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56–957 PDF 2010

LIABILITY AND FINANCIAL 

RESPONSIBILITY FOR OIL SPILLS 

UNDER THE OIL POLLUTION ACT 

OF 1990 AND RELATED STATUTES 

(111–117) 

HEARING 

BEFORE THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

June 9, 2010 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ARCURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SOLOMON P. ORTIZ, Texas 

PHIL HARE, Illinois 

JOHN A. BOCCIERI, Ohio 

MARK H. SCHAUER, Michigan 

BETSY MARKEY, Colorado 

MICHAEL E. MCMAHON, New York 

THOMAS S. P. PERRIELLO, Virginia 

DINA TITUS, Nevada 

HARRY TEAGUE, New Mexico 

JOHN GARAMENDI, California 

HANK JOHNSON, Georgia 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

VERNON J. EHLERS, Michigan 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

CONNIE MACK, Florida 

LYNN A WESTMORELAND, Georgia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

AARON SCHOCK, Illinois 

PETE OLSON, Texas 

VACANCY 

(II) 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... v 

TESTIMONY 

Abbey, Bob, Acting Director, Minerals Management Service .............................. 65 

Anderson, Charles B., Esquire, Senior Vice President and Head of Office, 

Skuld North America, Inc. (P&I Club) ............................................................... 22 

Bennett, Craig A., Director, National Pollution Funds Center ............................ 65 

Castor, Hon. Kathy, a Representative in Congress from the State of Florida ... 9 

Gerard, Jack, President and Chief Executive Officer, American Petroleum 

Institute ................................................................................................................ 22 

Gordon, Kate, Vice President of Energy Policy, Center for American Progress . 22 

Greenstone, Michael, Massachusetts Institute of Technology, Department of 

Economics, and Director, The Hamilton Project, and Senior Fellow, Economic Studies Program, the Brookings Institution ........................................... 22 

Hartwig, Robert P., Ph.D., CPCU, President and Economist, Insurance Information Institute ................................................................................................... 22 

Holt, Hon. Rush D., a Representative in Congress from the State of New 

Jersey .................................................................................................................... 7 

Jackson Lee, Hon. Sheila, a Representative in Congress from the State of 

Texas ..................................................................................................................... 11 

McAllister, Brian Buckley, Vice President and General Counsel, McAllister 

Towing ................................................................................................................... 22 

Perrelli, Tom, Associate Attorney General, U.S. Department of Justice ............ 65 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Carnahan, Hon. Russ, of Missouri ......................................................................... 104 

Castor, Hon. Kathy, of Florida ............................................................................... 105 

Costello, Hon. Jerry F., of Illinois .......................................................................... 109 

Graves, Hon. Sam, of Missouri ............................................................................... 113 

Johnson, Hon. Eddie Bernice, of Texas .................................................................. 117 

Larsen, Hon. Rick, of Washington .......................................................................... 122 

Mitchell, Hon. Harry E., of Arizona ....................................................................... 125 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Abbey, Bob ................................................................................................................ 126 

Anderson, Charles B. ............................................................................................... 136 

Bennett, Craig A. ..................................................................................................... 148 

Gerard, Jack ............................................................................................................. 155 

Gordon, Kate ............................................................................................................ 161 

Greenstone, Michael ................................................................................................ 171 

Hartwig, Robert P., Ph.D., ...................................................................................... 178 

Jackson Lee, Hon. Sheila ........................................................................................ 192 

McAllister, Brian Buckley ....................................................................................... 204 

Perrelli, Tom ............................................................................................................ 212 

SUBMISSION FOR THE RECORD 

Gerard, Jack, President and Chief Executive Officer, American Petroleum 

Institute, response to request for information from Hon. Oberstar, a Representative in Congress from the State of Minnesota ....................................... 158 

Perrelli, Tom, Associate Attorney General, U.S. Department of Justice, response to request for information from Hon. Taylor, a Representative in 

Congress from the State of Mississippi .............................................................. 80 

Page

IV 

ADDITIONS TO THE RECORD 

Independent Petroleum Association of America, Bruce Vincent, Chairman, 

letter to the Committee ....................................................................................... 220 

International Chamber of Shipping, statement for the record ............................ 223 

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(1) 

LIABILITY AND FINANCIAL RESPONSIBILITY 

FOR OIL SPILLS UNDER THE OIL PETROLEUM ACT OF 1990 AND RELATED STATUTES 

Wednesday, June 9, 2010 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

WASHINGTON, DC. 

The Committee met, pursuant to call, at 10:35 p.m., in room 

2167, Rayburn House Office Building, Hon. James Oberstar [Chairman of the Committee] presiding. 

Mr. OBERSTAR. The Committee on Transportation and Infrastructure will come to order. Today in our continuing review of the underlying causes, conditions, and factors involved in the spill of oil 

in the gulf, we will examine the issue of liability and financial responsibility of the Oil Pollution Act of 1990. 

I would add parenthetically I have had the privilege of being associated with oil spill liability and technical issues since my first 

term in Congress in 1975–76, shortly after the Tory Canyon disaster in the English Channel, and Mr. Young, then-member of the 

Merchant Marine and Fisheries Committee, and I participated in 

much of that legislation, all the way through the oil spill liability 

of 1989 and OPA 90. 

The liability, financial responsibility, and insurance issue surrounding the Deepwater Horizon are complex. There are estimates 

that suggest losses associated could result in between 1 billion and 

$3–1/2 billion in claims. Those will far exceed the liability caps that 

apply to offshore facilities with a limit of $75 million. 

If the predictions prove accurate, total damages will exceed the 

amount available in the Liability Trust Fund. This tragedy shows 

the need for a comprehensive review of liability concepts in the law 

now in effect. When you look at the body of law, it goes back at 

least 150-plus years. Existing laws were developed from centuries 

of maritime history. As I learned back in my first term in Congress, maritime is one of the oldest, most encrusted bodies of law 

in existence. 

The purpose then was to deal with damages to persons and property involved in accidents involving sea-going vessels. A vessel carries a known quantity of oil or other cargo. There is a reasonable 

basis for estimating the worst possible case of damages for release 

of all of the oil in the cargo of that vessel. This in turn establishes 

a basis for a liability cap and for setting levels of required insurance. 

2 

One of the lessons of Tory Canyon of Amoco Cadiz and other 

smaller spills, that there had to be—the insurance industry insisted on a known amount against which they could insure. 

In contrast, Deepwater Horizon shows that when we are dealing 

with a facility for drilling, rather than a merchant vessel, the 

amount of oil is unpredictable, unknown, and could be astronomical. 

Deepwater Horizon also demonstrates that the technology for 

drilling in deep waters and deeper regions below the sea floor is 

riskier and more uncertain than merchant vessel technology. It 

shows us that we need a financial and liability program based on 

the technological complexities and realities of deepwater drilling, 

rather than simply adapting and adjusting concepts that were 

originally developed for surface vessels. 

In addition to the liability issues, the Deepwater Horizon tragedy 

shows that deepwater drilling’s complete reliance on industry does 

not provide the safety margin nor the safety regime that we need. 

The Federal Government has allowed the drilling industry to selfpolice, self-certify, self-engineer and design, and it is time that we 

set new standards and exert authority over safety issues associated 

with deep sea oil drilling, as we do with high-level aviation operations. 

The issues for consideration in this hearing include raising or 

eliminating the cap on liability for both facilities and vessels, raising the levels required for demonstration of financial responsibility. 

A subsidiary issue of importance is whether any changes should be 

applied retroactively. I make no judgment on those. I want to hear 

the testimony that comes out of this hearing on whether caps and 

insurance requirements that exist and are incorporated into existing leases, whether the government would likely be in breach of 

contract, liable for damages, if liability or insurance requirements 

were raised under existing leases. 

With regard to the liability caps for facilities, one option is to remove the caps altogether. A major argument against liability caps 

is that they reduce the incentives for operators to take steps necessary to ensure safety. In addition, liability caps that are well 

below the level of damages from the spill will mean persons who 

suffer damages will have to be reimbursed exclusively from the oil 

spill Liability Trust Fund, and if there is not enough money in the 

trust fund the injured persons either will not receive compensation 

or may be compensated by taxpayers from general revenues. 

The argument in support of liability caps is that without caps, 

only the largest companies will be willing to drill in the deepwater, 

only the largest companies will be able to run the risk of huge 

damages, and this could lead to less competition for drilling leases 

and lower proceeds to the Federal Government in selling the rights. 

