who 

are out there. And it would appear to me that if we were to take 

the cap altogether off it could be instituting a de facto ban on offshore drilling. Do you think I am unreasonable in coming to that 

conclusion? 

Mr. BARON. No, Senator. 

Senator INHOFE. Mr. Hartman, you used a term that I asked the 

staff about, and I wasn’t familiar with it and they weren’t either. 

Maybe you could help us out. You said Alternative Funds Act or 

Fines Act. What were you saying? Would you repeat that? 

Mr. HARTMAN. The Alternative Fines Act is under title 18 of the 

U.S. Code, and it gives a court the discretion to fine anyone convicted of a covered crime an amount equal to twice the economic 

harm caused by the crime or twice the economic gain as a result 

of the crime. That has been on the books for a number of years. 

It was the statute that was used in the Exxon case that resulted 

in the $1.1 billion resolution instead of $25,000 a day. 
139 

Senator INHOFE. I see. Well, that is interesting. Our staff is going 

to look into that because as we progress on this thing that might 

be a place to be looking. 

Let me ask you a question that I think is very basic, and maybe 

everyone knows the answer but me. Many years ago I was a claims 

adjuster. That is what I did for a living. Establishing losses is 

something that is not an easy thing to do. Under the CRS report 

there are six categories of economic losses and different types of 

economic losses and natural resource damages. I have put them in 

those two categories because I think that is where this comes in. 

And I would like to have you tell us first of all the relationship 

between the way the current claims process is operating and the 

current liability cap. Would this bill as written or any other bill 

that simply raised or removed the cap altogether have any effect 

on the claims process? 

Mr. HARTMAN. In partial response, and the Chairman made the 

observation about what happened in Alaska, of course, that was before OPA was passed. And one of the purposes of the Oil Pollution 

Act and that process is to provide a quicker and more expeditious 

claims process. And the incentive for people to go into that process, 

at least in my experience, is that it is easier to prove the loss and 

the damages in that process than it is in court, and you don’t have 

to prove liability that you have to prove in court. 

Senator INHOFE. I see. 

Mr. HARTMAN. But of course, that process is only available for 

claims under OPA. If I understand your question, if you expand or 

make it an unlimited liability amount, I suppose more claims, if 

there are claims beyond $75 million, could go to that fund. Hopefully, it would create an incentive to make more people go to the 

fund and they wouldn’t have to wait 20 years for recovery by having to go to court. 

I don’t know if I have answered you. 

Senator INHOFE. Yes, you have. And all the way through this 

thing, I have been wondering when they talk about economic damages, that sounds good. That sounds easy. And certainly you folks 

know what economic damages that you would feel you would be entitled for some kind of remedy or recovery, but it is not an easy 

thing to address. It is very complicated. 

OK, for the record I would like to ask you to submit to me some 

of the complications in determining economic losses, as well as natural resources damages. Is that fair? 

Senator LAUTENBERG. I have no objection. 

Senator INHOFE. OK. Good. Thank you very much. 

Senator LAUTENBERG. Thanks very much. 

I am going to turn my question period over to Senator Klobuchar, 

and we will continue. I will pick up after that. 

Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Senator Lautenberg. 

And thank you to all the witnesses, and thank you for being patient. 

I just would like to hear from some of the people who are in the 

Gulf area. I am particularly, Mr. Minich, sympathetic about the 

tourism industry. That is the Subcommittee I chair on the Commerce Committee. I know what a rough time the tourism industry 
140 

has had. People don’t realize that one of eight people in this country is employed in tourism. Every percentage point we lose of tourism costs us 170,000 jobs in this country. 

So one of the things I was wondering about is how people are actually sort of feeling down in the Gulf. Do they truly believe that 

BP is going to compensate them? And are they aware of what happened with Exxon with that continuing lawsuit and how it took 20 

years for the fishermen, to our people from the fishing area, to collect their damages? And are they concerned about this? 

Mr. MINICH. A lot of folks in the tourism industry are not aware 

of the 20-year situation. We are all extremely, extremely worried 

about the situation. And there is no one in the tourism industry, 

if they get any compensation, they are not going to be fully compensated because we are seeing anywhere from 20 percent to 30 

percent reduction in reservations for the rest of the summer. Well, 

you can’t turn in a claim for that. That is just lost business. It is 

gone. 

In our county, we are tracking dollar amounts for cancellations. 

If they are canceling an entire week’s stay, we have a dollar 

amount that we can put toward that. 

But the situation, too, is that there is so much uncertainty with 

this particular spill and where it is going and what it is going to 

do and how long it is going to be around that. Twenty percent of 

just Pinellas County alone, 20 percent of our summer business is 

European. And they don’t want to make that long haul flight and 

come over here and have something happen. 

So we are very concerned. The tourism industry in Florida was 

just making the turn from the last 2 years of the terrible economy. 

We felt really good about things in April. The indicators were up. 

Everything was positive, and then this thing hits April 20th, and 

it was downhill from there. 

Senator KLOBUCHAR. And the fishing perspective on this? 

Mr. FRENETTE. What I certainly can say, and reiterate what he 

just said, but since April 20th and about 5 or 6 days after that, our 

area, which was immediately impacted, the estuary, was completely shut down for fishing. My business was completely shut 

down. 

Senator KLOBUCHAR. I have no doubt about the damages. I am 

just wondering if people believe some extra protection would help 

them. Or do they think BP is just going to pay? 

Mr. FRENETTE. I think everybody has a lot of doubts, a lot of 

questions, especially from what happened with Valdez. Pretty 

much everybody in our area is aware of that and how long it took. 

We are really concerned about comments that have been made by 

Mr. Hayward from the inception of this accident. And quite honestly nothing really has been done yet other than a small disbursement of checks to some people. It is hard. Do I have complete faith? 

Absolutely not. 

Senator KLOBUCHAR. All right. My other perspective, just from 

being not in the Gulf region, being a land of 10,000 lakes as opposed to the Ocean State of Rhode Island, is just that the taxpayers 

of my State and others not have to pay for this when BP clearly 

made some decisions that were wrong decisions. 
141 

And I am again wondering if we don’t raise the cap, who do people think is going to pay for this? Is it the taxpayers? 

Mr. Baron, do you think the taxpayers should be paying for this? 

Mr. BARON. No, I don’t. 

Senator KLOBUCHAR. All right. So you believe that BP should be 

paying for it? 

Mr. BARON. Yes. 

Senator KLOBUCHAR. All right. Then our concern here, as expressed by people in the communities, is just that we have to make 

sure that they pay for it. 

The last series of questions I want to ask is just about this incentive going forward, which I identified in my opening statement. If we are going to have a $75 million cap, and BP made $16 billion last year, how is it an incentive for them to take safety measures, we know it is now, but in other ways going forward, if we 

don’t at least have a realistic cap for the damage that it causes? 

And I wondered, Mr. Murchison, if you would comment about 

that incentive issue. I believe that if you bask in the rewards and 

make $16 billion a year, you should also have some liability for 

this. As I said yesterday at our Judiciary hearing, if an ethanol or 

a biofuel plant blew up in the middle of a corn field in Minnesota, 

they would be liable. If a wind turbine or a solar panel created 

some damage, they would be liable. And you don’t have those kinds 

of incentives in place when you put this cap that is so disproportionate to the damage cost. 

Mr. MURCHISON. And BP is going to be making money from this 

field long after they have quit restoring the fisheries of south Louisiana. When we are talking about people in south Louisiana going 

broke, we mean really going broke. 

Senator KLOBUCHAR. OK. 

Mr. Hartman, do you just want to add to that? 

Mr. HARTMAN. Only that under current law, first of all, that 

cap—to the extent it is a cap—disappears if there is a violation of 

any Federal safety construction or operational regulation, any one. 

And so to the extent you are concerned about the liability cap issue 

and risk taking, current law addresses that. Plus, there is also an 

exception if they don’t follow any reasonable order of the Government. 

And as I said before, regardless of the cap, under State law, it 

doesn’t exist and under these other provisions like the Alternative 

Fines Act, there is no cap, not to mention the other sanctions that 

could be available. 

So I am just simply making the observation, as you think about 

that, think about the other existing incentives and how changing 

the cap would relate to those. That is all. 

Senator KLOBUCHAR. Thank you. 

Senator LAUTENBERG. We will keep the record open. 

Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. 

Let me ask a few questions about some of those other areas. 

Mr. Hartman, did you when you were at the Department of Justice ever engage in criminal prosecution of environmental cases? Or 

were you entirely on the civil side? 

Mr. HARTMAN. Criminal as well. 
142 

Senator WHITEHOUSE. Criminal as well. In terms of restitution 

under a criminal judgment, would there be any restriction on a 

judge imposing an order of criminal restitution above and beyond 

a civil liability cap, indeed, taking that civil liability cap into consideration in determining a criminal restitution order to make sure 

people were fully compensated? 

Mr. HARTMAN. I don’t believe under the Alternative Fines Act, 

for example, plus a judge’s authority as a condition of probation to 

deal with victim restitution, that there is any technical, legal limit 

on his or her ability to use those processes. 

Now, there are practicality issues as to whether it is appropriate 

to do it in a criminal process or whether it is going to unduly complicate the process. 

Senator WHITEHOUSE. Yes. 

Mr. HARTMAN. But in theory, it exists. 

Senator WHITEHOUSE. In theory, it is perfectly available. 

And are you familiar with the Rivers and Harbors Act? 

Mr. HARTMAN. I am. 

Senator WHITEHOUSE. That is a criminal statute. 

Mr. HARTMAN. There is a criminal provision in that. 

Senator WHITEHOUSE. And it provides a very low standard. It 

doesn’t require negligence. It is simply a discharge that is not permitted. Correct? 

Mr. HARTMAN. It is strict liability, like the Migratory Bird Treaty 

Act and the Refuse Act. That is correct. 

Senator WHITEHOUSE. So in effect, from a prosecutor’s point of 

view, if you can prove the act, the rest of it is a lay-down hand. 

Mr. HARTMAN. It certainly is an easier case than proving one 

when you have intent. 

Senator WHITEHOUSE. Yes. Here is no mental standard required, 

no punitive mens rea. 

Mr. HARTMAN. That is correct. 

Senator WHITEHOUSE. With respect to State law, before we had 

the North Cape-Scandia in Rhode Island we had the World Prodigy, which went ashore at Brenton Point and also did considerable 

damage. I was in the Attorney General’s office then, as a young 

lawyer. And in that case there was the application of a doctrine 

called the Robins dry dock rule which bars recovery for economic 

damages in cases of an unintentional maritime tort. There are 

some specific limitations for things like commercial fishermen, but 

shore-based industries such as fish stores, hotels, those sorts of 

things seem to be exempted. 

These types of businesses tried to recover damages after that 

1989 World Prodigy spill, and their claims were dismissed in Federal Court in Rhode Island on the grounds that the court could no 

award economic damages under State law because that part of 

Rhode Island’s law conflicted with the Federal maritime law. 

So in that context I am just a little bit skeptical or have some 

questions about your claim that it doesn’t matter if we cap the 

damages because there is always the State law. At least this decision that took place in Rhode Island a Federal Court essentially 

barred State law actions because of that restriction under Federal 

maritime law. 
143 

Is there not risk that a similar decision would pertain with respect to damages above the OPA cap? 

Mr. HARTMAN. I haven’t studied that, frankly. I don’t believe that 

was a factor. I may be wrong about this. I don’t believe that was 

a factor in the claims made by fishermen in the Exxon case. I just 

don’t remember why. I am sorry. 

Senator WHITEHOUSE. Professor Murchison, can we all agree 

that—actually I think we had President Galligan. Does he still 

teach at your school, or did he use to? 

Mr. MURCHISON. He is now the President of Colby-Sawyer College. 

Senator WHITEHOUSE. President of Colby? 

Mr. MURCHISON. But he was a colleague of mine for 12 years at 

LSU. 

Senator WHITEHOUSE. He was before the Judiciary Committee 

yesterday. He was a wonderful witness, by the way, as were you. 

So well done, Hebert Law School. 

Is there any doubt that as a matter of corporate law a corporation has a solemn obligation to its shareholders to maximize its 

economic return? 

Mr. MURCHISON. I am not a corporate law scholar, but that is 

what I remember from law school, Senator. And I think so. 

By the way, I did briefly ask President Galligan about the question you are asking. He wouldn’t concede that there is no possibility of State law applying to that claim because there is some admiralty doctrine that might be incorporated, but he did see that as 

a risk of not applying State damage law, particularly to a spill that 

occurred as far offshore as this particular one did. It is not clear 

about the reservation of State law authority for an oil spill that occurs out in the exclusive economic zone. 

Senator WHITEHOUSE. But lifting the damage cap would be nice 

and clear. 

Mr. MURCHISON. That seems to be the basic idea is what everybody seems to agree ought to happen, would happen. That is, BP 

pays for the economic damages and for the long term. You know, 

long after my lifetime, they are going to be working to restore the 

fisheries. That is the most prolific fishery area in the world. 

Senator WHITEHOUSE. Thank you very much. My time is expired. 

Thank you, Chairman, for your courtesy in allowing me to go 

ahead of you. 

Senator LAUTENBERG. Thank you. 

You have heard from one of our distinguished lawyers, a former 

U.S. Attorney and a legal scholar. I have the good fortune of not 

being any of those things. I come from the business world, and I 

ran a fairly good sized company before I came here. I knew one 

thing that though we had obligations to shareholders, we also had 

obligations to employees. We also had obligations to clients. We 

also had obligations to the community in which we existed. 

So there are all kinds of things, including the fact that you have 

a moral obligation, I think, to operate honestly to the fullest extent, 

period. That is where I come in. 

Mr. Kopchak, it is very interesting to hear that you were also in 

a black cloud, first to Cordova and now to the Gulf. I was in Cordova, and I arrived at the most 3 days later after the Exxon Valdez 
144 

ran aground. I was Chairman of the Subcommittee on Coast Guard 

at the time. So they rushed me up there. 

And I saw tragedy dressed in the most beautiful colors you ever 

saw because as the oil skimmed over the water, the color, the kaleidoscope of color was quite a thing to see. But then to see employees 

of the Federal Government from Fish and Wildlife, the Park Service, Interior, caressing the birds and the ducks and the seals with 

a cloth to try and save their lives was quite a touching experience. 

I didn’t see any joy in Alaska at that time, I must tell you. For general information, Exxon in 1989 made $3.8 billion, 1989; equivalent today to about $6 billion in earnings. And fighting all 

that time to me shows a general contempt for the public at large 

because they fought the punitive claim, the $5 billion claim over 

these years; got it down to $500 million; instead of stepping up to 

the good citizenship obligation they have in this monopoly virtual 

situation, commodity situation that they had. It shows an attitude 

that is distressing, and I think we see the same thing here with 

BP. 