Limiting drilling to the largest companies could result in less drilling and a reduced supply of oil. 

Somewhat different factors are involved when considering raising 

or eliminating caps for vessels, for smaller vessels. Tug barges carrying home heating oil are subject to a major increase in expense 

for insurance. There may be loss of shipping capacity that could 

have a detrimental effect on consumers. The potential damages 

from a spill from a vessel are more predictable than losses from an 

3 

uncontained well. The amount of oil carried by a vessel is known. 

The amount of oil released by a spill such as Deepwater Horizon 

is speculative, scientific guesswork. 

The caps for facilities have not been adjusted since the Oil Pollution Act was enacted, and the caps for vessels have been raised by 

law and administrative action to adjust for inflation, so facilities 

have stayed unadjusted and vessel liability caps have increased. 

The Deepwater Horizon tragedy shows a need for a change in the 

trust fund that backs up the individual responsibility for damage. 

If the cost of cleaning up an oil spill and the cost of claims for damages from the spill exceed the limits in the Oil Pollution Act, the 

trust fund is available to cover the costs. 

The trust fund is funded predominantly by an 8-cent per barrel 

tax on crude oil at U.S. refineries, and the tax is paid by refinery 

operators. It now has a balance of about $1.6 billion, with a cap 

on expenditures of a billion, and 500 million for natural resource 

damages. We have passed legislation to raise the tax on crude oil 

to 34 cents a barrel and raised the caps on trust fund expenditures 

to $5 billion. Still, the Coast Guard tells us that they will run out 

of money to fight this disaster possibly next week, because they 

will have exhausted the authority for the $100 million advance out 

of the trust fund. 

On May 13, 2010, just prior to our previous hearing, Transocean, 

a Swiss company, filed a complaint in Federal Court in Houston to 

limit its liability to $26.7 million under a little-known statute, the 

Limitation of Liability Act of 1851. The Department of Justice has 

since filed a motion opposing Transocean. The 1851 act was put 

into place before shipowners had access to insurance, to encourage 

American shipowners to invest in shipping and put the American 

shipping industry on an even footing of competition with its European competitors. It allows shipowners to limit their liability to the 

value of the vessel and the value of her cargo. 

Claims for personal injury and for death and economic losses 

that are coming forward or will come forward will far exceed the 

value of the rig in the gulf and whatever was owed to Transocean 

by BP and others. In researching the 1851 act, which I recall from 

my earlier days on the Merchant Marine and Fisheries Committee, 

we found that in The Law of Admiralty book, Gilmore and Black 

observation on that 1851 act: ‘‘No doubt when more obscure statutes are drafted, the Congress will draft them. But it is difficult 

to believe that any future body of lawmakers will ever surpass this 

extraordinary effort. The only safe thing to do with such a statute 

is to repeal it.’’ And maybe that is what we will wind up doing. 

As we examine the existing liability laws, we have to consider revisions to the Death on High Seas Act, the Jones Act, both enacted 

in the 1920’s, to prevent persons injured on vessels from recovering 

noneconomic damages generally available under tort law. 

Now that is the broad scope of what I expect to cover in this 

hearing. A lot of questions and answers yet to be found. 

Mr. OBERSTAR. I look forward to the testimony and yield now to 

the gentleman from Florida, my good friend, Mr. Mica. 

Mr. MICA. Thank you, Mr. Oberstar, and I look forward to working with you. 

4 

And one of our responsibilities is to learn from tragedies, to learn 

from disasters, and to make certain that we put positive measures 

in place to make certain they don’t happen again. Now, we can’t 

bring back the loss of 11 lives, but people who have lost lives or 

property or their business, their opportunity to earn a living in this 

country or in the areas affected, need our assistance and we may 

need to make certain that we have measures in place to assist 

those folks that are hurting now. 

Let me just say we will be doing legislation. I am told that the 

leadership has made a decision to have legislation before the 

Fourth of July recess. I look forward to cooperating in a bipartisan 

effort to make certain that we have, again, in place, measures that 

will assist folks. 

And this Committee does have jurisdiction, checked it over all liability questions dealing with this matter and the legislation Mr. 

Oberstar outlined, including a National Response Plan, in addition 

to the liability question. And I think that Mr. Oberstar has also 

brought some things forth that he didn’t talk about a great deal in 

public today, but I think I concur with him and we need to look 

at eliminating some of the self-certifying that the industry has 

done and we will talk about that in a second. 

I didn’t know too much about how the fund worked. I knew we 

had one in place. Mr. Oberstar is correct. 

If you want to put the oil spill Liability Trust Fund slide up there, if we have got that, the trust fund is between $1.5 and $1.6 

billion. This was set up some time ago as you heard the history of, 

I think, back in 1990. It was adjusted in 2006, and it is about 1.5 

to $1.6 billion balance in the fund. 

The thing that is interesting: I said, well, what about people who 

are hurting; are they getting getting compensation, the ones that 

have economic damages? And the answer to me was, the response 

to me was, No. I said, well what about this emergency fund of $150 

million? And I was told that that is being used right now. In fact, 

this 150 million emergency fund they told me was just about expired. 

So my question is, Where did the money go? Well, it is being 

spent to pay for operational funds, for some cleanup costs, and for 

some other items. None of it goes to economic damages at this 

point. 

Now, the poor son-of-a-gun that has been hurt by this has to put 

an application into BP first, I guess, and get refused before they 

are eligible. Now, the fund, I am told, is already expired. So I said, 

I will introduce legislation to expand it because we need to have 

funds available immediately. And I will support that, Mr. Oberstar. 

Mr. OBERSTAR. Will the gentleman yield? 

Mr. MICA. Yes. 

Mr. OBERSTAR. The fund—and it is not an emergency fund. It is 

limiting the oil spill liability to $100 million per incident, and the 

Coast Guard has drawn up to that so we need to change that cap 

and give them more authority. 

Mr. MICA. Exactly and I have no problem with that. But listen 

to this. That money is all the responsibility of BP. Is there anybody 

here who doesn’t know who is responsible for this spill? Raise your 

hand if you don’t know who is responsible for the spill. The governVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
5 

ment and the taxpayer and the people who have been paying the 

8 cents on the barrel have put the money into this fund, and we 

are front-financing BP’s responsibility. 

So I am fine with opening this up. But the first thing the government needs to do is get some payments from BP and responsible 

parties so that we are just doing this to front-finance their responsibility. In this, we should never let BP off the hook, or responsible 

parties off the hook. But in the process of changing things, you 

don’t want to do damage or you don’t want to reward offenders and 

penalize people who have done the responsible thing. So that is the 

first item. 

Now, of course, on the other side of the aisle, the first thing they 

do is, we have to raise taxes or fees. It is not the 8-cents-per-barrel 

fee that got us to this 1.6 billion, 1.5 billion. There are some other 

fines and penalties in there, but for the most part it is that 8 cents. 

So what did the other side propose? In fact, they passed it in legislation last week that we increase this to 34 cents. Now, I don’t 

mind increasing it, but I will tell you one thing: I am not going to 

pay BP’s expenses up front from this fund. They should be held responsible, or responsible parties pay for that. So we may need to 

adjust this upwards, and I have no problem with that. 

The Senate has a proposal for 41 cents per barrel. But what we 

have got to do is get the right figure and keep—and still hold people responsible, not use this fund to let people off the hook. 

The other thing, too, is we need to find some way to allow those 

who are affected by economic damage—the business closed down, 

their job lost, their resort activity or tourist income killed by this 

disaster—that they get some immediate relief, not going through 

some bureaucratic things. So don’t think, folks, that those people 

are being helped in this situation right off. So that is the first caveat that I have. 

Economic damages. We now have the $75 million cap, and I say 

it is fine to raise that. But what we have to do is be careful that 

we don’t raise it and have unintended consequences. When you 

raise the cap too high, what happens? Small business people, small 

operators, cannot get the insurance. They cannot meet the liability 

limits. So what do you do? You reward the big companies. 

Put the second slide up there, the one on the number of spills. 

The number of wells. I am sorry—the number of wells. 

This is interesting, and this is actually put by the majority staff 

into the report that they provided. And I tell them, the majority 

staff, you did a very good job. It was 29 pages. It was one of the 

most thorough reports I have read that the Committee produced, 

Mr. Chairman. 

Mr. OBERSTAR. Thank you. 

Mr. MICA. But this is interesting, and what we want to do if we 

raise again the liability and the economic front, we don’t want to 

put everybody out of business. We don’t want to make only the big 

operators protected and put everybody else out of business, because 

I come from a business background. If you can’t get insurance, if 

you can’t meet these liability caps, as a small business person I 

wouldn’t be able to compete. 

Now, we don’t have that many that we have to worry about in 

deepwater if you look at the chart. And most of the wells and the 

6 

activity, the drilling, is done under 600 feet. Look at that. It is almost 3,500. So what we want to do is target and keep responsible 

those people who are posing the biggest risk and also would have 

the biggest resources, and should be held on the liability issue responsible financially. 

One other point I want to make on this, Mr. Chairman, as we 

do this. Last week the administration had three different positions 

on moratoriums on drilling. Did you watch that? And it threw everybody into a panic. Actually, some people are out of business as 

a result of just a few days of uncertainty in this market. 

And what we have got to do is make certain that we don’t have 

the same kind of havoc when we go forward with these liability 

proposals; again, not letting anyone off the hook, making certain 

they are held responsible. 

Finally, let me just say that Thad Allen who is in charge, he was 

recently quoted—we will put this in the record, May 24—when he 

asked, Why doesn’t the government take this cleanup over—he was 

very frank, Thad Allen is a great guy and we are fortunate to have 

him in charge—he said, ‘‘because the government doesn’t have any 

capability.’’ 

Now, probably the worst thing the administration could have 

done, as on June 1, they sent the Attorney General, Eric Holder, 

down there and Eric Holder said he is going to launch a criminal 

investigation. I submit that what he did is he probably put the biggest damper on the cleanup you could possibly do. If you are a 

small business or one in business, and you are needed or going to 

be contracted to be involved in the cleanup, and the first thing they 

do is send in the attorneys and the Attorney General to start 

threatening people as if they are looking at criminal activity there, 

that is going to get people out of that business of cleaning up an 

activity. 

I think where they need to start—and there may be a time for 

that, and I want people held criminally responsible—but right now 

we need to get that cleaned up. 

Finally, there is one other point I think we should do in cleaning 

that up now. This is a report that we had. It is in Newsweek, June 

7. We need to start with the Minerals Management Office in the 

Department of Interior. Let me just read this, and if Eric Holder 

wants to investigate, it says the MMS appears to have had a coziness, sometimes creepy corruption activities, and we saw three 

criminal investigations in that department, which I submitted evidence to under the Bush administration. It says oil companies 

filled out inspection forms in pencil, and then the Department of 

the Interior official, the inspector, traced over their writings in ink. 

Now, there is a place to start investigating, start looking at 

criminal activity, is our own Department of the Interior that issued 

the permits, that set the parameters for drilling, and then penciled 

in their opinion on what was done in inspections. Something is rotten in Denmark and also in oil drilling in the Department of the 

Interior, and that is a good place for Eric Holder to start. 

I yield back the balance of my time. 

Mr. OBERSTAR. I want to thank the gentleman for his comments 

and for his reference to our Committee staff preparation memo. I 

appreciate your acknowledgment. These are all very thorough, very 

7 

factual, documented pieces that I personally review, and I appreciate. 

I would like to just supplement the gentleman’s comments. 

Under the OPA 1990 law, BP must reimburse the Federal Government to the oil spill Liability Trust Fund. Last week, the Obama 

administration sent BP a $69 million bill for reimbursement to the 

trust fund for expenditures from that fund. And under the act, 

there will be no taxpayer expenditures; all that, for compensation 

for losses and damages resulting from the spill, that all must come 

out of the fund. 

Mr. MICA. Will the gentleman yield? 

Mr. OBERSTAR. Yes, I will yield. 

Mr. MICA. Again, I was asked why this fund is depleted. And 

they said, basically, We are covering those costs now, waiting for 

reimbursement. 

So I will send a letter if you want to join me or whatever. I want 

BP to be paying now, rather than depleting this fund. I don’t mind 

changing it, increasing it, and we need to adjust it. But I will be 

damned if I am going to have that fund depleted by front-forwarding the financing of BP’s responsibility. And if they have got 

a $69 million bill, they sure as hell need to pay it sooner rather 

than later. 

Mr. OBERSTAR. Exactly. And there are other costs that BP is paying, as they must do when bills are submitted. But the OPA 90 established this trust fund so that the Coast Guard could act promptly, and not wait for oil companies to come forward with money, and 

then come back to them and demand funds and do these concurrently. But the law itself, we are going to change that law, and we 

will of course discuss this with the gentleman when we proceed, 

following this hearing, to draft legislation. But the Oil Pollution Act of 1990 limits the Coast Guard to $100 

million expenditure out of the oil spill Liability Trust Fund per incident. It is not that the fund has run out. It is that they are limited by law to spending $100 million out of that fund. We need to 

raise that amount and change other factors within the oil spill Liability Trust Fund. 

And further, I would note that the 8-cent contribution into the 

trust fund expired at the end of 1994 and, unfortunately, the previous management of the Ways and Means Committee didn’t reinstate it until 2006. We had 12 years when the funds were not going 

into the trust fund. 

I know other members have statements they would like to make. 

I would ask them to withhold until our congressional panel makes 

their statements, and then before the second panel comes, I will 

recognize members for individual statements. And we will begin 

with Mr. Holt. 

TESTIMONY OF THE HON. RUSH D. HOLT, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. HOLT. Thank you, Chairman Oberstar and Ranking Member 

Mica and Members of the Committee. I appreciate the opportunity 

to testify about oil spill liability. 

As we speak, the oil continues to gush into the gulf at an unprecedented rate. We can watch it instantaneously any time of the day 

8 

or night. The environmental effects are already evident along hundreds of miles of coastline from Louisiana to Florida; and, despite 

a variety of efforts, top hat, top kill, junk shot, the recent modified 

top hat or sombrero, we are still not containing the leak. There are 

signs that the spill won’t be stopped anytime soon. 

Our concern must be simultaneously stopping the leak, limiting 

the damage to natural resources in the Gulf States and addressing 

the loss of people’s jobs and dislocations resulting from the incident. This goes beyond the important questions of just liability that 

you are considering today. 

I will restrict myself to the liability. 

Since the catastrophe began, we have all been concerned about 

the long-term economic livelihood of the 200,000 people employed 

by Gulf Coast fishing, 2.8 million people employed in Florida in the 

tourism industry and so forth, and all Americans who rely on the 

Gulf of Mexico for economic livelihood. BP should be liable for 

every last cent of the natural resources and economic damage it 

caused; not the small business owner, not the restaurateur, not the 

vacation home renter, not the fishermen, not the American taxpayer. 

Revisiting the liability issue is long overdue. As the Chairman 

said, it has been two decades since the Oil Pollution Act was enacted in response to the Exxon Valdez spill. Under this act, oil companies are required to cover the full cost of ‘‘removal.’’ However, 

the law set a $75 million cap for liability for other losses such as 

economic losses and the cost of providing extra public services for 

the response. For a catastrophe of the magnitude that we see now, $75 million 

is laughable. Initially BP said it would cover ‘‘all necessary appropriate cleanup costs .’’ More recently it said it would pay for all legitimate claims, including those above $75 million. 

If you look at the last decade of BP’s operations in the U.S., you 

see a decade of BP’s management repeatedly disregarding safety 

and environmental rules in ways that are deadly and dangerous. 

The current spill in the gulf, the explosion of the Texas City refinery in 2005 that resulted in the deaths of 15 people and injuries 

to more than 150, the four explosions along the Alaskan pipeline 

due to corrosion in 2008 and 2009, the 200,000-gallon spill in 

Prudhoe Bay pipeline in 2006, the falsification of compliance reports in the Carson refinery in California over a period of years, 

why should the American public trust BP? 

And history shows, this history and the rest of the history shows 

that mild sanctions and lower liability limits do not provide adequate care, prudence, and preparation. It is fair to ask if BP’s word 

is enough. It is nice that BP says it will cover claims over the legal 

limit of $75 million. It sounds good. But it doesn’t satisfy me, and 

it shouldn’t satisfy you. I don’t think it should satisfy any Member 

of Congress. 

I disagree with the administration that BP’s word is sufficient. 

The liability cap needs to be raised to ensure BP is legally responsible, and it needs to be raised retroactively. The law allows that. 

Therefore, I have introduced the Big Oil Bailout Prevention Act, 

which would raise the liability cap for offshore well spills from $75 

million to $10 billion. Those provisions would be made retroactive, 

9 

as permitted by environmental law precedent, so that the Deepwater Horizon incident would be covered under the bill. The bill 

has nearly 70 cosponsors, including a dozen or so members of this 

Committee. 