Mr. Baron, I think you were wonderfully candid when you said 

that there is a finite amount of liability that can be covered, period, 

which says to me—and any who disagree, I would appreciate expression—that says that maybe this is an enterprise that has never 

been fully paid for. If we say, if it is suggested that the taxpayers 

ought to be the last recipient of the bill for damages that others 

caused, we are not the kind of society that we think we are. And 

it is absolutely unjust, in my view. 

Mr. Hartman, you say, well, let’s not rush into this. Let’s look 

at all of the possibilities out there. Is there enough justification to 

say that profits from offshore drilling ought to be able to pay for 

their mistakes? Or is the taxpayers’ obligation to bear the risk for 

mismanagement? 

Mr. HARTMAN. I am not sure I quite understand what you are 

asking. 

Senator LAUTENBERG. Well, what I am asking—you are suggesting, give it time. Did I misunderstand what you said? Give it 

time so that we can see absolutely where the fault lies and State 

laws, et cetera? 

Mr. HARTMAN. No, if that was what I said, then I misspoke. That 

wasn’t certainly what I intended. I am only suggesting that in considering what to do with the liability cap, just consider how it implicates other provisions of the law because it is a complicated 

question. In the financial assurances, for example, you can’t have 

unlimited financial assurances. Nobody will write that, I don’t 

think. 

So if you want to make sure there is somebody there that can 

pay, you have to say, well, how much do you have to pay? Well, 

make sure you can pay everything. Well, that is fine, but there is 

a provision of the law that says you have to show financial assurance up to some level. You have to change that provision if you are 

going to change it to unlimited liability. 

Just an example of how things relate. I am simply saying look 

at these things carefully because they are complicated. That is all. 

Senator LAUTENBERG. Here we have heard this very frankly 

heart wrenching testimony from people who were directly affected 
145 

and whose families’ lives have changed forever. Where is that cost 

borne? They are innocent bystanders. When I listened to Mr. 

Frenette, you define over $2 billion worth of contributions from 

shrimp and other parts of the industry, some of it commercial, 

some of it recreational. We start off with over $2 billion, $2.5 billion worth of contributions just from those activities. Where does 

this get paid for? 

The notion of $10 billion coverage by my distinguished colleague 

from New Jersey was almost immediately eliminated because we 

knew very well the common expectation that this is so far above 

$10 billion that just take the cap off. You did it? Pay for it. 

And so Mr. Minich, when you described the kinds of losses contemplated, how do these things get paid for? 

Mr. MINICH. Senator, Senator Boxer read from the application 

that BP did for this rig, and it said that if there was any kind of 

spill, they could cap it. And they haven’t been able to cap it. They 

have not capped it. So why would we cap the limitations on their 

liability? I mean, that is just the bottom line. There should be no 

cap on their liability. They can’t cap this thing. Why would we cap 

their liability? 

Senator LAUTENBERG. Well, what we have seen when we look 

back at history and the trip for me to the foundering Exxon Valdez 

is just brought home by Mr. Kopchak. The fact is that the herring 

species are gone. There is a depletion of it and some of the other 

quantities of fish available there. There has been a shift. 

I saw something on television the other day that had a fellow 

with a shovel picking up rocks that were still covered by oil, so the 

damage is virtually permanent. How do these things get done, Professor? How will you get these things restored? Who pays for it? 

Where is the obligation to clean up after you mix things up? 

It was mismanagement, obviously here, and I will draw a conclusion, that said OK, we are going to take the less protective area. 

It costs less, and we will be able to do what we have to. 

But when I asked the three witnesses that we had there one day 

from BP, from Transocean, from Halliburton whether it was anybody’s fault there, whether the spill was anybody’s fault, everyone 

said, well, no. 

Well, whose fault is it? Is it the fault of the American public who 

need the nutrition, the recreation, the livability? Whose fault is it, 

Professor? 

Mr. MURCHISON. Well, I think that is why the oil pollution damages are a no fault liability. I think the exactly the purpose of it 

was so that we didn’t sit around arguing about that. We defined 

a responsible party by certain functions they operated. And to be 

honest with you, Senator, long after you and I are gone, it will be 

working on this fishery in south Louisiana. 

Senator LAUTENBERG. I don’t know whether that is a prediction 

for me, but so far we are doing pretty good. 

I guess, Mr. Hartman, you are unwilling to say that BP is responsible for the spill in any way? 

Mr. HARTMAN. I am not saying that at all, Senator. Technically 

under the law, they are the responsible party under OPA. I was 

only asked to give you my views on how the cap system worked to 
146 

make sure that you have information that might be relevant to 

your consideration. 

Senator LAUTENBERG. I just wanted to be sure of the conclusions 

that we draw. By the way, your testimony, all of you, was excellent, clear. And you weren’t afraid, Mr. Frenette and Mr. Kopchak, 

to show the amount of pain and excruciating result that your families, your friends, your community is paying for this. We don’t often 

see that. People are usually steeled before they get here not to 

show any emotion. They tell us not to, but I have been here long 

enough it doesn’t matter. 

What we are going to do is we are going to keep the record open. 

You will get questions, I believe, in writing. And we are asking so 

that we can move ahead with the liability question altogether that 

we will have questions go out by 10 o’clock this Monday. And I 

would ask each of you if there are written questions to respond to 

those questions by noon on the following Thursday. 

With that, we will adjourn this Committee hearing and say 

thank you to each one of you for the work that you put into and 

for the clarity of your testimony. Thank you very much. 

[Whereupon, at 1 p.m. the Committee was adjourned.] 

[Additional material submitted for the record follows:] 
147 

DEC10!:>8 

111m coxmmss 

2D SESSIOX 

S.L.C 

s. 

To C'l'('ate a fair and effieient system to resolve tlaim~ of \ictims for economic 

injury caused IJ~· the Deepwater Horizon ineide11t, and to direct the 

Sceretary of the Interior to renegotiate the terms of the lease lmmm 

as ":\Iississippi Canyon :2.)~" \\ith respeet to daims relating to tlw 

Deepwater Horizon explosion and oil spill that exceed existing applieabk 

eeonomie liability limitations. 

I='J THE SE~i\TE OF THE UNI'fED STATES 

:\Ir. YlTT~;J{ introduecd the following bill; wliieli was read t\\iee and referred 

to the Conunittl'e 011 ____ _ 

A BILL 

To create a fair and efficient system to resolve claims of 

Yictims for economic injury caused by the Deepwater 

Horizou incident, and to direct the Secretary of the 

Interior to reucgotiate the terms of the lease kl101Y11 

as "l\Ilssissippi Canyon 252'' with respect to elaims relating to the Deepwater Horizon explosion and oil spill 

that exceed existing applicable eeonomie habilit~' limitations. 

1 Be it enacted by the Senate and House qf Representa2 t'iues of the United States ofilmerica in Congress assembled, 
148 

DECJOL>R S.L.C. 

2 

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

2 (a) SHOH'l' TITLE.-This Act may be cited as the 

3 "Acceptance of Offer on Liability and Expedited Claims 

4 at Mississippi Canyon 252 Act". 

5 (b) TABLE OF COXTEXTS.-The table of contents of 

6 this Act is as follows: 

See. 1. Short title; tablt' of contents. 

TITLE I-DEEPWATER IIOHIZO:'\ CLAI:\IS RESOIXTIO:\ 

See. 101. ji'imling-s awl purpose. 

See. 1 O:l. Dt,finitions. 

Subtitle "\-Offit·t> of Dt>t>pwatt>t' Horizon Claims Compensation 

St•e. 111. Estnblisltment of Offiee of Deepwate1· Horizon Claims Compt'HSatimt. 

See. ll:l. Claimant assistance. 

See. 11:1. Compensation ]ll'O!,Yl'Htn startup. 

See. 114. "\uthorit,l' of Atlministn1tor. 

Set·. 1 Li. ,\d,~sm·:· Committe<' on Dt>epwater Ilorizon Compens;ttion. 

Subtitle B-Dl'l'pwatt•r Ilorizmt Com])('Hsation Proel'dm·es 

See. l:ll. Essential ell'ml'nts of t>lig-ibl<' elaim. 

See. l :!~. Oeuclra! 1·nle eonl·<}l·ning· no-fnult ('Olnpensation. 

See. 12:j. Filing- of daims. 

Set·. U4. Eligibility detc•,·minntions ami daim mnmls. 

See. 1:n. Amount. 

See. 1:32. PaynwnL 

Subtitle C-Awanls 

S<•e. 1 :3:l. Setoffs flll' eo !lateral soun•<' eomp<'nsation and Jlrior awards. 

Oe(:. 1:34. Subrogation. 

Subtitle D--,Judieial Review 

See. 1 H .• JurlieialreYie\1· of mlt•s ami reg·ulations. 

See. 14:l. ,Juclieinl I'l'Yit'\\' of amml decisions. 

Sc•e. H:l. Otht>r judicial C'lwll<'Hgt'S. 

Subtitle E--Effed 011 Other Lm,·s 

Se<·. 131. EfT<•et on other lnws. 

TITLE II-LIABILITY 

S<'<'. :lOl. Liability for Dc•t•pwatcr Horizon oil spilL 
149 

DEC101~8 S.LC. 

:3 

1 TITLE I-DEEPWATER HORIZON 

2 CLAIMS RESOLUTION 

3 SEC. 101. FINDINGS AND PURPOSE. 

4 (a) F'IXDIXOS.-Congress finds that5 (1) the oil spill resulting from the Deep-water 

6 Horizon incident has caused major economic damage 

7 to the residents of the States bordering the Gulf of 

8 l\Iexieo; 

9 (2) the limits on strict liability imposed by the 

10 Oil Pollution Act of 1990 (33 U.S.C. 2701 et seq.) 

11 1vill be exceeded by the claims resulting from the 

12 Deepvvater Horizon ineident; and 

13 (:3) while the Oil Pollution Aet of 1990 (3:3 

14 U.S.C. 2701 et seq.) places no restrietions on liabil15 ity for damages from the aeeiclent under State la-w, 

16 litigation of such eases may take decades, and eon17 sume in litigation expenses funds that could othcr18 wise be used to quickly and efficiently compensate 

19 the citizens of the Gulf States for damages resulting 

20 from the Deepwater Horizon incident. 

21 (b) PrnPOSE.-The purpose of this title is to ercnte 

22 a fair and efficient system for the payment of legitimate 

23 present and future claims for damages resulting from the 

24 Deepwater Horizon incident. 
150 

DEClOL>S S.L.C. 

4 

1 SEC. 102. DEFINITIONS. 

2 In this title: 

3 (1) ADl\IIXISTRATOR.-The term "Adminis4 trator" means the Administrator of the Office. 

5 (2) AnVTSORY COl\IMITTEE.-The term "Advi6 sory Committee" means the Advisory Committee on 

7 Deepwater Horizon Compensation established under 

8 section 115(a). 

9 (3) CLAil\L-The term "elaim" means any 

10 claim, based on any theory, allegation, or cause of 

11 aetion, for damages presented in a civil action or 

12 bankruptcy proceeding, directly, indirectly, or dcriva13 tively arising out of, based on, or related to, in whole 

14 or ill part, the effects of the Deepwater Horizon in15 cident. 

16 ( 4) CLADIAXT.-'l'he term ''claimant" means a 

17 person or State vd10 files a claim under section 123. 

18 (5) CIVIL ACTIOX.-

19 (A) Ix OEXEIL\L.-'llhe term "civil aetiou" 

20 means a civil action filed in Federal or State 

21 court, whetlwr cognizable as a ease at law, in 

22 equity, or in admira.lty. 

23 (B) Excrxsrox.-The term "civil action" 

24 docs not inelude an action relating to an? ·work25 ers' compensation law. 
151 

DEC10L11l N.L.C. 

5 

1 (6) COLLATER.AL SCHTRCE COMPENSATION.-

2 The term "collateral source compensation" means 

3 the compensation that a claimant received, or is en4 titled to receive, from a responsible party as a result 

5 of a final judgment, settlement, or other pa~vment 

6 for damages that are the source of a claim under 

7 section 12:3, including payrnents made under the Oil 

8 Pollution Act of 1990 (:3:3 U.S.C. 2701 et seq.). 

9 (7) Co:\IPEXSATIOX PROGRA.:\L-'l'hc term 

10 "compensation program" means the compensation 

11 progTam established under this title. 

12 (8) DA:\L\GES.-The term "damages" mpans 

13 damages specified in section 1:31(b), including the 

14 cost of assessing those damages. 

15 (9) DEEP\VATEH HOIU.ZON INCIDEXT.-The 

16 term "Deep,vatcr Horizon incident" means the blcrw17 out and e:~q)losion of the Deepwater Horizon oil rig 

18 that occurred on April 20, 2010, and resulting hy19 droearbon releases into the environment. 

20 (10) DEPA.RT:\fENT.-'l'hc term "Department" 

21 means the Department of the Interior. 

22 (11) Fcxn.-'l'he term "F\md" means the Oil 

23 Spill IJiability Trust Fund established by section 

24 9509 of the Internal Hevennc Code of 1986. 
152 

DECJ0138 S.LC. 

6 

1 (12) l.uiw.-The term "law" includes all la>v, 

2 judicial or administrative decisions, rules, regula3 tions, or any other principle or aetion having the ef4 feet of law. 

5 (13) 0FFICE.-1'he term "Office" means the 

6 Offiee of Deepwater Horizon Claims Compensation 

7 established under section 111. 

8 (14) PARTIES.-The term "parties" means, 

9 \Yith respect to an individual claim, the claimant and 

10 the responsible party. 

11 (15) PERSON.-

12 (A) IN ClENERAL.-The term "person" 

13 means an individual, trust, firm, joint stock 

14 company, partnership, association, insurance 

15 eompan~-, reinsurance company, or corporation. 

16 (B) EXCLlTSIOXS.-The term "person" 

17 does not includeIS (i) the United States; 

19 (ii) a State; or 

20 (iii) a political subdivision of a State. 

21 (16) H.E8PONSIBLE PAHTY.-The term "respon22 sible party" means a responsible party (as defined in 

23 section 1001 of the Oil Pollntion Aet of 1990 (3:3 

24 U.S.C. 2701)) for the Deepwater Horizon ineident. 
153 

DECI015~ S.LC. 

7 

1 (1 7) SECHETAHY.-'l'he term "Seeretar?" 

2 means the Secretary of the Interior. 

3 (18) STATE.-The term "State" means 

4 (A) each of the several States of the 

5 United States; 

6 (B) the District of Columbia; 

7 (C) the Commonwealth of Puerto Rico; 

8 (D) Guam; 

9 (E) .Ameriean Samoa; 

10 (F) the Commonwealth of the Northem 

11 Mariana Islands; 

12 (G) the Federated States of lVIicronesia; 

13 (H) the Hepublic of the Marshall Islands; 

14 (I) the Republic of Palau; and 

15 (J) the United States Virgin Islands .. 