I am glad that the Transportation and Infrastructure Committee 

is holding this hearing today, and I am sure that other members 

and witnesses who are testifying today will help us figure out what 

is the proper level of liability. If $10 billion is too low, then we 

should set it at a level that will ensure that those responsible are 

fully liable and the people affected do not have to spend the rest 

of their lives fighting with BP and other companies in court. 

Limits should be set not by the size of the company, for example, 

so as not to disadvantage smaller companies; rather, limits should 

be set by the possible expense of harm, injury, and damage. 

The Deepwater Horizon is the most catastrophic spill that we 

have experienced. In a fair and just world, companies like BP, 

which made over $16.9 billion last year, should pay for every cent 

of the mess it made, not taxpayers. 

Our bill is clear. The buck stops with the oil companies. It 

shouldn’t spill over to taxpayers. 

The American people clearly want to see Congress holding BP accountable. And it is fair for them to ask why Congress, nearly 7 

weeks later, is only now getting around to acting. I urge the Committee to act quickly to reassure the American people that we will 

hold BP accountable and bring the Big Oil Bailout Prevention Act 

to the floor of the House expeditiously. 

I thank you for the opportunity to testify. I look forward to working with you on this legislation. 

Mr. OBERSTAR. Thank you, Professor, for your very thorough 

presentation and your very scientific manner. 

Mr. OBERSTAR. Ms. Castor. 

TESTIMONY OF THE HON. KATHY CASTOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Ms. CASTOR. Thank you, Chairman Oberstar and Ranking Member Mica and all of my colleagues on the committee. We must act 

swiftly to update this outdated Oil Pollution Act of 1990. That says 

it all, doesn’t it? 

Mr. OBERSTAR. Or 1851. 

Ms. CASTOR. We have learned a lot from this, from BP’s oil disaster in the Gulf of Mexico. This isn’t just affecting all Gulf States, 

this is America’s economy. Just when we have fought to come out 

of this recession, BP wreaks havoc on our economic recovery. But 

I am confident, especially, Mr. Chairman, with your depth and 

breadth of knowledge on these issues, we will be able to bring legislation to the floor swiftly to address this outdated law. 

It is very difficult to characterize liability in this case when we 

are talking about the worst environmental disaster in our Nation’s 

history. 

And those of us living on the Gulf Coast, we are going to be living with the impact of this disaster for years and years to come. 

I met last week with tourism officials, fishermen, environmentalists on Saint Pete Beach—and you know the oil isn’t washing up 

in the Tampa Bay area yet and we hope and pray it will not. But 

10 

there are still very significant economic impacts that we are dealing with: cancellations of hotels and vacations. And they are able 

to chronicle this. Fishermen are beside themselves because they 

will go off the west coast 100 miles to where the fishing grounds 

are, and the Commerce Department has said, don’t go there because it is not safe. 

We have got to make sure that this, when we update the act, 

that we are really looking at the true economic impacts. And you 

have very talented staff, professional staff here. And I look around, 

and they are very thoughtful and knowledgeable members, and we 

have got to ensure that when we update the act they are delving 

into the legal terminology that is used. And when you look at the 

terminology that is used, ‘‘responsible parties,’’ are we really able 

to capture everyone in this scenario, or a future scenario, that is 

a responsible party? 

‘‘Removal costs,’’ removal costs include the cost of removing 

spilled oil from water and shorelines or taking of other actions that 

may be necessary to minimize or mitigate the damage to public 

health or welfare. Is that broad enough? 

‘‘Recoverable damages’’ cover, among other things, injuries to 

natural resources, destruction of property, loss of subsistence, use 

of natural resources, public services. But I am concerned that that 

doesn’t go far enough. 

We had an economist from the University of Central Florida yes- terday that said the potential impact on our economy is over $10 

billion—that is his early estimate—and that the State of Florida 

alone could lose 195,000 jobs, like I said Mr. Chairman, just when 

we are coming out of this economic disaster. 

So you have got to put all of your talented folks to work, and I 

ask all of the Committee members to get into the terminology of 

this legislation. It is not a complicated act, the Oil Prevention Act. 

But if we take Mr. Holt’s bill, which I am a cosponsor of—and I 

am heartened to know that so many of you are cosponsoring—we 

take that, we have got to update it so that we prevent these, that 

we are able to compensate folks and our economy in addressing the 

environmental impact. 

And one other thing that the Ranking Member has raised, if an 

oil company that is drilling cannot get insurance because they can’t 

cover the risk, the potential damages, should they be drilling at 

all? If we cannot insure that we can mitigate the harm and damages, and they can’t get insurance, should that operation be going 

on in America’s waters? 

These are not the waters of big oil companies. These are the resources of the people of the United States of America. And they deserve all the protection that we can bring. 

So I thank the Committee very much for your attention and all 

of your ongoing efforts to address this horrendous disaster that is 

not just the Gulf Coast disaster but it is is all of ours. Thank you, 

Mr. Chairman. 

Mr. OBERSTAR. Thank you very much, Ms. Castor, for your very 

thoughtful presentation. Just a footnote to your last comment 

about insurance. In aviation, if an airline cannot get insurance, it 

cannot fly. 

Mr. OBERSTAR. Representative Jackson Lee. 

11 

TESTIMONY OF THE HON. SHEILA JACKSON LEE, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Ms. JACKSON LEE. Mr. Chairman, thank you so very much for 

the invitation to provide testimony this morning, and to the Ranking Member. To all of the members that are here, let me thank the 

T&I Committee for the important jurisdiction and leadership that 

you give to so many of these issues. 

Publicly, again, I want to acknowledge the lost lives of those who 

have lost their lives. My sympathy to the family of the 11 workers 

who lost their lives in the Deepwater Horizon, but also to the many 

impacted employees whose stories are now being told, who are suffering from post-traumatic stress disorder. And we know that this 

is not only catastrophic as it continues, but it is catastrophic in the 

lives of so many Americans. 

I believe America is crying out for action now. And therefore, I 

believe Congress would be excused for looking at all of the legislative initiatives and amending them and reforming them retroactively. That always poses a lot of sticky questions and concerns 

because Congress wants to do the right thing. But I don’t believe 

America wants to wait around and pat us on the back for legislation that will be enacted for operation after this tragic incident. 

I recently had the opportunity to join my colleague and friend, 

Chairman of the Subcommittee on the Coast Guard, Elijah 

Cummings, and my friend Corinne Brown, the Chairwoman of the 

Rail Committee, as we went out over the gulf last week to look at 

the operations that were clearly mind-boggling. 

First, the fireboats were spewing water on fires to burn. Then 

you could see the oil lines going through the pristine waters. Then, 

of course, you could see the enterprise which is trying to draw up 

the oil spill. My friends, this is catastrophic, it is overwhelming, it 

is going to continue. And I come from oil country in the city of 

Houston. 

And so I would suggest that we look at this in the way that we 

have talked about—a seamless energy policy or green energy. It 

has all been on the basis of trying not to hand our destiny over to 

terrorists. That is important. And therefore, I think as we become 

thoughtful in this process, I think we need to have that as part of 

our consideration. But we also need to raise this beyond the level 

of an individual company and say that this is the oil industry problem; that as they proceed for permits in shallow water and deepwater, one of the legislative aspects of our work should be the reforming of how permits should be issued. And therefore, I believe 

no permit should be issued without insurance, obviously, at a certain level, but also recovery plans. 

I can tell you for sure that deepwater drilling is like a surgeon 

who knows how to do heart surgery, to open the patient, perform 

the surgery, but with no idea how to close on the surgery. That patient dies. And even though I come from this industry and represent thousands who are now frightened about their jobs, I believe 

for their safety and security, and those that I have spoken to, they 

want increased liability, they want safety for their jobs to be protected long range. 

So I believe that we need, first of all, to raise the cap, and then 

I think we need to look at, as the Chairman so articulately menVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
12 

tioned, the various legislative initiatives, the Oil Pollution Act, the 

Death on the High Seas Act, but also the Jones Act, Mr. Chairman. 

And let me just briefly go through these. As relates to collateral 

damage, after I left the overview of the deepwater drilling rig, I 

want into Plaquemines Parish and visited with those at Pointe la 

Hache: the oystermen, the fishermen, and the shrimpers. The 

claims process is broken. And I thought, Well, let’s give this process a chance. They are taking paperwork, they are filing, and 

maybe the processes is working. 

Well, let me tell you this: First of all, the offices are closed by 

the company. They are here today, they are closed the next day. 