16 (19) Snx.'ESSOH IK T:\"TEREST.-'fhe term 

17 "successor in interest" means any person that ae18 quires assets, alHl substantially continues the busi19 ness operations, of a responsible party, considering 

20 factors that inelude--

21 (.A) retf'ntion of the same facilities or loca22 tion; 

23 (B) retention of the same employees; 

24 (C) maintaining the same job under the 

25 same worh.ing eowlitions; 
154 

DEC101.)8 

1 

2 

3 

4 

5 

6 

7 

S.L.C 

8 

(D) retention of the same supenisory personnel; 

(E) continuity of assets; 

(P) production of the same product or 

offer of the same service; 

(G) retention of the same name; 

(H) maintenance of the same customer 

8 base; 

9 (I) identity of stoeks, stoekholders, and di10 rectors between the asset seller and the pur11 ehascr; or 

12 (,J) whether the snceessor holds itself out 

13 as continuation of preYious enteq)rise, but ex14 pressly docs not indude whether the person ac15 tually knew of the liability of the responsible 

16 party under this title. 

17 Subtitle A-Office of Deepwater 

18 Horizon Claims Compensation 

19 SEC. 111. ESTABLISHMENT OF OFFICE OF DEEPWATER H0-

20 RIZON CLAIMS COMPENSATION. 

21 (a) Ix GEXEHAL.-

22 (1) ESTABLISiniEl\T.-There IS establishPcl 

23 within the Department the Office of Deepwater Ho24 rizon Claims Compensation, which shall be headed 

25 by the Adininistrator. 
155 

DEC'l0Li8 

9 

1 (2) PcHPOSE.-'l'he purpose of the Office shall 

2 be to prm'ide timely, fair compensation, under the 

3 terms specified in this title, on a no-fault basis and 

4 in a nonadversarial manner, to persons and State or 

5 local governments that have incurred damag,es as a 

6 result of the Deep1vater Horizon incident. 

7 (3) TEIBUXATIOX OF THE OFFICE.-The Office 

8 shall terminate effeetive uot later than 1 .vear fol9 lmving' the date of certification by the Administrator 

10 that the Fund has neither paid a elaim in the pre11 vious 1-year period nor has debt obligations remain12 ing to pay. 

13 ( 4) Eli.'PENSES.-The Fund shall be available to 

14 the Secretary for expenditure, Yiithont further ap15 propriation and ~>ithout fiscal year limitation, as 

16 necessary for any and all expenses assoeiated 1\ith 

17 the Office, includingIS (A) personnel salaries and expenses, m19 eluding retirement and similar benefits; and 

20 (B) all administrative and legal expenses. 

21 (h) APPOIXT:\IEXT OF "'\JniiXISTHATOH.-

22 (1) Ix OEXEHAL.-Tlw Administrator of the 

23 Office shall he appointed by the President, by and 

24 with the advice ancl consent of the Senate. 
156 

DECJ0108 S.L.C. 

10 

1 (2) 1'ERM.-The term of the Administrator 

2 shall be 5 years. 

3 (8) REPORTIXG.-The Administrator shall re4 port directly to the Assistant Secretmy for Policy, 

5 Ma.nagement, and Budget of the Department. 

6 (c) DUTIF.::S OF AiniiNISTRA.TOR.-

7 (1) Ix GE:.JEIUL.-The Administrator shall be 

8 responsible for9 (A) processing claims for compensation for 

10 damages to eligible elaimants in accordance 

11 \Vith the criteria and procedures established 

12 under subtitle B; 

13 (B) appointing or eon trading for the seiT14 1ees of such personnel, making such expendi15 tures, and taking any other actions as may be 

16 necessary to carry out the responsibilities of the 

17 Office, including entering into cooperative 

18 agreements \vith other Pederal or State agen19 cies and entering into contracts with nongovern20 mental entities; 

21 (C) conducting such audits and additional 

22 oversight as necessary to assure the intcgrit~r of 

23 the compensation program; 
157 

DECJOL)i\ 

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10 

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13 

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15 

16 

17 

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19 

20 

21 

22 

23 

24 

S.L.C. 

11 

(D) promulgating such rules, regulations, 

and procedures as may be neeessary to carry 

out this title; 

(E) making sueh CX"IJCnditures as may be 

necessary in carrying out this title; 

(F) excluding evidence and disqualifying or 

debarring any attorney or other individual or 

entity \vho provide evidence in support of the 

application of the claimant for compensation if 

the Administrator determines that materially 

false, fraudulent, or· fietitious statements or 

praetiees have been submitted or engaged in by 

the individual or entity; and 

(G) having all other powers incidental, neeessary, or appropriate to earryi.ng out the funetions of the Offiec. 

(2) CERTMK EXFOHCE:\IEXT.-

(A) FALSE STATE:\rE:\1'8.-For each infraction described in paragraph (l)(F), the Administrator ma~' impose a ciYil penalty not to 

exeecd $10,000 on an~' individual or en tit~' 

found to haw submitted or engaged in a materially false, fraudulent, or fietitious statement 

or practice under this title. 
158 

DEC101:l8 S.LC. 

12 

1 (B) 0TIIEI{ PO\VEHS.-The Administrator 

2 shall issue appropriate reg11lations to carry out 

3 paragraph (l)(G). 

4 (d) ArDIT Al\D PERSOXXEL REY1E\Y PROCE5 mmEs.-The Administrator shall establish audit and per6 sonnel revievY procedures for evaluating the accuracy of 

7 eligibility recommendations of agency and contract per8 sonncl. 

9 SEC. 112. CLAIMANT ASSISTANCE. 

10 (a) ESTABLTSH"IENT.-Not later than 180 da:vs after 

11 the date of enactment of this Act, the Administrator shall 

12 establish a comprehensive claimant assistanc~e progntm13 (1) to publicize and pmvide information to po14 tential claimants about15 (A) the <:wailability of benefits for eligible 

16 claimants under this title; and 

17 (B) the procedures for filing claims and for 

18 obtaining assistance in filing elaims; 

19 (2) to proYide assistance to potential claimants 

20 in preparing and submitting elaims, including assist21 ancc in obtaining· the documentation Iweessar·~" to 

22 support a claim; 

23 (:1) to respond to inquiries from claimants and 

24 potential claimants; 
159 

DEC10Li8 S.L.C. 

13 

1 ( 4) to provide training v,ith respect to the appli2 cable procedures for the preparation and filing of 

3 elaims to persons who prmicle assistance or rep4 resentation to elaimants, ineluding nonprofit organi5 zations and State and local government entities; and 

6 ( 5) to pro\ide for the establishment of a website 

7 on ·which elaimants may access all relevant forms 

8 and information. 

9 (b) RESUGRCE CENTERS.-

10 (1) IN GENERAL-The claimant assistance pro11 gram shall provide for the establishment of resource 

12 centers in areas in which there are determined to bl' 

13 large concentrations of potential claimants. 

14 (2) IJOCATION.-The centers shall be located, to 

15 the maximum extent practicable, in facilities of the 

16 Department or other Pederal agencies. 

17 (c) ATTOR::-.JEY'S PEES.-

18 (1) IN GEXERAL.-::-.Jotwithstanding any other 

19 provision of law, the representatiYe of an incliYiclual 

20 may not receiw, for senices rendered in connection 

21 "ith the claim of an individual under this title, more 

22 than 5 percent of a final award made (whether by 

23 the Administrator initially or as a result of adminis24 tratiw review) on the claim. 
160 

DEClOl.)i:l 

14 

1 (2) PEXALTY.-An~r representatiYc of a claim2 ant who ·violates this subsection shall be fined not 

3 more than the greater of--

4 (A) $5,000; or 

5 (B) twice the amount recciYed by the rep6 resentative for services rendered in connection 

7 ·with each violation. 

8 SEC. 113. COMPENSATION PROGRAM STARTUP. 

9 (a) lNTERI.\I REGULt\.TIO;\S.-~ot later than 90 da:rs 

10 after the date of enactment of this Act, the Administrator 

11 shall issue interim regulations and procedures for the 

12 proecssing of claims under this title. 

13 (b) lN'l'IWL\I PERSOXNEL.-

14 (1) Ix GEf\EIUL.-The Seeretary and the As15 sistant Secretary for Policy, Management, and 

16 Budget of the Department may make available to 

17 the Administrator on a temporary basis such per18 sonnel and other rcsonrees as may be necessary to 

19 facilitate the expeditious startup of the compensa20 tion program. 

21 (2) CONTRACTS.-Thc Administrator may con22 tract with individuals or entities having relevant ex23 pericnce to assist in the expeditious startup of the 

24 compensation program. 
161 

DEC'lOL)~ ~.L.C. 

15 

1 (c) BXTHE:\IE FINANCIAL lhRDSHIP CLAL\IS.-ln 

2 the final regulations promulgated under section 111(e), 

3 the Administrator shall designate categories of claims to 

4 be handled on an expedited basis as a result of e2cireme 

5 financial hardship. 

6 (d) lNTEHL\f Amii:''lSTIUTOR-Until an Adminis7 trator is appointed and confirmed under section lll(b), 

8 the responsibilities of the Administrator under this title 

9 shall be performed by the Assistant Secretary for Policy, 

10 Management, and Budget of the Department, who shall 

11 have all the authority conferred by this title on the Admin12 istrator and who shall be considered to be the Aclminis13 trator for purposes of this title. 

14 (e) STAY OF CLAIMS; RETUHN TO TORT SYSTE~f.-

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

(1) STAY OF CLAI.i\IS.-

(A) PENDING ACTIONS.-~otwithstanding 

any other provision of this title, any claim for 

damages pending· in any Fedrral or State eonrt 

for monetary damages relatr<l to the Deepwater 

Horizon incident as of the date of enactment of 

this Act shall be subject to a sta.v. 

(B) l''FTURE ACTION8.-~otwithstanding 

any other proYision of this title, any elaim for 

damages filed in any Federal or State court for 

monetary damages related to the Deepwater 
162 

DEC\OJ.it\ 

16 

1 Horizon ineident after the date of enaetment of 

2 this Act shall be subject to a stay 60 days after 

3 the elate of the filing of the elaim, 1mless the 

4 claimant has filed an cleetion to pursue the 

5 elaim for damages in the F'ederal or State eourt 

6 under paragraph (2). 

7 (2) CLAil\fS.-To be eligible for a claim, any 

8 person or State that has filed a timely elairn seeking 

9 a judgment or order for monetary damages related 

10 to the Deepwater Horizon incident in any I<"'ederal or 

11 State eourt before, on, or after the date of enaet12 ment of this Aet, shall file with the Adrninistrator 

13 and serve on all defendants in the pending court ae14 tion an election to pursue thr~ daim for damages 

15 under this title or continue to pursue the elaim in 

16 the };"'edcral or State eourt17 (A) not later than 60 days after the date 

18 of enactment of this Act, if the claim •vas filed 

19 in a :F'ederal or State court before the date of 

20 enaetment of this Aet; and 

21 (B) not later than 60 da:vs after the date 

22 of the filing of the elaim, if the claim is filed 

23 in a :F'ederal or State court on or after the date 

24 of enactment of this Aet. 
163 

DEClOl~S ~.L.C'. 

17 

1 un STXY.-1Jntil the claimant files an election 

2 under paragraph (2) to continue to pursue the claim 

3 in the Federal or State court, the stay under parn4 graph (1) shall remain in effect. 

5 ( 4) EFFECT OF' ELECTTOX.-

6 (A) Ix GEXERAL-1\ny claimant that has 

7 elected to pursue a claim for damages in Feu8 eral or State court under paragn1.ph (2) shall 

9 not be eligible for an award for those uamages 

10 under section 131. 

11 (B) STAY OF' CTJABL-"'\ny claim seeking a 

12 judgment or order for monetary damages relat13 ing· to the Deepwater Horizon incident in any 

14 Federal or State court filed b.v a claimant that 

15 has received a judgment for damages under this 

16 tith~ for that claim shall be permanently stayed. 

17 ( 5) EPFECT OF OPERATIOXAL OR ~OX18 OI'EH"''..TIO:\'M, FGND.-

19 (A) REI:\t>TATK\IEI\T OF CTu\DIS.-If, 

20 

21 

22 

23 

24 

25 

after 270 clays after the date of enactment of 

this Act, the Administrator cannot certify to 

CongTess that the Office is operational and paying claims at a reasonable rate, each person or 

State that has filed a claim stayed under this 

subsection may continue the claims of the per-
164 

DEC!Ol.JS 

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21 

18 

son or State in the court in which the case ~was 

pending prior to the stay. 

(B) 0PERATIOXAL OFFICE.-lf the Administrator subsequently certifies to Congress that 

the Office has become operational and paying 

all valid claims at a reasonable rate, any claim 

in a civil action in Federal or State court that 

is not actually on trial before a jury that has 

been impaneled and presentation of evidence 

has commenced, but before deliberation, or hefore a judge and is at the presentation of evidence, may, at the option of the clainumt, he 

considered a reinstated claim before the Administrator and the ciYil action before the Federal 

or State court shall be null and void. 

(C) ~OXOPERATIO~AL OFFTCE.-~otwithstanding any other provision of this title, if the 

Administrator ecrtifies to Congress that the Offict> cannot become operational and pa!ing all 

Yalid claims at a reasonable rate, all claims that 

haw a stay may be filed or reinstated. 

22 SEC. 114. AUfHORITY OF ADMINISTRATOR. 

23 On any matter ''ithin the jmisdiction of the Adminis24 trator umler this title, the Administrator ma~'-
165 

S.Ll'. 

19 

(1) issue subpoenas for and compel the attend2 ancc of witnesses \vithin a radius of 200 miles; 

3 (2) administer oaths; 

4 ( 3) examine witnesses; 

5 ( 4) require the procluetion of books, papers, 

6 documents, and other potential evidence; and 

7 (5) request assistance from other Federal agen8 cies with the performance of the duties of the Ad9 ministrator under this title. 

10 SEC. 115. ADVISORY COMMITTEE ON DEEPWATER HORIZON 

11 COMPENSATION. 

12 (a) ESTABLIRIL.\IENT.-

13 (1) IN GE::-..'ER.A.L.-Not later than 120 da?s 

14 after the date of enactment of this Aet, the .Adminis15 trator shall establish an Advisory Committee on 

16 Deep\vater Horizon Compensation. 

17 (2) COMPOSITION AND APPOINT:\IEXT.-

18 (A) IN GENERA.h-Thc Advisory Com19 mittce shall be composed of 24 members, ap20 pointed in aceonlanee \Yith this paragraph. 

21 (B) lJEGTSLATIYE APPOINT:.\IE;\'TS.-

22 (i) IN GENER.Ah-Thc Majority IJead23 er of the Senate, the .Minority !Jeacler of 

24 the Senate, the Speaker of the House of 

25 ReprcsentatiYes, and the Minority Leader 
166 

DEC101:l8 

1 

2 

3 

4 

S.L.C. 

20 

of the House of Representatives shall each 

appoint 4 members to the Advisory Committee. 

(ii) REPHESEXTATIOX.-Of the 4 

5 members appointed h:v each Member under 

6 clause (i)-

7 (I) 2 members shall represent the 

8 interests of claimants; and 

9 (II) 2 members shall represent 

10 the interests of responsible parties. 

11 (C) .APPOI~TJ\IEXT8 BY ADl\IIXISTRATOR12 The Administrator shall appoint 8 members to 

13 the Advisory Committee, ·who shall he indh'id14 uals 1:vith qualifications and expertise relevant 

15 to the compensation program, including e:x-peri16 ence or expertise in marine or coastal ecology, 

17 oil spill remediation, fisheries management, ad18 ministering compensation prognuns, or audits. 

19 (b) DrTIES.-The .Advisor~' Committee shall ad-vise 

20 the Adrniuistrator on21 ( 1) claims filing and claims processmg proce22 dures; 

23 (2) claimant assistance programs; 
167 

DEC101~8 S.L.C. 

21 

1 (3) audit procedures and programs to ensure 

2 the quality and integrity of the compensation pro3 gram; 

4 ( 4) analyses or research that should be con5 ductecl to eYaluate past claims and to project future 

6 claims under the compensation program; and 

7 (5) sueh other matters related to the implemen8 tation of this title as the Administrator c-onsiders ap9 propriate. 

10 (c) 0PERATIO~ OF C();\fiVfiTTEE.-

11 (1) TER:.\1.-The term of a member of the Advi12 sory Committee shall be 3 years. 

13 (2) CIIAIHPEHSOX A~D V1CE CILURPEHSOX.-

14 The Administrator shall designate a Chairperson 

15 and Vice Chairperson of the Adv:isor.v Committee 

16 fi·om among the members appointed under sub17 section (a)(2)(C). 

18 (:1) MEE'l'INGS.-Thc Advisory Committee shall 

19 mcet20 (A) at the call of the Chairperson or a ma21 jority of the members of the Advisor~- Com22 mittec; and 

23 (B) at least24 (i) 4 times per ~·ear during the first 3 

25 years of the eompensation program; and 
168 

DECJ0158 

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2 

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4 

5 

6 

7 

8 

9 

10 

22 

(ii) 2 times per year thereafter. 

( 4) ll\FOIULUION.-

(A) ll\ GENERAL.-The Administrator 

shall prov-ide to the Advisory Comrnittee such 

information as is necessary and appropriate for 

the Advisory Committee to carry out this section. 

(B) 0THBR AGE:.JCIES.-

(i) Ix GENERAL.-On request of the 

Ach'isory Committee, the Administrator 

11 rna~- secure direetly from any :F'edcral, 

12 State, or local department or agenc~' sneh 

13 inforrnation as ma~- he necessary to enable 

14 the Ach'isory Committee to earry out this 

15 section. 

16 (i:i) PRUV1SION OF Il\'FORJ\IATIOX17 On request of the Administrator, the head 

18 of the department or agency deseribell in 

19 clause (i) shall furnish such information to 

20 th(• Advisory Committee. 

21 (5) Amrr:.JISTRATIVE SUPPORT.-The Adminis22 trator shall pro,'ide the Alh'isory Committee IYith 

23 such administrative support as is reasonably nec24 essary to enable the Ach'isory Committee to carr~-

25 out this seetion. 
169 

DEClOl::ill S.L.C. 

23 

1 (d) EXPE~SES.-A member of the Advisory Com2 mittec, other than a full-time F'ederal emplo~'ee, ·while at3 tending a meeting of the Ach'isory Committee or while oth4 envise serving at the request of the Administrator, and 

5 while sen'ing away from the home or regular place of busi6 ness of the member, shall be allowed travel and meal ex7 penses, including per diem in lieu of subsistence, as au8 thorized by section 5703 of title 5, United States Code, 

9 for individuals in the F'ederal GoYernment sening 1\ithout 

10 pay. 

11 Subtitle B-Deepwater Horizon 

12 Compensation Procedures 

13 SEC. 121. ESSENTIAL ELEMENTS OF EUGIBLE CLAIM. 

14 To be eligible for an award under this title for dam15 ages, a claimant shall16 (1) file a claim m a timely manner m aecord17 ance 11ith section 123; and 

18 (2) prove, by a preponderance of the midcnee, 

19 that the claimant has suffered damages as a result 

20 of the Dc>epwater Horizon incident. 

21 SEC. 122. GENERAL RULE CONCERNING NO-FAULT COM22 PENSATION. 

23 To be eligible for an award under this title for clam24 ages, a claimant shall not he required to demonstrate that 
170 

DEClOl:iS S.L.C. 

24 

1 the damages for which the claim is being rnacle resulted 

2 from the negligence or other fault of any other person. 

3 SEC. 123. FILING OF CLAIMS. 

4 (a) ELIGIBLE CLAI:.\fAL'\TS.-

5 (1) TN GEl\ERAL-Any person or State that 

6 has suffered damage as a result of the Deepwater 

7 Horizon incident may file a elaim \vith the Office for 

8 an award with respect to the damage. 

9 (2) LI1\II1'ATIOX.-A claim may not be filed b:v 

10 any person or State under this title for contribution 

11 or indemnity. 

12 (b) STATl~TE OF I~nrrTATIO:.JS.-Exccpt as otherwise 

13 provided in this subsection, if a person or State fails to 

14 file a clairn with the Office under this seetion during the 

15 5-year period beginning on the date on whieh the person 

16 or State first diseowred facts that would have led a rea17 sonable person to conclude that damage had occurred, any 

18 elaim relating to the damage, and any other elaim related 

19 to that damage, shall be extinguished, and any recovery 

20 on the damage shall be prohibited. 

21 (e) F1~Tl~RE CLAI:\f8 ~OT PRECijl~DED.-Filing of a 

22 claim under subsection (a) shall not preeludc the filing of 

23 additional claims for damages arising from the Deepwater 

24 Horizon ineident that arc manifest at a later date. 
171 

DEC10J.)~ S.hC 

25 

1 (d) REQrumn lKFOHl\IATIO:-i.-A claim filed under 

2 subsection (a) shall he in such form, and contain such in3 formation in such detail, as the Administrator shall by 

4 regulation prescribe. 

5 (c) DATE OF FrLIXG.-A claim shall be considered 

6 to he filed on the date that the claimant mails the elaim 

7 to the Office, as determined by postmark, or on the date 

8 that the claim is reeeiYed b,v the Offiee, whichever is the 

9 earliest determinable date. 

10 (f) lNCOMPLE'l'E CL.ABIS.-

11 (1) Ix GEXEHAh-lf a elaim filed under sub12 section (a) is incomplete, the Administrator shall no13 tif.v the claimant of the information necessary to 

14 complete the claim and inform the daimant of such 

15 services as ma~' be available through the claimant 

16 assistance program established under section 112 to 

17 assist the elaimant in completing the claim. 

18 (2) TniE PERIODS.-

19 (A) Ix UEXER\TJ.-Exeept as provided in 

20 subparagraph (B), any time period for the proc21 essing of the claim shall be suspended until 

22 such time as the elaimant submits the informa23 tion necessary to complete the claim. 

24 (B) DEADLIXE.-If the information de25 scribed in subparagraph (A) is not reeeiw•d dur-
172 

DEC101.)8 8.L.C. 

26 

1 ing the 1-year period beginning on the elate of 

2 the notification, the elaim shall be dismissed. 

3 SEC. 124. ELIGIBILITY DETERMINATIONS AND CLAIM 

4 AWARDS. 

5 (a) Ix GEXEI:L.\L.-

6 (1) HE\TIEW OF CL"mrs.-The Administrator 

7 shall, in accordance with this section, determine 

8 ·whether each claim filed satisfies the requirements 

9 for eligibility for an award under this title and, if so, 

10 the value of the asvard. 

11 (2) FACTORS.-ln making a determination 

12 under paragTaph ( 1), the Administrator shall eon13 sider14 (A) the elaim presented by the claimant; 

15 (B) the factual e<.i.dence submitted by the 

16 claimant in support of the claim; and 

17 (C) the results of such investigation as tlw 

18 Administrator may consider neces::;m~T to deter19 mine whether the claim satisfies the eriteria for 

20 eligibility e::;tablished by this title. 

21 (3) .ADDITIOXAI.J EYIDENCE.-

22 (A) Ix GEXERAL.-The Administrator may 

23 request the submission of evidence in addition 

24 to the minimmn requirements of section 12:3 if' 
173 

DECI010S S.LC' 

27 

necessary to make a determination of eligibility 

2 for an award. 

3 (B) CosT.-If the Administrator requests 

4 additional evidence under subparagraph (A), 

5 the cost of obtaining the additional eYidence 

6 shall be borne by the Office. 

7 (b) PIWPOSED DECISIO~S.-

8 (1) Ix GE~ERAL.-Not later than 90 days after 

9 the date of the filing of a claim, the Administrator 

10 shall provide to the parties a proposed deeision11 (.A) accepting or rejecting the claim m 

12 whole or in part; and 

13 (B) specifying the amount of any proposed 

14 award. 

15 (2) FOHl\L-The proposed decision shall16 (A) be in writing; 

17 (B) contain findings of fact and conclu18 sions of hrw; and 

19 (C) contain an explanation of the proec20 dure for obtaining re,iew of the proposed deci21 SIO!l. 

22 (c) HE\1EIY OF PROPOSED DECISIOXS.-

23 (1) RIGHT TO HEAIUXG.-

24 (A) Ix <mXEIL\.L.-Any party not satisfied 

25 with a proposed decision of the Administrator 
174 

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under subsection (b) shall be entitled, on \\Titten request made not later than 90 clays after 

the elate of the issuance of the decision, to a 

hearing on the claim of the claimant before a 

representative of the "'"\Jlministrator. 

(B) TESTL\I0:\1.-At the hearing, the 

party shall be entitled to present oral evidence 

and written testimony in further support of the 

claim. 

(C) Co~nGCT OF IIEARING.-

(i) ll\ GENERAL.-The hearing shall, 

to the m<:L'Cinmm ez.ient practicable, be conducted at a time and place conYenient for 

the claimant. 

(ii) ADi\II~ISTRATION.-Except as 

otherwise pnwidecl in this title, in conducting the hearing, the representative of 

the Administrator shall conduct the hearmg m a manner that best determines the 

rights of the parties and shall not be 

bound by-

(I) common law or statutory 

rules of e\':idence; 

(II) technical or formal rules of 

procedure; or 
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8.L.C. 

29 

(III) section 554 of title ;J, 

United States Code. 

(iii) EYTDE-:\fCE.-For purposes of 

clause (ii), the representative of the .Administrator shall receive sueh relevant evidence as the elaimant adduces and such 

other e-vidence as the representative determines necessary or useful in evaluating the 

claim. 

(D) REQUEST FOI{ SUBPOEXAS.-

(i) IN GEXERAL.-Subjcct to clause 

(iv), a party may request a representative 

of the Administrator to issue a subpoena 

but the decision to grant or deny the request is within the discretion of the representative. 

(ii) SGBPOEXAS.-Subject to clause 

(iii), the representative may issue subpoenas for-

(l) the attendance and testimony 

of ·witnesses; and 

(II) the production of books, 

rc•corcls, correspondence, papers, or 

other relevant doeumcnts. 
176 

DEC1013k 

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S.L.C. 

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(iii) PREHE(~GISITES.-Subpoenas 

ma? be issued for documents under this 

subparagraph only if -

(I) in the case of documents, the 

documents arc t·cleYant and cannot be 

obtained by otlwr means; and 

(II) in the case of witnesses, oral 

testimony is the best wa:v to ascertain 

the faets. 

(iv) REQGEST.-

(1) IlEAHL'\G PROCESS.-A party 

may request a subpoena under this 

subparagraph only as part of the 

hearing proeess. 

(II) FORM.-To request a subpoena, the requester shall-

(aa) submit the request m 

\Yriting and send the to the rcpresentntive as earl,v as practicable, but not later than 30 

tlays, after the date of the original hearing· request; and 

(bb) explain why the testimony or eYidenec is directly relevant to the issues at hand, and 
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a subpoena is the best method or 

opportunity to obtain the evidence because there are no other 

means by which the documents 

or testimony could have been obtained. 

(v) FEES AND MILEAGE.-

(!) I:t\ GENEIL\L.-1\ny person requirecl by a subpoena to attend as a 

witness shall be allowed and paid the 

same fees and mileage as are paid 

\Vitnesses in the district courts of the 

United States. 

(II) Fuxn.-The fees and mileage shall be paid from the Fund. 

(2) REHE\Y OF \YIUTTEX RECORD.-

(A) Ix GEXERAL.-Instead of a hearing 

under paragn1ph (1), any party not satisfied 

with a proposed decision of the Administrator 

shall have the option, on \'iTitteu request made 

not later than ~)() da)·s after the date of the 

issuance of the decision, of obtaining a rev:tC\Y 

of the written record b~· a representatiYe of the 

Adrninis tnt tor. 
178 

DEC10l58 S.L.C. 

32 

1 (B) 0PPOHTl::'HTY TO BE IIEARD.-If a re2 vie>v is requested under subparagraph (A), the 

3 parties shall be afforded an opportunity to sub4 mit any written evidence or argument that the 

5 claimant belieYes relevant. 

6 (d) Ii'I::\AL DECISIO:.JS.-

7 (1) IN OE::\ERAL-If the period of time for re8 questing review of the proposed decision expires and 

9 no request has been filed, or if the parties waive any 

10 objections to the proposed decision, the Adminis11 trator shall issue a final decision. 

12 (2) VARIA::\CE FHO:\I PROPOSED DECIS£01\.-If 

13 the decision materially differs from the proposed cle14 cision, the parties shall be entitled to review of the 

15 cleeision under subsection (c). 

16 (3) 'l'un:.ro.-If the parties request re>'1ew of 

17 all or part of the proposed decision the Adminis18 trator shall Jssne a fiual decision on the claim uot 

19 later than20 (A) 180 days after the elate the request for 

21 review is reeci,·cd, if a party requests a hearing; 

22 or 

23 (B) 90 days after the date the request for 

24 review is reeeived, if the elaimant requests re25 \icw of the 1witten reeord. 
179 

DECJOL"i8 S.L.C 

3:) 

( 4) CONTENT.-'fhc decision shall be in \Vritiug 

2 and coutain findings of fact and conclusiom; of law. 

3 (e) REPRESEN'L\TION.-A party may authorize an 

4 attorney or other individual to represent the party in any 

5 proceeding under this title. 

6 Subtitle C-Awards 

7 SEC. 131. AMOUNT. 

8 (a) IN GENERAL.-A claimant that meets the re9 quirements of section 121 shall be entitled to an award 

10 in an amount equal to the damages specified in subsection 

11 (b) sustained as a result of Deepwater Horizon incident. 