The second thing is, fishermen, oystermen, and shrimpers don’t 

necessarily have the paperwork that an accountant has. They have 

their boats, they go out, water may impact, and BP is asking them 

to provide the kind of documentation that you would think the 

greatest accountant would have. 

They are not trying to cheat. When I sat down with these folk 

they said, We simply need to get our money. The last payment they 

got was in May, $5,000. Therefore, they asked whether they could 

get a 6-month lump sum. We thought that was something they 

were responding to because the claims process is so erratic. 

Well, lo and behold, they had a meeting on Monday, and that 

meeting resulted in a zero response. ‘‘We don’t know what you are 

talking about. We have to keep doing what we are doing.’’ And 

right now, the shrimpers, the fishermen, and the oystermen are literally dying because they have no way of providing for their families. 

I think they want Congress to act now, whether we demand that 

there be a claims process that is set independently, away from BP, 

and whether or not you then ask that process to address to the particular industry, such as tourism, such as the restaurants, that are 

likewise being impacted in my own community. 

As relates to the Oil Pollution Act, I would suggest that the cap 

be raised, and I join Mr. Holt on that. I think we need to be deliberative on how that process is calculated. I also think it is important that we independently assess how many gallons are going out 

of the deepwater spill at this point, so that any funding payment 

is not based on industry assessment but our assessment. 

I do believe it is important to act now, immediately, to provide 

for the Coast Guard to draw down on that fund beyond the $100 

million. The Coast Guard says it is absolutely imperative. 

Mr. Chairman, there is something called the multidistrict courts 

claims process, and I would suggest—and this is overlapping jurisdiction that, as the attorney general Jim Hood said, the multidistrict is to form all these cases into one court and not allow these 

cases to be filed in State court. 

I would suggest that the Anti-Injunction Act be amended to 

specify that no Federal court may enjoin parallel litigation pursued 

by a State in its own courts. That will allow Florida and other particular States to have cases if necessary. 

Also as I indicated, the lifting of the cap should be done immediately. And I would suggest that we engage, as you are doing 

today, the oil industry collectively on providing for answers to how 

you put in a recovery plan if you are trying to get a permit. 

13 

The Death on the High Seas Act I think is extremely important 

and only allows for pecuniary damages to be collected. This of 

course, Mr. Chairman, is what you said. It is because when this industry was formulated,, this legislation was 1920, all they could 

think of was ships and captains. They couldn’t think of offshore 

drilling to the level that we have now, and they didn’t want to say 

that a bad weather storm was going to be the fault of that captain. 

I am going to be introducing legislation that will add punitive 

damages as well to the issue of the Death on the High Seas. 

In addition, the Jones Act, Mr. Chairman, only allows or refers 

to seamen. Many of those who died were engineers. One of the witnesses that came before the Judiciary Committee was the father of 

Gordon Jones, I believe. He was an engineer and spoke of the fact 

that his widow could only receive pecuniary damages and not punitive damages for what may have been or may become the most horrific tragedy that we can experience. I believe that there should be 

an immediate correction of that right now, so that those who have 

lost their lives, their families, will not suffer. 

Might I just conclude by adding this point and a story about 

Linda Smith, who had a restaurant or has a restaurant, with all 

of her savings in it, called the Alligator Cafe. But it is in Houston, 

Texas where most people would assume that she relies on the Louisiana crop, if you will, of oysters and shrimp and fish. And I might 

tell you, Mr. Chairman, it is darn good. Well, her business is literally almost shut down; one, because people are asking whether 

the product is contaminated; two, because she cannot get product. 

When I spent time in New Orleans, there were restaurants that 

were closed because they indicated that they could not get product. 

We have seen a number of stories that are now part of the collateral damage. 

So I would suggest that in addition to the lifting of the cap, that 

there needs to be an immediate assessment of whether or not a recovery plan needs to be part of the permitting process, legitimate 

permitting process, of the MMS. Lifting, of course, the cap, amending the Death on the High Seas, and amending the Jones Act is 

required now, and then allowing States to be able to file their own 

lawsuits in spite of the multidistrict litigation that I believe came 

after the Valdez. The Valdez, of course, was a tanker spill. This is 

an oil spill of large proportions never seen before. 

And I would just close by saying I represent roughnecks. They 

are frightened for their jobs. These are hardworking Americans. 

And I want to protect them, too. What I hope most of all is that 

Congress will be deliberative in their response, that they will move 

quickly, that the oil industry will see that it is in their advantage 

to collaboratively work to make sure that this never ever happens 

again. 

A heart surgeon would not operate on a patient and not know 

how to save them. That is what happened with the Deepwater Horizon drill. And I think it is imperative that we act now. Thank you 

Mr. Chairman. 

Mr. OBERSTAR. Thank you very much for your testimony, for 

your firsthand experience with those in the gulf. And I would say 

that on the matter of safety of operations, we don’t let airplanes 

leave the ground unless they have all the redundancy needed to get 

14 

that aircraft safely back on the ground. At 7 miles in the air, there 

is no curb to pull over, look under the hood and see what is wrong. 

You get it right before you leave. And when the aircraft returns, 

there are redundant systems, safety, that aircraft is approaching 

the runway at 165 miles per hour. It has flaps that deploy automatically to slow the aircraft down. When it hits the ground, the 

thrust reversers kick in and then the brakes apply. Any one of 

those is supposed to stop that aircraft. But under certain conditions, even that isn’t enough. But we ensure in aviation. 

But if at a mile below the ocean surface, at a depth below that 

which our Los Angeles class nuclear submarines can operate, we 

don’t have sufficient redundancy and protection and backup, and 

we have to end the industry self-certification. 

One question I have: Should your bill be retroactive for the incident in the gulf? 

Mr. HOLT. I want to make clear, Mr. Chairman, that it should 

be. It can be. It is written that way. And I think that is what the 

American people want, and we have research to say that the law 

allows that. 

Mr. OBERSTAR. If the permits include the limitation on liability, 

is there a cause—have you researched whether there is a cause of 

action by the oil company under that lease? 

Mr. HOLT. I am not the best person to testify on that, I think. 

Mr. OBERSTAR. We will get a lawyer, not a physicist. 

Mr. Mica, do you have any questions? 

Mr. MICA. First, let me make one thing clear; that I don’t think 

there should be any limits on economic liability. And also if there 

is negligence, these people need to be held accountable. 

Mr. OBERSTAR. If there is negligence, if the gentleman would 

yield, the law sets no limits. 

Mr. MICA. Exactly. That is the first thing. I think my point, too, 

is when you set terms of—blanket terms for again increasing some 

of the liability responsibility, what we don’t want to do is end up 

with only the BPs and the Royal Dutch Shells and the others as 

the only ones that can play in this game. And what you don’t want 

to do is accidentally put tens of thousands of people in the industry 

out of business because you created a very limited playing field in 

which very few can participate. There are many subcontractors and 

small businesses people in this business who, just by the action 

last week for a few days, some of those people have been put out 

of business. So we are talking about creating stability and responsibility. 

And then I point again to the staff’s chart. Mr. Holt, you saw the 

staff’s chart, and you saw how limited, actually, the deepwater 

wells and the deepwater drilling activity is. Would you have a 

problem with again focusing on where the potential risk is in making certain that those that are actually taking on that risk or that 

additional liability, we could limit that scope so we aren’t putting 

the small guys out of business. 

Mr. HOLT. Thank you, Mr. Mica. 

As I tried to make clear in my testimony, the judgment, the operative thinking, should be not whether a small company can afford 

the insurance. The consideration should be how much damage 

might possibly be done. And just as the Chairman said, a plane 

15 

doesn’t take off if it doesn’t have insurance. You don’t first ask is 

it owned by a small company or a large company; you ask, does it 

have the insurance? 

Mr. MICA. But there are different levels of insurance. And people 

who are in the industry—and, yes, first I want no limits on economic responsibility, and if there is negligence, and I have no problem increasing the cap. But I think you just said what I was saying; as those that incur that type of risk should be covered and 

held responsible, and people with lesser risk should—for example, 

a small operator cannot get $10 billion worth of liability coverage. 

But that may not be the person that is drilling. That is a person 

that is a subcontractor or a small business person in the industry. 

Mr. HOLT. There is developed law about how liability is passed 

through subsequent participants, and that is not the subject of this 

legislation. The responsible parties should not be able to hide 

under a liability cap that is so small that it allows them to engage 

in imprudent behavior. 