12 (b) CoYERED DAl\IAGES.-For purposes of subscetion 

13 (a), covered damages shall be 1 or more of the following 

14 types of damages (if applicable): 

15 (1) REAL OR PERSONAL PHOPERTY.-Damages 

16 for i1\jury to, or economic losses resulting from de17 stmetiou of, real or personal property, ·which shall 

18 be recoverable by a claimant who owns or leases that 

19 property. 

20 (2) SrBSISTENCE 1_~SE.-Damages for loss of 

21 snbsistenee use of natural resourees, which shall be 

22 recoverable by an~' clnimant who so uses natural re23 sources that han: been injured, destroyed, or lost, 

24 without n~gard to the ow1wrship or management of 

25 the resourees. 
180 

DEC10Li1l S.L.C. 

84 

1 (3) HE\1~:'\'TES.-Damages equal to the net loss 

2 of taxes, royalties, rents, fees, or net profit shares 

3 due to the iqjnry, destruction, or loss of real prop4 erty, personal property, or natural resources, which 

5 shall be recoYerable by a State or a political subdiYi6 sion of a State. 

7 (4) PROFI'I'S AND EARNING C"\.PACITY.-Dam8 ag·es equal to the loss of profits or impairment of 

9 earning capacity due to the injury, destruction, or 

10 loss of real property, personal property, or natural 

11 resources, which shall be recoverable by any claim12 ant. 

13 (5) Pcnuc srm:ncEs.-Damages for net costs 

14 of providing increased or additional pnhlie services 

15 during or after removal activities, ineluding protec16 tion from fire, safety, or health hazards, caused by 

17 a discharge of oil, which shall he recoverable by a 

18 State or a political subdivision of a State. 

19 SEC.132. PAYMENT. 

20 (a) PAY~IEXTS.-~ot later th<m 30 days after a final 

21 determination of au award under this title, a elaimant that 

22 is entitled to an award under this title shall reecive the 

23 amount of the award through payments from the respon24 sible parties. 
181 

DECIOL38 S.L.C. 

;35 

1 (b) IJil\IIT"\TION 0:\ TI{..~'\SFERA.BILITY.-A claim 

2 filed under this title shall not be a.ssignable or otherwise 

3 transferable under this title. 

4 SEC. 133. SETOFFS FOR COLLATERAL SOURCE COMPENSA5 TION AND PRIOR AWARDS. 

6 The amount of an award otherwise available to a 

7 claimant under this title shall be reduced by the amount 

8 of collateral source compensation. 

9 SEC. 134. SUBROGATION. 

10 All~' person that pays compensation pursuant to this 

11 title to any claimant for damages shall be subrogated to 

12 all rights, claims, and causes of action the claimant has 

13 under any other law. 

14 SubtitleD-Judicial Review 

15 SEC. 141. JUDICIAL REVIEW OF RULES AND REGULATIONS. 

16 (a) EXCLUSIVE JtTIUSDICTION.-The United States 

17 Court of Appeals for the Distriet of Columbia Cireuit shall 

18 have exclusive jurisdiction OV(~r any action to revic\V t·ules 

19 or regulations promulgated h:v the Administrator under 

20 this title. 

21 (b) PERIOD FOR PILING PETITION.-A petition for 

22 review under this section shall be filc<l not later than 60 

23 days after the date notice of the promulgation of the rules 

24 or regulations appears in the li'ecleral Register. 
182 

DECI0!.)8 SLJ' 

36 

1 (e) E:A"TEDITED PnocEnGnEs.-'rhe United States 

2 Court of Appeals for the District of Columbia shall prov'"icle 

3 for expedited procedures for reviews under this seetion. 

4 SEC.142. JUDICIAL REVIEW OF AWARD DECISIONS. 

5 (a) Ix GEXERAL.-A:ny claimant or responsible party 

6 adversely affeeted or aggriewd by a final decision of the 

7 Administrator awarding or denying compensation under 

8 this title may petition for judicial rev'"ie>v of the decision. 

9 (b) PERIOD FOH Ij'II,I~G PETITIOX.-Any petition for 

10 rev'"iew under this seetion shall be filed not later than 90 

11 days after the date of issuance of a final decision of the 

12 Administrator. 

13 (c) EXCTJL:Sf\'g ,JnUSDICTION.-A petition for re'lie\Y 

14 ma~r only be filed in the United States Court of Appeals 

15 for the circuit in \vhieh the claimant resides at the time 

16 of the issuanee of the final order. 

17 (d) STA:'\DAim OF RRVIE\V.-'rhe court shall uphold 

18 the decision of the Administrator unless the court dcter19 rnincs, on re\'"iew of the record as a whole, that the decision 

20 is not supported by substantial evidence, is contrar:v to 

21 law, or is not in accordance with proC'edure n~quired by 

22 law. 

23 (c) E:ATEDITED PnocEnrrms.-The United States 

24 Court of Appeals shall prm'"ide for expedited procedures 

25 for rev'"iews under this section. 
183 

S.L(' 

1 SEC. 143. OTHER JUDICIAL CHALLENGES. 

2 (a) ExcuJSI\'E JFHISDICTIO:'\.-The United States 

3 District Court for the District of Columbia shall luwe ex4 elusive jurisdiction over any action for dedaratory or in5 junctive relief challenging any provision of this title. 

6 (b) PERIOD FOR FILil\0 PETITIO:'\S.-An action 

7 under this seetion shall be filed not later than the later 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

of-

(1) the date that is 60 days after the date of 

enactment of this Act; or 

(2) the date that is 60 days after the final action by the Administrator or the Office giving· rise 

to the action. 

(c) Dnmc1' .APPEAL.-

(1) ll\ GENERAL.-A final decision in the action 

shall be reviewable on appeal direetly to the Supreme Court. 

(2) An:\IIl\ISTHATION.-The appeal shall he 

taken by the filing of a notice of appeal not later 

than :30 days, and the filing of a jurisdictional statement not later than 60 days, after the date of the 

eutr~' of the final decision. 

23 (d) EXPEDITED PrtOCEDl:Ims.-It lS the sense of 

24 Congn:ss that the Supreme Court and the United States 

25 District Court for the Distritt of Columbia are urged to 

26 adnuwe on the docket and otherwise expedite, to the max-
184 

DEClO LoS S.L.C. 

38 

1 imum extent practicable, the disposition of an aetion cm~-

2 ered by this section. 

3 Subtitle E-Effect on Other Laws 

4 SEC. 151. EFFECT ON OTHER LAWS. 

5 This title shall supersede any F'ederal or State law 

6 to the extent that the hrw relates to any claim for damages 

7 compensated under this title. 

8 TITLE II-LIABILITY 

9 SEC. 201. LIABILITY FOR DEEPWATER HORIZON OIL SPILL. 

10 (a) IN GENERAL.-Congress finds tbat11 (1) executives of British Petroleum Exploration 

12 & Production, Incorporated (referred to in this sec13 tion as "BP") testified before Congress in l\Iay 2010 

14 that BP would pa~r all legitimate claims relating to 

15 the Deepwater Horizon e:li.'J)losion and oil spill that 

16 exceed existing applicable economic liability limita17 tions; 

18 (2) a letter from the Group Chief Executive of 

19 BP to the Seeretaries of Homeland Security and the 

20 Interior dated 1\Iay 16, 2010, evidences an offer of 

21 BP to modif)T the oil and gas leasing eontract in22 volYCd in the Deepwater Horizon ineident to ineor23 porate new term:o; of liability by stating that BP is 

24 "prepared to pa~T aboYe $75 million" on "all legiti25 mate elaims" relating to that explosion and oil spill; 
185 

DE<'l0131' S.L.C. 

39 

1 (3) that offer is acceptable to CongTess and to 

2 the Secretary of the Interior; 

3 ( 4) all documented legitimate claims pursuant 

4 to the Oil Pollution Act of 1990 (33 U.S.C. 2701 et 

5 seq.) for economic damages relating to the Deep6 "\Yater Horizon e:Al)losion and oil spill should be paid 

7 by BP without limit on liability; 

8 (5) BP should provide to the Federal Govern9 ment any claims relating to the Deepwater Horizon 

10 explosion and oil spill that BP fails to pay; and 

11 (6) if the Federal Government finds pursuant 

12 to the Oil Pollution Act of 1990 (33 U.S.C. 2701 et 

13 seq.) that such claims are legitimate under that Aet, 

14 the claims should be returned to BP for immelliate 

15 payment. 

16 (b) DIRECTIVE TO SECRETARY OF THE l~TERIOH.-

17 (1) Ix GE;.JimAL.-:.J otwithstanding any other 

18 pmv1sion of law, the Secretary of the Interior (re19 fprreJ to in this seetion as the "Secretary") shall20 (A) aeeept the new terms of liabilit~· of21 fen~cl by BP in the letter described in snb22 section (a)(2); and 

23 (B) consider the oil and gas leasing con24 tract involved in the Deepwater Horizon inei-
186 

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S.L.C. 

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dent as being amended to ref1ect those new 

terms. 

(2) PADIENT OF CLr\Tl\IS.-

(A) IN GE~EIUL.-As an inherent conclition of the amended lease described in paragraph (1), BP shall present to the Secretary 

each claim relating to the Deepwater Horizon 

explosion and oil spill that BP fails to pay. 

(B) PI~DING OF LEGITDIACY.-As a further inherent condition of the amended lease, if 

the Secretary finds a claim described in subparagraph (A) to be legitimate for pa}'1nent by 

BP, the claim shall be returned to BP for immediate payment. 
Deepwater Operation

in the Gulf of Mexico 

by Company Size 

Data Compiled by the Office of Senator Robert Menendez 
r ill 

All market cap data as reported by Yahoo Finance at 10:00 am EST on June 8, 2010 http://finance.yahoo.com/ 

*Credit Suisse Analysis that costs could be up to $37 billion, reported in http://www.forbes.com/2010/06/02/bp-transoceon-energy-markets-equities-spill.html/ 
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

ATP 0.44 1,355 2001 Ladybug 

ATP 0.44 2,975 2006 Gomez 

ATP 0.44 2,904 2007 Anduin 

ATP 0.44 4,000 2009 Mirage and Morgus 

ATP 0.44 3,452 2009 Clipper 

ATP 0.44 4,385 2010 Telemark 

W and T Offshore 0.69 1,404 2005 Baccarat 

McMoran 0.95 1,275 2004 GB208 

Helix 1.05 2,679 2001 Typhoon 

Petrobras 1.45 2,130 2007 Cottonwood 

Petrobras 1.45 8,143 2010 Cascade 

Petro bras 1.45 8,831 2010 Chinook 

Mariner 2.21 1,120 1999 Dulcimer1 

Mariner 2.21 2,828 1999 Pluto 

Mariner 2.21 1,850 2000 Black Widow 

Mariner 2.21 3,980 2002 King Kong 

Mariner 2.21 4,150 2002 Yosemite 

Mariner 2.21 1,144 2004 Ochre 

Mariner 2.21 6,634 2008 Bass Lite 

Mariner 2.21 2,823 2009 Geauxpher 

Newfield 6.89 2,097 1995 Cooper1 

Newfield 6.89 3,911 2007 Wrigley 

El Paso 7.96 1,500 2001 Prince E

Murphy 9.71 2,223 2003 North Medusa 

rvt_llrphy 9.71 . ____;?3:3_ .. ----------- 2003 Medusa ........... . 
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

Murphy 9.71 3,330 2004 Front Runner 

Murphy 9.71 6,050 2009 Thunder Hawk 

Noble 10.63 2,960 2002 Lost Ark 

Noble 10.63 3,290 2008 Raton Noble 10.63 4,677 2005 Swordfish Noble 10.63 2,315 2006 Lorien 

Hess (Amerada Hess) 16.32 1,648 1998 Baldpate 

Hess (Amerada Hess) 16.32 1,450 1999 Penn State 

Hess (Amerada Hess) 16.32 1,736 2000 Northwestern 

Hess (Amerada Hess) 16.32 1,500 2000 Conger 

Hess (Amerada Hess) 16.32 1,054 2002 Tulane 

Hess (LLOG) 16.32 2,614 2005 Citrine 

Hess (LLOG) 16.32 1,538 2008 Valley Forge 

Hess (LLOG) 16.32 2,013 2009 MC 72 

Anadarko 21.18 1,139 2003 Pardner Anadarko 21.18 4,300 2004 Marco Polo 

Anadarko 21.18 4,006 2005 K2 

Anadarko 21.18 4,049 2006 K2 North Anadarko 21.18 8,344 2007 Vortex/lnd. Hub 

Anadarko 21.18 8,825 2007 Jubilee/lnd. Hub Anadarko 21.18 8,015 2007 Merganser/lnd. Hub 

Anadarko 21.18 8,087 2007 Spiderman/lnd. Hub 

Anadarko 21.18 8,340 2007 Mondo NW/Ind. Hub 

Anadarko 21.18 8,951 2007 Cheyenne/lnd. Hub 

Anadarko 21.18 8,934 2007 Atlas-Atlas NW/Ind. Hub 
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

Anadarko (Kerr McGee) 21.18 3,685 2002 Nan sen 

Anadarko (Kerr McGee) 21.18 3,650 2002 North Boomvang 

Anadarko (Kerr McGee) 21.18 4,210 2002 Navajo 

Anadarko (Kerr McGee) 21.18 3,795 2002 East Boomvang 

Anadarko (Kerr McGee) 21.18 3,678 2003 West Boomvang 

Anadarko (Kerr McGee) 21.18 3,105 2003 Durango 

Anadarko (Kerr McGee) 21.18 3,100 2003 Gunnison Anadarko (Kerr McGee) 21.18 3,152 2003 Dawson Anadarko (Kerr McGee) 21.18 2,965 2006 Dawson Deep Anadarko (Kerr McGee) 21.18 4,970 2006 Constitution 

Anadarko (Kerr McGee) 21.18 5,272 2006 Ticonderoga 

Anadarko (Kerr McGee) 21.18 3,650 2004 Hack Wilson 

Anadarko (Kerr McGee) 21.18 5,300 2004 Red Hawk 

Marathon 22.34 1,195 1998 Oyster 

Marathon 22.34 1,800 1998 Arnold Marathon 22.34 7,216 2002 Camden Hills 

Marathon 22.34 2,900 2010 Droshky Marathon 22.34 3,000 2011 Ozona 

Devon 29.02 1,804 2003 Zia Eni 65.22 1,700 1998 Morpeth Eni 65.22 3,294 1999 Allegheny 

Eni 65.22 3,307 2000 Allegheny South Eni 65.22 5,610 2004 Devil's Tower 

Eni 65.22 5,610 2005 Triton/Goldfinger 

Eni 65.22 5,225 2006 Rigel 

'Eni 65.22 5,881 2006 Seventeen Hands 
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