Mr. MICA. I agree with that. But, again, you want those with a 

higher liability have a higher responsibility of making certain that 

they are insured or covered or can meet that liability. Otherwise—— 

Mr. HOLT. And I think Ms. Castor has made my point, that same 

point, very well. 

Mr. MICA. Thank you Mr. Chair. 

Mr. OBERSTAR. Do other members have questions of our panel? 

Mr. Nadler. 

Mr. NADLER. Yes, thank you. 

Let me just ask, Representative Holt, in light of what you were 

just saying, it seems to me—and I would ask if you would agree 

that if a company undertakes an activity, the result of which may 

lead to billions and billions of dollars worth of damage, in the end 

result, either that company is going to pay for that damage or the 

people who are damaged are going to be unrecompensed or the taxpayers are going to pay for the damage. There are no other alternatives. Can you think of any other alternatives? OK. 

That being the case, then, someone who says that, Well, eliminating the liability cap for that would say small companies can’t do 

that business. Why shouldn’t we say small companies can’t do business that puts millions of people at risk of billions of dollars unless 

they can cover the risks that they set up? 

Mr. HOLT. Let me repeat—thank you Mr. Nadler. 

The Chairman said, Well, with regard to aviation, if you are not 

insured, you don’t fly. You don’t ask whether it is a large company 

or a small company or a mom-and-pop airline or not. If you can’t 

cover the damages, then you shouldn’t be engaging in the activity. 

And I think that—— 

Mr. NADLER. I think that is the end of the statement. Which is 

another way of saying that if a company—that either a very large 

company that can cover the damages should do it, or government 

should do it, or nobody should do it. 

Mr. HOLT. Maybe Ms. Castor wants to add a word to that. 

Ms. CASTOR. I think it is obvious. It is obvious and the devil 

would be in the details of any insurance negotiation between the 

insurer and the insured. It is ultimately, how do you quantify the 

16 

risk? In this disaster where they downplayed the risk, I think now 

has demonstrated what the true risks are. And it is enormous and 

it is probably not $10 billion. 

Mr. NADLER. A lot more. 

Ms. CASTOR. We should probably look at something significantly 

more in liability caps for this kind of activity. 

Mr. NADLER. I agree with you. I think it is obvious. I just want 

to make the point that someone who says you have to wipe out liability caps because it will inhibit smaller companies from doing it, 

is really saying that either the people who are damaged should not 

be recompensed, that the environment should be at risk, or that 

the taxpayers should pay for it. 

Ms. JACKSON LEE. Mr. Nadler, may I respond? 

Mr. NADLER. Certainly. 

Ms. JACKSON LEE. Let me try to answer that question coming 

from a community that has what we call independent oil producers. 

I think there is a distinction between the insurance that major 

airlines have versus the mom-and-pop airplane that the family 

takes out on a Sunday afternoon joy ride. Certainly the death and 

disaster that may come about is devastating no matter what you 

say. 

But I do think there is something to the concept of a tiered review. When you look at the graph, there are about 3,000 applications for zero to 200 feet in drilling. That is called shallow-water 

drilling. There are only about 1,000 permits. 

What I have indicated is that I believe whatever permit you 

seek, you should have a defined, vetted recovery plan. What happened with Deepwater Horizon is they were in the highest levels 

of technology in terms of drilling, but they had a poor response in 

terms of recovery. When you are talking about companies that are 

in the top five in terms of wealth, and certainly, unfortunately, this 

tragedy, the sky is the limit; but when you look at the independents, you can tier the recovery and tier the cost. 

Mr. NADLER. Reclaiming my time, let me just say in the few seconds left that I would agree, obviously, if the risk is limited, then 

the liability can be limited, and it may be that there are tiers. I 

am not familiar with technology, but where the risk is really limited, then the liability can be limited. But where the risk is very, 

very large, you cannot limit that liability unless you are willing to 

have the taxpayers or the public eat that liability, and if the liability potential is so large that it is uninsurable, then that is the market telling you you should not engage in that kind of activity, and 

we should heed the market in that kind of situation. 

Mr. OBERSTAR. We will have plenty of time to engage with our 

colleagues as we progress with this bill over the next couple of 

weeks. I appreciate the enthusiasm of Members of the Committee 

and those on the panel. I thank you for your contributions. I know 

each of you have Committee responsibilities as well. 

Mr. OBERSTAR. We will conclude this panel and continue with 

our second panel. 

Mr. Gerard, president and CEO of America Petroleum Institute; 

Mr. Charles Anderson, senior vice president and head of Skuld 

North America, P&I Club; Mr. Brian McAllister, vice president and 

general counsel of McAllister Towing; Mr. Robert Hartwig, presiVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
17 

dent and economist, Insurance Information Institute; Mr. Michael 

Greenstone, MIT Department of Economics; and Kate Gordon, vice 

president of energy policy, Center for American Progress. 

While they are taking their seats, I will now go to Members on 

the Democratic side who may want to make opening statements. 

Mr. Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. 

Let me begin by thanking you for holding this hearing on the liability issues under the Oil Pollution Act as it relates to the Gulf 

Coast oil spill. I obviously support efforts to greatly raise or eliminate the liability cap in the act. I have heard the argument that 

if the cap is raised or eliminated, then drilling companies will not 

be able to get insurance, but that would be the market telling us 

that we shouldn’t be doing this kind of drilling, or not in this way, 

without greater safety requirements and oversight. The government should not be in the business of shielding companies from the 

check of the free market and providing cover for bad or overly risky 

behavior. 

I have also heard it said that we don’t need to raise the cap because BP will ignore the cap and cover all damages. If BP can afford to do that, why do they need a cap in the first place? Frankly, 

I am very concerned that despite BP’s statements, they ultimately 

won’t pay for all the damages caused by this disaster. BP says it 

will pay ‘‘all legitimate claims.’’ But who makes the determination 

what is legitimate and on what basis if they are not statutorily required to pay the claim? So far BP has refused to answer that 

question. And there are certain types of damages not covered under 

the OPA; namely, personal injury and punitive damages. 

I have tried to get BP to accept responsibility, for example, for 

health problems caused by this disaster, and so far they have refused to do so. BP is trying to look like a good actor that will cover 

all of the damages, but the fact that BP refuses to acknowledge liability for health problems tells me that they have no intention of 

paying such claims. And if BP doesn’t pay, that means it will fall 

upon the taxpayers and the victims themselves. 

Making matters worse is BP’s use of toxic chemical dispersants. 

The only thing that the toxic chemical dispersants have accomplished, as far as I can, see is to hide the true nature, the true extent of the damages by getting the stuff off the surface of the water 

where it can be picked up more cheaply but where it is visible, and 

causing these huge underwater plumes to form, the plumes which 

BP denies exist. We are basically air-dropping this toxic stuff all 

over the gulf, as we did Agent Orange in Vietnam. 

I have a deep personal concern about this because it reminds me 

of the World Trade Center disaster in my district. The government 

authorized use of these dispersants and is saying everything is 

safe; there is no need for respirators. Yet everyone knows that defies logic. And in the meantime, people are getting sick. BP’s CEO 

had the nerve to insinuate that people got sick from food poisoning, 

while OSHA seems to think it is probably just from the heat. So 

sick workers are filing injunctions against BP to try to enforce respirator use on their own. This is crazy. Chairman Oberstar and I 

wrote to the EPA and OSHA asking that respiratory protection be 

18 

enforced, but based on some of the statements in the press so far, 

I am not optimistic. 

I cannot believe we are repeating the same mistake again, the 

same mistake we made in weeks after 9/11 when the United States 

Government caused thousands of people to get sick by denying that 

the air was toxic. And we are doing it again, only this time BP is 

doing it, and having thousands of workers working in what 

amounts to unsafe conditions. They are going to get sick; some of 

them are getting sick, and BP is going to deny liability. 

I cannot believe we are repeating the same mistake again and 

personally causing even more harm to the people of the Gulf Coast 

while BP could get off the hook. I urge everybody here to start asking these questions. 

Chairman Oberstar, I know you share these concerns, and I 

thank you for aggressively pursuing these issues on behalf of the 

people of the Gulf Coast and of the entire Gulf Coast region, because I believe that all of the harm we are now seeing in some of 

the States bordering the Gulf Coast we are going to see in all of 

the countries bordering the gulf, and this is going to become an 

international crisis. 

Mr. Chairman, I yield back. 

Mr. OBERSTAR. I now recognize Mr. LoBiondo and then two others, and then we have to go our witnesses. 

Mr. LOBIONDO. Thank you, Mr. Chairman. 

I think it is great that you are holding this hearing to examine 

the proposed changes to the liability limits established under the 

Oil Pollution Act. As we know, several Members on both sides of 

the Capitol have proposed to dramatically raise or even eliminate 

statutory caps on liability. I want to ensure our Committee reviews 

these proposals closely to determine their impact on operations in 

the maritime industry which could be very far reaching. I hope today’s hearing will be the first step in a process that resets liability 

in a way that is commensurate with the risk and potential damages associated with activities on board the vessel or facility. 

I strongly believe we should raise the liability limits. In 2006, I 

was the lead sponsor of a bipartisan bill that restructured and 

raised these limits for the first time since Congress originally 

passed OPA in 1990. We were forced to do this because three successive administrations failed to follow the law’s requirement to periodically adjust the law’s limits according to inflation. While they 

have finally done that for vessels, the current administration has 

still not done so for offshore facilities. If the administration had followed the law and adjusted limits for offshore facilities like the 

Deepwater Horizon, the cap on damages for this incident would be 

more than $50 million higher than the current $75 million cap. 

This adjustment could be made immediately, and I urge the administration to do so as soon as possible. The administrative action 

would be a good first step, but I agree we must raise liability 

standards to account for the significant changes that have occurred 

in the offshore drilling industry since 1990. 

I look forward to working with the Chairman of the Full Committee and the Chairman of the Subcommittee to develop legislation that adjusts liability limits to come in line with the risk; however, as we undertake this process, we must not fall into the trap 

19 

of treating all vessels and facilities in the same manner. I think it 

is important, the risk for a major oil spill from a small, nontank 

vessel is not the same as the risk associated with an oil-laden tanker vessel or an offshore drilling operation. The current spill in the 

Gulf of Mexico has presented the Federal Government with a new 

set of challenges not foreseen during the development of OPA. 

I hope our witnesses share their suggestions on new or amended 

authorities necessary to respond to the current and future spills. 

And I want to thank all of the witnesses for participating in the 

hearing and look forward to working with them and Members of 

the Committee as we move forward on this legislation to protect 

our waters. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. Thank you. 

Mr. OBERSTAR. Ms. Johnson, Chair of the Water Resource Subcommittee. 

Ms. JOHNSON OF TEXAS. Thank you, Mr. Chairman. 

To put this hearing in context, today marks the 51st day of the 

ongoing BP oil spill disaster in the Gulf of Mexico. One of the reasons why I think that it was nearer to Louisiana than Texas, because Texas has no cap on liability. 

While this committee’s last meeting focused on what went wrong 

and how we have gotten to where we are today, today’s hearing 

will focus on what needs to be done and to make sure similar disasters do not happen again. Today’s witnesses, I hope, will focus on 

liability and financial responsibility for oil spills and the resulting 

damages. This issue is becoming increasingly important as the impact of the gulf spill is currently unknown, but is still under assessment, and as questions arise on who will ultimately bear the 

responsibility for cleanup costs and economic damages. 

Today this Committee will investigate how the Oil Pollution Act 

of 1990 and other statutes should be amended to increase or lift 

the cap on liability for companies or individuals responsible for oil 

spills. BP testified under oath that it will pay all legitimate claims 

and will not be bound by the $75 million liability cap under the Oil 

Pollution Act. However, as Congress continues its investigation of 

the BP oil spill disaster, this Committee should rightly question 

whether or not the current $75 million—and obviously we think it 

is worth more than that—should be just eliminated. 

The President and Members of Congress have called for significant changes to the liability cap or for the cap to be eliminated altogether. In light of these proposals, today’s hearing compels us to 

ask important questions about how much liability we should expect 

oil companies to maintain and how much financial responsibility 

we should expect them to have when accidents of this nature happen. 

According to reports in the Washington Post earlier this week, 

BP is currently capturing as much as 15,000 barrels a day with its 

latest effort. This is in sharp contrast to the amount that BP has 

reported is leaking. It seems to me that we have to rely on BP for 

data and information, and we have no way of confirming it. Given 

that we may not know the full extent of the oil spill for years to 

come, it might not make sense for us to cap any amount of finanVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
20 

cial responsibility for BP and other companies, and this is what we 

are here to discuss today. 

While the entire story of this disaster might not be told for decades, we have an obligation to see those responsible for this spill 

held accountable for their actions not only to the people of the Gulf 

Coast, but to the American people. We also have an obligation to 

learn from this disaster and make necessary changes to our laws 

and update our laws to ensure companies are held accountable in 

the future. 

Mr. Chairman, I thank you, and I look forward to hearing the 

witnesses today. 

Mr. OBERSTAR. I thank you for your statement, despite limitations on your voice. It is getting better, and it is good to hear that. 

Mr. Cao, and then two more, and then we will go to our panel. 

Mr. CAO. Thank you, Mr. Chairman, for holding this very important meeting, and I thank the Ranking Member for all of his support following the oil spill. And as we speak today, oil continues to 

flow in the Gulf of Mexico, affecting thousands of businesses, fishermen; destroying our ecosystem; as well as impacting people’s 

physical and mental health issues. 

I represent a district that is directly impacted by the Deepwater 

Horizon disaster, and I feel the pain and the suffering of my people, and want to do everything that I can to address their needs. 

Therefore, I support the raising of the liability cap. But, Mr. Chairman, we must do it in a very deliberate way that will prevent the 

loss of thousands of jobs in Louisiana. 

Another decision that might have unintended consequences is 

the administration’s decision to impose a 6-month moratorium of 

deepwater drilling. Again, the primary issue we have is the issue 

of safety and how to prevent the same disaster from happening in 

the future, but at the same time, Louisiana is very much dependent on the oil and gas industry, and to impose a 6-month moratorium will cost Louisiana approximately 40,000 jobs. 

I do believe we need a time period in order to inspect all of the 

rigs that are in the deepwater portion of the gulf and to ensure 

that they have the plans and the procedures necessary to prevent 

a disaster from happening; but at the same time, I hope that we 

move, at least the administration moves, in a very responsive way 

as to limit the potential job loss to the State of Louisiana. 

Again, the Deepwater Horizon disaster is a disaster of grave 

magnitude, and it is impacting and destroying the lives of thousands of my constituents. We must do everything that we can as 

a Federal Government to help those who are in need, to provide a 

long-term recovery plan for the district, as well as to rebuild the 

coast and the wetlands of Louisiana that are being destroyed by 

the disaster. 

With that, Mr. Chairman, thank you for this important hearing. 

I yield back. 

Mr. OBERSTAR. Thank you very much. 

Ms. Brown has an introduction to make. 

Ms. BROWN OF FLORIDA. Yes, Mr. Oberstar. Thank you for your 

leadership on this matter. 

They will be leaving, but we have 20 SCUBAnauts from Florida 

who are here. They are very interested in the environment; not just 

21 

in diving, but the whole marine biology. They are here visiting us 

from Florida. 

Mr. OBERSTAR. We welcome them. Thank you very much for your 

enterprise and work. With the experience learned, you will be helping us prevent future disasters in the gulf and elsewhere. 

Thank you for the introduction. 

Mr. Cummings, a brief opening statement. 

Mr. CUMMINGS. Thank you, Mr. Chairman. As Chairman of the 

Subcommittee on the Coast Guard and Maritime Transportation, I 

am pleased that we are here today holding our second hearing on 

the Deepwater Horizon incident. Today’s hearing will enable us to 

examine whether liability limits for offshore facilities and vessels 

under the OPA of 1990 should be changed, and if so, how. 

I have now made two trips to the gulf. Most recently I have traveled with Congresswoman Brown, Chairwoman of the Rail Subcommittee, and Congresswoman Jackson Lee, who testified earlier, 

and have had an opportunity to see firsthand the astounding devastation that has resulted from the blowout at the Macondo well 

site. 

BP has said that regardless of their current legal liability, they 

will pay all costs associated with the spill. The government must 

be aggressively vigilant in holding BP to its commitment. 

I have been deeply concerned about the reports that BP may be 

nickel-and-diming Gulf Coast residents and businesses. Many thousands in the gulf are facing the loss of their livelihoods for what 

may be a long time to come, and, by extension, they are facing the 

risk of losing their homes, businesses, and the futures for which 

they have worked their entire lives. 

Based on my discussions as recently as this Monday with the 

Federal officials in the gulf, I am confident that the government is 

working diligently to require that BP processes claims as expeditiously as possible; but this must continue to be a top priority, and 

I question whether it has been. 