Eni 65.22 7,850 2007 San Jacinta/Ind. Hub 

Eni 65.22 3,498 2009 Pegasus Eni 65.22 2,442 2009 Longhorn 

ConocoPhilips 75.67 4,674 2004 Magnolia 

ConocoPhillips 75.67 1,760 1989 Jolliet 

BP 108.57 1,100 1991 Amberjack 

BP 108.57 1,290 1994 Pompano/ Pompano II 

BP 108.57 2,721 1997 Troika 

BP 108.57 3,236 2000 Marlin 

BP 108.57 3,535 2001 Nile 

BP 108.57 6,845 2002 King's Peak BP 108.57 3,065 2002 Aspen GBP 108.57 5,400 2002 Horn Mountain M

BP 108.57 5,418 2002 King 

BP 108.57 4,340 2004 Holstein G

BP 108.57 5,759 2004 Kepler/Na Kika M

BP 108.57 6,240 2004 Ariei/Na Kika M

BP 108.57 4,420 2005 Mad Dog G

BP 108.57 7,050 2007 Atlantis GBP 108.57 6,037 2008 Thunder Horse M

BP 108.57 3,236 2009 Dorado V

BP 108.57 6,500 2009 lsabela MBP 108.57 5,660 2009 Thunder Horse North MBP 108.57 4,129 2013 Puma G

Chevron Texaco 142.66 1,048 1995 Shasta' G

- ------- -----
Operator Market Caps for Deepwater Gulf of Mexico Wells 

MarKet Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

Chevron Texaco 142.66 2,590 1999 Genesis Chevron Texaco 142.66 3,393 1999 Gemini Chevron Texaco 142.66 1,753 2000 Petroni us Chevron Texaco 142.66 6,989 2008 Blind Faith 

Chevron Texaco 142.66 4,000 2009 Tahiti 

BHP Billiton 144.27 2,378 2003 Boris BHP Billiton 144.27 4,300 2007 Shenzi BHP Billiton 144.27 4,232 2008 Neptune 

Shell 152.80 1,023 1979 Cognac 

Shell 152.80 1,353 1989 Bullwinkle Shell 152.80 2,860 1994 Auger 

Shell 152.80 1,500 1994 Tahoe/SE Tahoe 

Shell 152.80 1,785 1996 Rocky1 

Shell 152.80 2,000 1996 Popeye 

Shell 152.80 2,933 1996 Mars 

Shell 152.80 5,318 1997 Mensa 

Shell 152.80 3,216 1997 Ram-Powell 

Shell 152.80 3,600 1999 Macaroni 

Shell 152.80 2,045 1999 Angus 

Shell 152.80 3,800 1999 Ursa 

Shell 152.80 3,250 2000 King 

Shell 152.80 3,870 2000 Europa 

Shell 152.80 3,153 2001 Serrano Shell 152.80 3,400 2001 Oregano 

Shell 152.80 3,300 2001 Brutus 

Shell 152.80 4,400 2001 Crosby 
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap Water Year of First 

Operator ($billions) Depth (ft) Production Project Name 

Shell 152.80 3,500 2001 Einset1 

Shell 152.80 1,939 2002 Manatee 

Shell 152.80 3,642 2002 Princess 

Shell 152.80 2,015 2003 Habanera 

Shell 152.80 6,739 2003 Herschel/ Na Kika 

Shell 152.80 6,940 2003 Fourier/ Na Kika 

Shell 152.80 6,590 2003 East Ansley/Na Kika 

Shell 152.80 2,340 2004 Llano 

Shell 152.80 3,440 2004 Glider 

Shell 152.80 7,591 2004 Coulomb/ Na Kika 

Shell 152.80 3,106 2007 Deimos 

Shell 152.80 8,000 2010 Great White 

Shell 152.80 9,226 2010 Silvertip 

Shell 152.80 9,627 2010 Tobago 

ExxonMobil 287.71 1,000 1984 Lena 

Exxon Mobil 287.71 1,438 1992 Alabaster 

ExxonMobil 287.71 1,478 1993 Zinc 

ExxonMobil 287.71 4,825 2000 Hoover 

ExxonMobil 287.71 4,500 2000 Diana 

ExxonMobil 287.71 4,376 2001 Marshall 

ExxonMobil 287.71 4,580 2001 Mica M

Exxon Mobil 287.71 4,856 2002 Madison 

ExxonMobil 287.71 4,852 2004 South Diana 

Deep Gulf Energy N/A 1,900 2007 Tiger 

Hydro ...... ·-···- N/A 7,925 2007 0/lnd. Hub M
Operator Market Caps for Deepwater Gulf of Mexico Wells 

Market Cap water 

Operator ($billions) Depth (ft) 

Hydro GOM N/A 

Marubeni N/A 

Marubeni N/A 

Nexen N/A 

Pioneer N/A 

Pioneer N/A 

Placid N/A 

Placid N/A 

TotaiFinaEif N/A 

TotaiFinaEif N/A 

TotaiFinaEif N/A 

Unocal N/A 

Walter N/A 

Walter N/A 

Walter N/A 

Walter N/A 

Walter N/A 

Walter N/A 

Walter N/A 

Walter N!A 

Walter N/A 

Walter N/A 

Walter N/A 

-------------

1 Indicates projects that are no longer in production 

Data Sources: 

1,487 

3,638 

3,412 

1,168 

3,710 

4,114 

1,540 

2,243 

1,130 

7,100 

2,850 

1,108 

1,043 

1,884 

1,585 

1,360 

1,524 

2,285 

2,924 

2,410 

2,487 

2,415 

Year of First 

Production Project Name 

2002 Sangria1 

2003 Falcon 

2003 Tomahawk 

2005 GC 137 

2004 Raptor 

2004 Harrier' 

1988 GC 291 

1988 GC31 1 

1999 Virgo 

2002 Aconcagua 

2003 Matterhorn 

2001 Pilsner 

1995 VK862 

1999 EW 1006 

2001 EW878 

2001 MC 681 

2004 MC 837 

2005 Killer Bee 

2006 SW Horseshoe 

2008 MC 161 

2009 GB302 

2009 MC 583 

2010 MC241 

------------------------------····--·-------------

Project data: Gulf of Mexico Oil and Gas Production Forecast 2009-2018, Minerals Management Service, 2009 

Financial data: Yahoo Finance as of 5:00pm EST June 8, 2010 http://finance.yahoo.com/ 

E

~~
196 

West law, 

1994 2705, 6) l'SI.\Y 

lfn!tt:d Cnurt of 1\ppcab, 

Fir.st 

ln SlliPPIMi CO'\IPA~\. etc .. 

PbintdT .\ppdk~. 

13EAC!l 

bnt:-:. 

I Icard 1994. 

cxon~:mtion from 

J .. s lO r.Supp. 359. 

missed dealers' claims for cconmnic loss. 

Court of Appeals, Boudin. Circuit 

held that Cnns!itution's ~1dmiralty cbusc 

docs not pn.:L'!ll{lt Rlwdc Island statute rcnnitting 

result ,,r damage to 

part and 

tkadnotcs 

Citcd 

Shellfish dealers' maritime t!aims purely 

ccnnormc loss-::s fronl \lil arc under 

era! nwritim'-~ law. 

! h ,-\dn1.irahy 

1 Cil Jurisdiction 

l~>kl l<l What GnVt:·ms 

l-1-9F EnYironnh2:Hal 

J.f<>F\- Pollution 

1-t9Fkl(J\f Concurrent and ('nnflicting Statutes (l!' !{~_·gulations 

Preemption. \lo-.t 

C1tcd 

(Formerly 199k2.".5(2) llea!th and 

Ha:tardous \Va~tc \ll' 

1-10Fk-W9 Concurrent and ConHicting Stat~ 

uks (.1!" Regulations 

I->0Fk-11 I k. Federal 

(form-:r!y Hen!th and Fnvironmcm) 

36{) Stntcs 

";t,\ll Pulitical Status and Rcbth)ns 

)Zt(lH B) federal Supn.'macy: Prc"''mptiun 

1 Fn\~ironnh:nL Nuclear 

claUS\.' dO('S not 

Rhode Island's Environmental Injury Compt;nsation 

Act pe-rmitting 

of damage h) natural resNtrccs caused by YiolatiGn 

of Rhode !shmd pilotage and pollution 

kch:r:d Oil f\_)l!ution is cornpd!ing evidence 

that Congrcss docs not vit..'W cxp:HlsJon ot liability 

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197 

Page 2 

32 F.3d 623,39 ERC 1115, 1994 A.M.C. 2705,63 USLW 2124,25 Envtl. L. Rep. 20,140 

(Cite as: 32 F.3d 623) 

16 Admiralty 

161 Jurisdiction 

16k I .I 0 What Law Governs 

l6k !.20 Effect of State Laws 

I6kl.20(5) k. Torts in General; Workers' Compensation. Most Cited Cases 

Injured party may have claims arising from single 

accident both under federal maritime law and under 

state law, whether legislation or common law. 28 

U.S.C.A ~ L\33. 

(41 Admiralty 16 ~2 

16 Admiralty 

16! Jurisdiction 

16k2 k. Saving of Common-Law Remedy. 

Most Cited Cases 

State remedies under savings to suitors clause may 

be pursued in state court or, where there is basis for 

federal jurisdiction. in federal court. 28 U.S.C.A. § 

1333. 

(51 Admiralty 16 ~1.20(1) 

16 Admiralty 

161 Jurisdiction 

I 6k 1.10 What Law Governs 

16k 1.20 Effect of State Laws 

16kl.20(I) k. In General. Most Cited 

Cases 

States 360 ~18.57 

.160 States 

360! Political Status and Relations 

.1601(8) Federal Supremacy; Preemption 

360k18.57 k. Maritime Matters. Most 

Cited Cases 

Even absent prejudice to characteristic feature of 

admiralty. state legislation is preempted if it interferes with proper harmony and uniformity of maritime law. U.S.C.A. Const. Art. 3, ~ 2. d. I. 

(61 Admiralty 16 ~1.20(1) 

16 Admiralty 

161 Jurisdiction 

16k I .I 0 What Law Governs 

16k 1.20 Effect of State Laws 

l6kl.20(1l k. In GeneraL Most Cited 

Cases 

State regulation of primary conduct-behavior of 

ship or sailors-in maritime realm is not automatically forbidden, but such regulation presents most 

direct risk of conflict between federal and state 

commands or of inconsistency between various 

state regimes to which same vessel may be subject. 

U.S.C.A. Const. Art. 3. § 2. cl. I. 

*624 Thomas M. Bond with whom David B. Kaplan and The Kaplan/Bond Group, Boston, MA. 

were on brief: for appellants< 

John .1. Finn with whom Thomas H. Walsh. Jr.. 

:Vlarianne ~1eacham and Bingham, Dana & Gould. 

Boston, MA. were on brief. for appellee. 

Before SELY A, Circuit Judge, BOWNES. Senior 

Circuit Judge. and BOUDIN. Circuit Judge. 

BOUDIN. Circuit Judge. 

This appeal presents the question whether federal 

maritime law preempts Rhode Island legislation af. 

fording expanded state-law remedies for oil pollution damage. In an able opinion. the district court 

held that the remedies were preempted. Discerning 

the taw in this area is far from easy; one might tack 

a sailboat into a fog bank with more confidence. 

Yet guided in part by an important Supreme Court 

decision rendered after the district court's decision, 

we are constrained to reverse in part and to remand 

for further proceedings. 

The basic facts of the case are not in dispute. On 

June 23, 1989, the M!V World Prodigy, an oil 

tanker owned by Ballard Shipping Co .• ran aground 

in Narragansett Bay. Rhode Island. spilling over 

300,000 gallons of heating oil into the bay. The 

wreck occurred when the ship strayed from the designated shipping channel and collided with a rock 

near Brenton Reef, about a mile south of Newport 

at the mouth of the bay. The oil slick prompted the 

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32 F.3d 623,39 ERC 1115, 1994 A.M.C. 2705,63 USLW 2124.25 Envtl. L. Rep. 20,140 

(Cite as: 32 F.3d 623) 

State of Rhode Island to close Narragansett Bay to 

all shellfishing activities for a period of two weeks 

during and after cleanup operations. 

State authorities charged the captain of the ship 

with entering the bay without a local pilot on board 

in violation of state law. Both the captain and Ballard also pleaded guilty to criminal violations of the 

Federal Water Pollution Control Act, see 33 U.S.C. 

§ 1319( c). The captain and owner were fined a total 

of $30,500 and $500,000, respectively. In addition. 

Ballard agreed to pay $3.9 million in compensation 

for federal cleanup costs, $4.7 million for state 

cleanup costs and damage to natural resources, 

$500,000 of which was to be available to compensate individuals, and $550,000 to settle claims 

for lost wages by local shell fishermen. 

A number of claimants filed suit against Ballard in 

Rhode Island. Ballard responded on December 22, 

1989, by bringing a petition in admiralty for limitation or exoneration from liability. 46 App.U.S.C:. ~ 

I X5. "(T]he court of admiralty in [a limitation of liability] proceeding acquires the right to marshal all 

claims, whether of strictly admiralty origin or not, 

and to give effect to them by the apportionment of 

the res and by judgment in personam against the 

owner, so far as the court may decree."' Just 1'. 

Chambers. 312 U.S. 383, 386. 61 S.Ct. 687. (•90. 85 

L.Ed. 903 ( 1941 ). In the present case, several 

claimants reasserted their claims in the admiralty 

action. 

The claimants in the present appeal are a group of 

shellfish dealers who allege severe economic losses 

arising from the two-week hiatus in shellfishing 

activities, which suspended their operations during 

the busiest time of the shell fishing season. They alleged negligence under the general maritime law 

and the common law of Rhode Island. as well as a 

claim for economic losses pursuant to the Rhode Island Environmental Injury Compensation Act, 

R.I.Gen.Laws ch. 46-12.3 et seq. ('"the Compensation Act"). 

On June 17, 1992, Ballard moved to dismiss the 

shellfish dealers' claims on the basis of the Supreme 

Court's decision in Robins Dry Dock & Repair Co. 

v. Flint. 275 U.S. 303. 48 S.Ct. !34. 72 L.Fd. 290 

(I ~27), which held that compensation for economic 

losses standing alone is unavailable in admiralty 

*625 cases. The district court granted the motion, 

holding that Robins preempted the contrary provisions of the state's Compensation Act, which expressly provides for recovery of purely economic 

losses arising from an oil spill. In re Complai11t (~! 

Ballard Shipping Co.. 810 F.Supp. 359 

(D.fU.I993). The dealers now appeal from that dismissal. 

We first address the federal claims brought under 

the general maritime law. The Constitution grants 

the federal courts authority to hear "all Cases of admiralty and maritime Jurisdiction." U.S. Con st. Art. 

Ill, § 2. The parties agree that the dealers' federal 

claims fall within this group because the spill occurred on navigable waters and arose out of traditionalmaritime activity. See Executive Jet Al'iation, 

inc. v. Cily of' Cleveland. 409 U.S. 249, 93 S.Ct. 

493. 34 LEd.2d 454 ( 1972). Admiralty jurisdiction 

brings with it a body of federal jurisprudence. 

largely uncodified, known as maritime law. See 

East River S.S. Corp. 1'. Transamerica Dclaval, 476 

U.S. 858. 864, 106 S.Ct. 2295.2298-99.90 L.Ed.2d 

865 (!986 ). 

[I J The dealers assert that their businesses were injured when the World Prodigy spill prevented local 

fishermen from harvesting shellfish in Narragansett 

Bay and thereby precluded the dealers from purchasing the shellfish and reselling them to restaurants and other buyers. The dealers' maritime-law 

claims are thus purely for economic losses, unaccompanied by any physical injury to their property 

or person. Those federal claims, as the district court 

held, are squarely foreclosed by Robins Drl' Dock 

& Repair Co. \'.Flint, 175 U.S. 303. 48 S.Ct. 134, 

72 LFd. 290 (!927). 

In Robins, the charterer of a vessel sued a repair 

company that negligently damaged the vessel while 

it was in dry dock, alleging that the resulting delay 

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(Cite as: 32 F.3d 623) 

caused the charterer to lose profits that it would 

have otherwise derived from the use of the ship. 

Justice Holmes wrote for the Court in holding that 

the suit could not be maintained: 

[N]o authority need be cited to show that, as a 

general rule, at least, a tort to the person or property of one man does not make the tort-feasor liable to another merely because the injured person 

was under a contract with that other unknown to 

the doer of the wrong .... The law docs not spread 

its protection so far. 

275 L.S. at 309, 48 S.Ct. at I .15. 

Justice Holmes's pronouncement could have been 

read merely as negating a claim of negligent interference with contract. See Gelty Rciining and Afarketing Co.,., MT FAD! B, 766 F.2d 829,831-32 (3J 

Cir.l985). Instead, Robins has generally been taken 

to establish the broader rule that purely economic 

losses arising from a tort, but unaccompanied by 

physical injury to anything in which the plaintiff 

has a proprietary interest. are not compensable under federal maritime law. See, e.g., State r~j'I.ouisiano ex rei. Gus!c v. Af/V Tesrhank, 752 F.2d 1019, 

1022 (5th Cir.l985) (en bane), cert. denied. 477 

lJ.S. 903. 106 S.Ct. 3::71, 91 L.Ed.2d 562 (1986). 

Our circuit adopted this broader reading in Burher 

Lines A/,)' v. 1H/r Donau .\far11, 7()4 F.2d 50. 51-52 

(1st Cir.l985), and, in any event, the secondary 

nature of the economic injury here-which is akin to 

interference with contract-would likely bring this 

case wlthin even a narrow reading of Robins. 

[2] Several courts have recognized exceptions to 

Robins, bt:.~n one of the familiar examples apply in 

this casei The district court so held, and the 

dealers do not challenge that conclusion on appeal. 

Accordingly, we agree that plaintiffs' federal claims 

for purely economic losses under the general mari· 

time law are barred. The appeal thus turns upon the 

extent to which Robins bars the states from permitting a different result under state law pursuant to 

the exercise of the state's police powers. 

FN I. The classic exceptions include claims 

brought by fishermen as "favorites of admiralty." see Union Oil Co. \'. Oppen. 501 

F.2d 55X (9th Cir.l974), and claims for 

economic losses that are intentionally 

caused~ see Dick A1eyers Towing Serricc, 

Inc. v. United States, 577 F.2d I 023, I 025 

(5th Cir.197R), cert. denied, 440 C.S. 908. 

99 S.Ct. 1215.59 L.Ed.2d 455 (1979). 

[3)[4] Although the Judiciary Act of 1789 vested 

"exclusive original cognizance of all civil causes of 

admiralty and maritlmc jurisdiction" in the federal 

courts, the act added a *626 provision "saving to 

suitors, in all cases, the right of a common law remedy, where the common law is competent lo give 

it." l Stat. 76-77. The modern version of the statute 

saves "all other remedies to which [suitors] are oth· 

erwise entitled." 28 C.S.C. ~ 1333. The upshot is 

that an injured party may have claims arising from 

a single accident both under federal maritime law 

and under state law, whether legislation or common 

law. See G. Gilmore & C. Black. Jr., The Law of 

Admiralty§ 1-!3. at 37 (2d ed. 1975). State remedies under the savings to suitors clause may be pursued in state court or, where there is a basis for federal jurisdiction, in federal court. 

Whether a state claim is litigated in a federal court 

or a state forum, "the extent to which state law may 

be used to remedy maritime injuries is constrained 

by a so-called 'reverse-Erie ' doctrine which requires that the substantive remedies afforded by the 

States conform to governing federal maritime 

standards.'' q{J,~·hon.! Logislh\-..·, Inc. l'. Ta/!enlire, 

4 77 U.S. 207. 223. I 06 S.Ct. 2485, 2494, 91 

L.Ed.2d 174 (!986) (citations omitted). How far 

this contOnnity requirement extends, and whether it 

preempts the dealers' state-law claims, are the central issues in this case. 

On appeal, the dealers mainly stress their claims 

under Rhode Island's Compensation Act. The Compensation Act provides generally that owners or operators of seagoing vessels may be held liable for 

harms arising from neghgence of the owner, operat~ 

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works. 
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Page 5 

32 F.3d 623.39 ERC 1115, 1994 A.M.C. 2705.63 USLW 2124.25 Envtl. L. Rep. 20,140 

(Cite as: 32 F.3d 623) 

or or agents or from the violation of Rhode Island 

pilotage and water pollution laws. See 

R.l.Gen.Laws *~ 46-12.3-2, 46-12.3-3. The statute 

also contains the following specific provisions regarding economic loss: 

(a) A person shall be entitled to recover for economic loss ... if the person can demonstrate the 

loss of income or diminution of profit to a person 

or business as a result of damage to the natural 

resources of the state of Rhode Island caused hy 

the violation of any provision [of the piloting or 

water pollution laws] by the owner or operator ... 

of the seagoing vessel and/or caused by the negligence of the owner or operator ... of the seagoing 

vesseL 

(b) In any suit brought to recover economic loss 

it shall not be necessary to prove that the toss \Vas 

sustained as a result of physical injury to the person or damage to his or her property, nor shall it 

be a defense to any claim that the defendant owed 

no special duty to the plaintiff or that the loss was 

the result of governmental action taken in response to the violation and/or negligence of the 

defendant. 

(c) Without limiting the generality of the foregoing, persons engaged in commercial fishing or 

shellfishing and/or the processors of fish or shellfish, who can demonstrate that they have sustained a loss of income or profit as a result of 

damage to the environment resulting from 

[violations of law or negligence] .. shall have a 

cause of action for economic loss. Persons em~ 

ploycd by, or who operate businesses, who have 

sustained a loss of income or profit as a result of 

a decrease in the volume of business caused by 

the damage to the environment shall also be entitled to maintain an action for economic loss. 

R.I.Gen.Laws ~ 4/i-12.3-4. 

For the purposes of this appeal only. Ballard concedes that the dealers would have a valid cause of 

action under this statute. and that the Compensation 

Act, which became effective on September 30, 

1990, mav be applied retroactively to cover the 

1989 M/V World Prodigy spiiiFI\:c We think that 

the statutory claims effectively subsume state common law claims since the Compensation Act appears to go as far and further than common law in 

departing from Robins. Thus. we focus upon the 

statute. 

FN2. See 1990 R.I.Pub.Laws ch. 198, § 2 

(providing that the Compensation Act shall 

apply to all causes of action pending on or 

after September 30, 1990. regardless of 

when the violation and/or act of negligence 

occurred, as long as suit was commenced 

within the applicable statute of limitations). 

The shipowner and captain insist, and the district 

court agreed, that the state claims arc preempted 

under the doctrine of *627Southern Pac{!ic C'o. v. 

Jensen. 244 U.S. 205. 37 S.Ct. 524. 61 LEd. IOX6 

( 1917). Jensen, in a now famous passage, held that 

state legislation affecting maritime commerce is invalid "if it contravenes the essential purpose expressed by an act of Congress, or works material 

prejudice to the characteristic features of the general maritime law, or interferes with the proper harmony and uniformity of that law in its international 

and interstate relations." Jd. at 216. 37 S.Ct. at 529. 

Jensen. however, was by its own terms something 

less than a rule of automatic and mechanical preemption. "!t would be difficult. if not impossible," 

said the Court. "to define with exactness just how 

far the general maritime law may be changed, modified, or affected by state legislation. That this maJ< 

be done to some extent cannot be denied." 244 LJ.S. 

at 216. 37 S.Ct. at 529 (emphasis added). What is 

even more telling is that the Supreme Court after 

Jensen. without ever repudiating its language, upheld the application of state law in a number of 

maritime~related cases despite the existence of a 

direct conflict between maritime rules and state 

law. 

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32 F.3d 623, 39 ERC 1115, 1994 A.M.C. 2705, 63 USLW 2124, 25 Envtl. L. Rep. 20,140 

(Cite as: 32 F.3d 623) 

This saga is recounted in Professor Currie's classic 

article, aptly titled "Federalism and the Admiralty: 

'The Dcvil's Own Mess,' " 1960 Sup.Ct.Rev. 158. 

A familiar example is Just v. Charnbers, 312 U.S. 

3~3. 61 S.Ct. 687. 85 L. Ed. 903 ( 1941 ), where the 

Court permitted a state law claim for personal injury occurring on board a ship against the estate of 

the vessel's owner, despite a contrary maritime rule 

that a shipowner's liability docs not survive his 

death. This year, in American Dredging Co. v . 

. Hiller, 510 L.S. 443, 114 S.Ct. 981, 127 L.Ed.2d 

2~5 (1994), the Court upheld a Louisiana openforum statute, making the forwn non conveniens 

doctrine unavailable in savings clause cases, even 

though forum non conveniens is a part of federal 

maritime law. 

American Dredging assertedly reaffirms Jensen's 

three-prong test for preemption quoted above. Since 

no act of Congress directly governs our case, the 

first prong (contravention) is irrelevant to our case. 

The third prong ("proper harmony and uniformity") 

we reserve for consideration below. What is of immediate concern is the second ("'material prejudice") prong; and here, American Dredging gave 

the famous language a twist that could not casi ly 

have been anticipated by the litigants in this case or 

by the district court. 

Judged by the bare language of Jensen, the Compensation Act might easily seem to do "material 

prejudice" to a "characteristic feature" of maritime 

law, since Robins is the governing maritirne rule 

and the Compensation Act rejects Robins in 

everything but name. But the word "characteristic" 

has different shadings, and American Dredging, in 

its first and most important holding, gives the 

"characteristic feature" language a definitive meaning: it reads the phrase to apply-and apparently only 

to apply-to a federal rule that either "originated in 

admiralty'' or "has exclusive application there." 5 l 0 

(;.S. at----, 114 S.Ct. at 987. 

indeed, Justice Scalia goes on to say that the doctrine at issue in American Dredging, the doctrine of 

forum non conveniens, "is and has been a doctrine 

of general application'' and that "therefore" its disregard by Louisiana does not prejudice "[a] characteristic featur[e]" of general maritime Jaw." 510 

U.S. at ----, 114 S.Ct. at 987. Further, only sonarrow a reading of the characteristic feature test comports with the result in American Dredging. Since 

the forwn non conveniens doctrine had long and 

widespread application in admiralty cases, id. at -

114 S.Ct. at 9S6. a broad reading of the characteristic feature test would have resulted in preemption. 

Although it is easier to identify the origins of a doctrine recognizing liability than one denying it, we 

have found no evidence that Robins' denial of recovery for purely economic losses originated in admiralty. Justice Holmes's opinion in Robins 

presents the rule as a virtual truism for which "no 

authority need be cited," 275 U.S. at 309, 48 S.Ct. 

at 135, and refers the reader to three other opinions 

in which "[a] good statement [of the rule] will be 

found." !d. (citing Elliot Steam Tug Co., Ltd. v. The 

Shipping Controller, I K.B. 127, 139, 140 (1922); 

Byrd v. English. I 17 Ga. 191. 43 S.E, 419 (1903): 

and The Federal No. 2, 21 F.2d 313 (2d Cir.l927)). 

*628 Although Elliot Steam Titg and The Federal 

No. 2 are both maritime cases, Byrd involved a suit 

against a defendant who had negligently damaged 

the lines supplying power to plaintiffs printing 

company. Justice Holmes also cited another case, 

;\'mional S'a~>ings Bank v. J+'ard. 100 L.;.S. 195. 25 

L.Ecl. 621 (l X79). which involved a suit by a 

plaintiff who had relied upon a certificate of title 

prepared by the defendant attorney for a third party. 

The rule applied in Robins is also sometimes traced 

to Callie v. Stockton Waterworks Co., lO Q.B. 453 

( 1875), which concerned liability for delays 

suffered by plaintiffs construction company caused 

by water leaking from defendant's pipes. The admiralty cases thus reflect a traditional, if not invariable, "general principle denying liability for purely 

economic loss in the law of negligence." Atiyah, 

"Negligence and Economic Loss," 83 L.Q.Rev. 

248, 248-51 (1967). In sum, "Rohins broke no new 

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(Cite as: 32 F.3d 623) 

ground but instead applied a principle, then settled 

both in the United States and England, which refused recovery for negligent interference with 

·contractual rights.' " State o( Louisiona ex ref. 

Gnstc v. JI/V Tusthank. 752 F.2d 1019, 1022 (5th 

Cir.1985) (en bane), cert. denied. 477 L:.S. 903, I 06 

S.Ct. 3271.91 L.Ed.2d 562 (1986). 

Nor has the doctrine forbidding recovery of such 

losses had "exclusive" application in admiralty. Sec 

generally P. Keeton, Prosser and Keeton on Torts § 

129, at 999-1002 (5th ed. 1984). Rather, courts 

have denied liability for purely r'~~nomic harm in a 

variety of land-based contexts. · Such cases rest 

on a concern about extending the scope of tort liability beyond the generally limited class of individuals who suffer physical damage to person or property. See Rabin, "Tort Recovery for Negligently Inflicted Economic Loss: A Reassessment," 3 7 

Stan. L.Rcv. 1513, 1528 ( l9R5 ). This concern 

stretches landward quite as much as seaward. Thus, 

we hold that Rhode Island's decision to depart from 

Robins does not materially prejudice a rule that originated in or is exclusive to general maritime law, 

FK3. See, e.g., Dundee Cement Co. v. 

Chemical Lahoratohes, Inc., 712 F.2d 

II 06 (7th Cir.l983) (denying recovery for 

lost profits from owner of tanker truck 

which overturned, blocking the only entrance to plaintiffs cement plant); Nebraska Innkeepers. Inc. \', Pi!lsburgh-Des 

~Joines Corp., 345 N.W.2d 124 (Iowa 

I 9S4 J (holding that businesses adversely 

affected by closing of bridge in which 

cracks developed could not recover for 

economic losses against the builder of the 

bridge); Ste1·enson 1'. East Ohio Gas Co., 

73 N.E.2d 200 (Ohio Cu\pp.l946) 

(holding that plaintiff could not recover 

lost wages against defendant, whose negligence in storing explosives caused destrnction of plaintiffs nearby place of employment); !!art Eng'g Co. v. FMC Corp., 593 

F.Supp. 1471, 1481-84 (D.R.I.I984) 

(Selya, J.). 

[5] Even absent prejudice to a characteristic feature 

of admiralty, state legislation is preempted if (under 

Jensen's third test) it "interferes with the proper 

harmony and uniformity" of maritime law. Jensen, 

244 U.S. at 216 . .17 S.Ct. at 529. As Justice Scalia 

observed in considering this question, '"[i]t would 

be idle to pretend that the line separating permissible from impermissible state regulation is readily 

discernible in our admiralty jurisprndence, or indeed is even entirely consistent within our admiralty jurisprudence." American Dredging, 510 U.S. 

at----, 114 S.Ct. at 987. lie did not, however, articulate a definitive test of harmony and uniformity, 

holding only that there is no preemption where the 

relevant state law is procedural rather than substantive. ld. at----, 114 S.Ct. at 988. In our case, 

the Rhode Island statute is indisputably substantive. 

Where substantive law is involved, we think that 

the Supreme Court's past decisions yield no single, 

comprehensive test as to where harmony is required 

and when uniformity must be maintained. Rather, 

the decisions however couched reflect a balancing 

of the state and federal interests in any given case. 

See, e.g., Koss;ck v. U11itcd Fruit Co., 365 U.S. 

731, 73R-42. ~1 S.Ct. R86. 891-94. 6 L.Ed.2d 56 

( 1961 ); 1 Iuron Portland Cement Co. \'. City r~l Detroit, 362 U.S. 440.442-48,80 S.Ct. 813,815-18.4 

L.Ed.2d 852 ( 1960). Our circuit has acknowledged 

that "the Supreme Court .. no longer construes the 

Admiralty Clause as requiring 'rigid national uniformity in maritime legislation.' " Carey v. Bahama 

Cruise /.ines, 864 F.2d 201. 207 (1st Cir.1988), and 

that the preemption issue ''ordinarily requires a clelicate*629 accommodation of federal and state interests." I d. As Professor Currie summed up the 

matter: 

The maritime nature of an occurrence does not 

deprive a state of its legitimate concern over matters affecting its residents or the conduct of persons within its borders; but the federal admiralty 

powers were granted to protect certain federal interests in maritime and commercial affairs. An is-

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sue created by such a conflict of interests can be 

resolved only by reference to those interests and 

by an attempt to maximize the effectuation of the 

proper concerns of both state and nation. 

1960 Sup.Ct.Rev. at 169. 

In balancing the state interest in regulation against 

a potential overriding federal need for harmony or 

uniformity, we start with Rhode Island's interest in 

implementing its Compensation Act. No one can 

doubt that the state's interest in avoiding pollution 

in its navigable waters and on its shores, and in redressing injury to its citizens from such pollution, is 

a weighty one. In Huron Portland Cement. the Supreme Court described state air pollution laws as a 

classic example of police power, and continued: "In 

the exercise of that power, the states ... may act, in 

many areas of interstate commerce and maritime 

activities, concurrently with the federal government." 362 L.S. at 442, ~0 S.Ct. at 815 (emphasis 

added). 

In Askew \'. American Wv!erwoys Operators, Inc .. 

411 li.S. 325. 93 S.Ct. 1590. 36 L.Ed.2d 280 

( 1973 ), the Court sustained, against a maritime-law 

preemption challenge, a Florida statute that imposed no-fault liability on vessel owners and operators for damages to private parties caused by oil 

spills in territorial waters. Justice Douglas described oil spillage as "'an insidious form of pollution of vast concern to every coastal city or port and 

to all the estuaries on which the life of the ocean 

and lives of the coastal people are greatly dependent." Jd. at 328-29, 93 S.Ct. at 1594. See also id. at 

332-43,93 S.Ct. at1595-1601. 

Claimants in this case argue flatly that Askew, 

without more, sustains the Rhode Island statute; 

and perhaps it does. The difficulty is that Justice 

Douglas rejected the maritime law preemption 

claim on the ground that Jensen had nothing to do 

with "shoreside injury by ships on navigable waters." 411 U.S. at 344, 93 S.Ct. at 1601. 

"Historically," said Justice Douglas, ''damages to 

the shore or to shore facilities were not cognizable 

in admiralty." Id at 340, 93 S.Ct. at 1599. Although Congress had by statute extended admiralty 

jurisdiction shoreward in 1948, the Court said that 

this extension did not carry Jensen with it. !d. at 

341.93 S.Ct. ar 1600. 

If Justice Douglas meant to avoid preemption for 

physical damage to the shore or shore facilities, as 

his words seem to suggest, this might easily not 

embrace damage to bay waters or the beds beneath 

them. If instead Askel-v meant to allow a state remedy for any intangible impact or loss ultimately felt 

on shore, it is hard to sec what would be left of 

preemptive federal authority since the most traditional of admiralty events-for example, a ship collision or a seaman's death-has such intangible effects 

ashore. However the riddle of Asknv is solved, we 

think it safest to take it here merely to show, as it 

assuredly does, the importance of the state's interest 

in providing remedies for vessel-caused oil pollution damage. 

]6] The federal interest in limiting remedies is more 

subtle but also not without importance. The Compensation Act does not regulate the out~of-court behavior of ships or sailors-what is sometimes called 

"primary conduct"; rather the act is concerned with 

the liability imposed for conduct that is already unlawfuL State regulation of primary conduct in the 

nwrltime realm is not automatically forbidden, e.g .. 

Ray v. Atlantic Ricl!(ield Co., 435 L.S. 15!, 179-80, 

Y8 S.Ct. 9~8, 1005-06,55 LEd.2d 179 (1978), but 

such regulation presents the most direct risk of conDiet between federal and state commands, or of inconsistency between variou~ sta ~-}.;~egimes to which 

the same vessel may be subject. 

FN4. O'Meh·eiiV & J~\'ers ,._ Federal Deposit fnv. Corp., 512 U.S. 79, ----. 114 

S.Ct. 2048, 2055, 129 L.Ed.2d 67 (1994) 

(suggesting that uniformity is most important \vhere the mle at issue is one governing 

primary conduct); American Dredging, .5 I 0 

U.S. at ---- - ----, 114 S.Ct. at 988-89 

(noting that "fOrum non conveniens does 

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cover, and is not a rule upon which maritime actors rely in making decisions about 

primary conduct"). 

*630 Instead, the question here is the familiar one 

of burden. At some point, a regime of liability, or a 

diversity of regimes, could impose or threaten such 

heavy costs that maritime commerce may itself be 

impaired. Initially such costs are borne by shipowners but in the end they affect every business that 

uses ships or receives raw materials by ship and 

every citizen who, as a worker or consumer, depends upon such commerce. A regime may also be 

so difficult to administer as to prevent the efficient 

and predictable resolution of maritime disputes. 

These are not trivial or irrelevant concerns, for ''the 

fundamental interest giving rise to maritime juris-

~~~on is the protection of maritime commerce.'' 

FNS. Erxon Cm]J. v. Central Gu(f Lines. 

Inc .. 500 U.S. 603, 606-08, Ill S.Ct. 207!, 

2074, 114 L.Ed.2d 649 ( 19911 (internal 

quotations omitted), The Supreme Court 

has regularly considered such burdens in 

admiralty preemption cases, see, e.g., Ra_v 

v. Atlantic Richfield Co., 435 U.S. 15!, 

179-80, 9X S.Ct. 9R8, 1005-06, 55 L.Ed.2d 

179 (1978); llnron Portland Cement, 362 

C.S. at 443-44, XO S.Ct. at 815-16, and has 

drawn explicit parallels between admiralty 

preemption and Commerce Clause analysis. See Davis V. Department or f.ahor aod 

lndwNries (~l Washington, 317 U.S. 249, 

257. (13 S.Ct. 225. 229-30, 87 L.Ed. 246 

(1942); i-Vi!burn Boat Co. v. Fireman's 

Fund Ins. Co., 348 U.S. 310, 323-24, 75 

S.Ct. 368. 375-76. 99 L.Ed. 337 (1955) 

(Frankfurter, J., concurring in the result). 

This does not, however, mean that the admiralty clause simply duplicates a commerce clause analysis. See American 

Dredging, 510 U.S. at---- n. 3, 114 S.C't. 

at 988 n. 3. 

Indeed, these very concerns-with the burden of liability and of administration-underpin the Robins 

role itself and are discussed at length in Barber 

Unes, 764 F.2d at 54-55. But it is one thing to say 

that a federal court, largely responsible for shaping 

the common law of admiralty, should follow a 

longstanding liability rule to govern a federal cause 

of action. It is quite another to say that a state remedy, presumptively preserved under the savings to 

suitors clause, is potentially so disruptive as to be 

unconstitutional. Where as here the state remedy is 

aimed at a matter of great and legitimate state concern, a court must act with caution. 

The question, then, is whether absent the Robins 

rule there remain limitations on the scope of recovery under the Compensation Act adequate to limit 

the burden it imposes on maritime commerce. The 

Compensation Act has yet to be construed by the 

Rhode Island courts. We nevertheless assume that 

its extension of liability to cover all "loss of income 

or diminution of profit .,. as a result r~f damage to 

the natural resources of the state of Rhode Island 

caused by the violation of [Rhode Island pilotage or 

pollution laws]," R.I.Gen.Laws ~ 46-12.3-4 

(emphasis supplied), incorporates the familiar tort 

limitations of foreseeability and proximate cause. 

These principles do in some rneasure limit the burden imposed on maritime shipping. 

Foreseeability may extend some distance, cf 

Barber Lines'. 764 F .2d at 52, and "remoteness'' is 

scarcely a sharply defined concept. Compare PctiJions of' Kinsman Transit Co .. 388 F.2d 821 (2d 

Cir.l968) (rejecting Robins but excluding economic 

losses suffered by the owner of a vessel prevented 

from unloading its cargo above a bridge that collapsed as a result of defendant's negligence as too 

remote to permit recovery). \Ve cannot be sure how 

Rhode Island courts wi II develop these concepts in 

the context of oil pollution cases. Depending on 

Rhode Island's solutions, the burdens imposed by 

the Compensation Act, financial and administrative, 

may be substantial but they may also be tolerable. 

One might say that the case for preemption at this 

stage is subject to the Scotch verdict-not proven. 

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Having said all this, we think one final consideration tips the scales in favor of the Compensation 

Act's validity. Congress has recently enacted the 

Oil Pollution Act, 33 U .S.C. ~ 270 I et seq., which 

almost certainly provides for rccov~R of purely 

economic damages in oil spill casesh 6 *631Scction 2702(b)(2)(E) of the act provides that 

"[d]amages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or 

natural resources. shall be recoverable by any 

claimant." The House Conference Report makes 

clear that, under section 2702(b )(2 )( El, "[t)he 

claimant need not be the owner of the damaged 

property or resources to recover for lost profits or 

income". H.R.Conf.Rep. No. 101-653, IO!st Cong., 

2d Sess. 103 (1990), U.S.Code Cong. & Admin.Ncws 1990, p. 722. The act also expressly 

provides that it does not preempt state imposition of 

additional liability requirements. 33 li.S.C. 

27!8(a). 

FN6. We say ''almost" only because one 

court has held to the contrary. See In rc 

?etitiu11 (?l C!tTeland Tankers, Inc. 791 

F.Supp. 669, 678-79 (E.D.Mich.I992). 

Most commentators, by contrast, have read 

the new statute-as its language and legislative history suggest-to override the 

Robins Dry Dock rule, see McCurdy, "An 

Overview of OPA 1990 and Its Relationship to Other Laws,'' 5 L.S.F.Mar.L.J. 423 

( 1993); Gonynor, "The Robins D1y Dock 

Rule: Is the 'Bright Line' Fading''" 4 

li.S.F.Mar.L.J. 85 (1992). 

The statute contains another substantial piece of 

evidence that Congress means to allow recovery of 

economic losses from injury to natural resources 

even though the claimant's own property was not 

damaged. ln another subsection of the damage provision, there is an explicit provision for recovery of 

"'economic losses resulting from destruction of real 

or personal property'· by a claimant "who owns or 

leases that property." 33 lJ.S.C. ~ 2702(b)(2)(B). If 

the "natural resources·' injury provision in subsection (E) were limited to those owned by the 

claimant, the recovery thus provided would be 

already covered by subsection (B) and subsection 

(E) would be redundant. u·nited States v. Ven-Fue/, 

Inc., 758 F.2J 741, 751-52 (lst Cir.I985) (readings 

that create redundancies are not favored). 

The new federal statute does not apply retroactively 

to govern the present case. See Pub.L. l'>o. J0!-380, 

~ 1020 (providing that the statute "shall apply to an 

incident occurring after the date the enactment of 

this Act [August IS, 1990)."). But we think that the 

statute is compelling evidence that Congress does 

not view either expansion of liability to cover 

purely economic losses or enactment of comparable 

state oil pollution regimes as an excessive burden 

on maritime commerce. Given the Congress' superior ability to weigh the very practical considerations 

relating to such a judgment, we give Congress' conclusion substantial weight. For this purpose, the 

non-retroactivity of the statute is irrelevant. 

We hold, then, that the Rhode Island's Compensation Act as reasonably construed and applied is not 

preempted by the admiralty clause of the Constitution. We express no judgment on whether 

claimants' particular injuries were reasonably foreseeable or proximately caused by the grounding of 

the M/V World Prodigy, or whether claimants' 

claims arc otherwise viable under the Rhode Island 

statute. That determination is for the district court 

in the first instance or for the state courts. Robins 

D1:v Dock remains the rule in this circuit for federal 

claims; we simply hold that Rhode Island is free to 

chart a different course. 

Because of the Oil Pollution Act, it may well be 

that the immediate problem with which we have 

wrestled at length in this case is a transient one; the 

legal regime for oil pollution accidents after August 

18, 1990, will largely be a creature of the new statute. But the case before us, like all cases, is important to the litigants, and the governing legal standards have application elsewhere. Applying an imprecise federal preemption standard to a little con-

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stmed state statute is no easy task. For the present, 

assuming that the Rhode Island statute is providently construed and applied. we think that it is not 

unconstitutional. 

The decision of the district court dismissing 

plaintiffs' federal claims is affirmed: the dismissal 

of plaintiffs1 state claims is reversed and the case is 

remanded for further proceedings consistent with 

this opinion. 

C.A.I (R.I.),I994. 

Ballard Shipping Co. v. Beach Shellfish 

32 F.3d 623,39 ERC 1115, 1994 A.M.C. 2705,63 

USLW 2124,25 Envtl. L. Rep. 20,140 

END OF DOCUMENT 

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