As with so many aspects of this disaster, BP urgently needs to 

improve its performance. As late as this morning, Mr. Chairman, 

Thad Allen was saying that they will be meeting with—that is, the 

Coast Guard will be meeting with BP officials to speed up the process of addressing those claims. That said, although facilities are legally liable for all costs associated with cleaning up the oil-based 

spill, the cap of $75 million in liability for the damages that a spill 

from an offshore facility might cause is unrealistically low given 

what we are now seeing, and it is obvious when we see all of the 

problems associated with this bill. It is imperative that this cap be 

raised to a level that reflects the extent of the potential consequences associated with spills from offshore facilities. 

Further, under current statutes, facilities are not required to 

demonstrate more than $150 million in financial responsibility, although it is apparent their potential liabilities may be many times 

that figure. As we consider, Mr. Chairman, the appropriate liability 

level for offshore facilities, we must also assess the appropriate 

level of financial responsibility they should be required to demonstrate. The current threshold of $150 million is unrealistically 

below the extent of the potential liability in light of what has happened in the gulf. 

22 

We will also consider the adequacy of current liability caps for 

vessels. Unlike facilities, vessels are currently required to demonstrate financial responsibility for the full amount of their liability. And we must consider what impact a liability increase would 

have on the smaller vessels that are critical particularly to our domestic maritime commerce. 

That said, over the longer term it is also imperative that we 

move away from our dependence on oil. Simply ceasing all offshore 

drilling is not the answer, particularly if that means we just import 

increasing amounts of oil from nations that seek to use those payments to destroy us. Reducing our demand and creating reliable alternative energy sources are essential steps we must take now to 

ensure our future security and prosperity. 

I thank you, Mr. Chairman, and I yield back. 

Mr. OBERSTAR. Thank you for your work as Chairman of the 

Subcommittee on the issue at hand. 

Now we begin with Mr. Gerard, American Petroleum Institute. 

Thank you for being with us. You have heard concerns expressed 

by colleagues on the first panel and Members of this Committee, 

and we look forward to your presentation. 

TESTIMONY OF JACK GERARD, PRESIDENT AND CEO, AMERICAN PETROLEUM INSTITUTE; CHARLES B. ANDERSON, ESQUIRE, SENIOR VICE PRESIDENT AND HEAD OF OFFICE, 

SKULD NORTH AMERICA, INC. (P&I CLUB); BRIAN BUCKLEY 

McALLISTER, VICE PRESIDENT AND GENERAL COUNSEL, 

McALLISTER TOWING; ROBERT P. HARTWIG, PH.D., CPCU, 

PRESIDENT AND ECONOMIST, INSURANCE INFORMATION INSTITUTE; MICHAEL GREENSTONE, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, DEPARTMENT OF ECONOMICS, AND 

DIRECTOR, THE HAMILTON PROJECT, AND SENIOR FELLOW, 

ECONOMIC STUDIES PROGRAM, THE BROOKINGS INSTITUTION; AND KATE GORDON, VICE PRESIDENT OF ENERGY 

POLICY, CENTER FOR AMERICAN PROGRESS 

Mr. GERARD. Thank you very much, Mr. Chairman and Mr. 

Mica, Ranking Member, and Members of the Committee. I am Jack 

Gerard of the American Petroleum Institute. API’s 400 member 

companies represent all sectors of America’s oil and natural gas industry. Our industry supports 9.2 million jobs, including many in 

the offshore development business, and provides most of the energy 

the Nation needs to power the economy and our way of life. 

The tragic and heartbreaking accident in the gulf was unprecedented, and our thoughts and prayers go out to the families who 

lost loved ones, to the workers who were injured, and to all of our 

neighbors in the gulf who were affected. The people of the oil and 

gas industry understand our responsibility to find what happened 

and why, and work in cooperation with government to come up 

with recommendations for improving this process across the board. 

We have already assembled the world’s leading experts to conduct a top-to-bottom review of offshore drilling procedures from operations to emergency response. And our industry is providing data 

and expertise to the Federal Government to stop the flow of oil, 

clean up the environment, and understand the causes and correct 

them. 

23 

As Congress considers legislative changes that impact domestic 

oil and natural gas production from our offshore resources, it is 

critical that proposals both protect the taxpayers and advance our 

country’s energy and economic interests. This Nation’s energy and 

economic security demands must be met by increased domestic oil 

and natural gas production now and for several decades to come. 

We want to work with the Congress and the administration as we 

consider the best ways to protect taxpayers and to provide our 

country its energy needs. 

The Oil Pollution Act of 1990 established the Oil Spill Liability 

Trust Fund as an important insurance policy to cover the cost of 

potential economic damages from oil releases from exploration, production or transportation accidents. It is funded by a per-barrel tax 

on the oil industry that has been mentioned earlier, not by the taxpayers. We accept that responsibility to ensure the support and 

safety net is adequately funded well into the future. 

Some are proposing to increase liability limits for economic dam- ages from $75 million up to $10 billion, or even to remove the limit 

altogether. We recognize that changes are needed, but believe that 

some proposals to arbitrarily raise or remove the fund’s cap would 

threaten the viability of offshore operations and could significantly 

reduce U.S. domestic oil and natural gas production, cost jobs, and 

harm U.S. energy security. 

We are not alone in this assessment, as independent insurers 

and analysts have reached similar conclusions. Preliminary analysis indicates the following are some anticipated results of increasing the liability amounts for economic damages from $75 million to 

$10 billion. Let me share just a few. 

Some of the leading insurance companies in the oil and gas market have told Congress that they would be unable to offer adequate 

insurance protection for offshore operations, making the economic 

risk of conducting offshore operations too great for small-, mid- and 

even large-sized companies. Estimates indicate that aside from national oil companies owned by foreign governments, only a few of 

the very largest oil and natural gas companies could meet a potential $10 billion financial assurance test for self-insurance. Lack of 

insurance created by a $10 billion cap would, in effect, push all 

small, medium and even most of the major integrated companies 

out of the gulf. 

An estimated 170,000 direct and indirect jobs are supported by 

the oil and natural gas industry in the Gulf of Mexico. As the companies that could meet the self-insurance threshold account for 

about 15 percent of the total gulf production, raising the liability 

cap would place about 145,000 jobs at risk. Even the largest companies would see premiums for additional insurance skyrocket, 

raising overall cost for offshore operations by as much as 25 percent. The impacts could be devastating. For example, Wood Mackenzie estimates that just a 10 percent increase in development 

costs could render seven current discoveries subeconomic, reducing 

production jobs, and putting $7.6 billion in future government revenue at risk. 

In conclusion, Mr. Chairman, as Congress considers this issue, 

thoughtful consideration must be given to harmonize the need to 

provide necessary resources to this important industry-funded safeVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
24 

ty net to protect our environment, while allowing us to safely and 

reliably provide the energy our Nation relies on for our economic 

and energy security. To help achieve these critical objectives, the 

API has initiated an effort with our member companies to quickly 

develop and provide to you and the administration our recommendations on how to effectively address liability limits and financial responsibility for offshore exploration activities. We are 

committed to providing quick and constructive input to this important policy debate, and will provide our recommendations to you 

soon. 

That concludes my statement. Thank you, Mr. Chairman. 

Mr. OBERSTAR. Thank you. 

Mr. OBERSTAR. We certainly look forward to receiving that set of 

recommendations, and I would urge you to get it in within a week. 

We don’t have much time. We have a goal of getting a package of 

bills from several committees ready for introduction before the July 

4 recess. 

Mr. OBERSTAR. Mr. Anderson, welcome and thank you for participating today. Your testimony is of particular interest. 

Mr. ANDERSON. Thank you very much, Mr. Chairman. I am honored to be here before the committee. My name is Charles Anderson. I am a senior vice president with Skuld North America, which 

is the U.S. and North American representative for the Skuld Protection and Indemnity Association. Skuld is 1 of 13 not-for-profit 

mutual marine underwriting associations which make up the international group of P&I clubs, which in turn collectively insure over 

90 percent of the world’s oceangoing tonnage and 95 percent of the 

world’s oceangoing tankers. 

Just a few words about what protection and indemnity associations are. They are commonly referred to as ‘‘clubs’’ for historical 

reasons, because ship owners, going back as far as the mid-19th 

century, recognized the need for new forms of insurance to cover 

compensation to third parties, such as injuries to crew and passengers, damage to cargo interests and collision. These liabilities 

were insured on a mutual basis. The ship owners pooled their resources in mutual associations. And most recently, as pollution has 

become a concern in ship operations, P&I cover is now available to 

cover removal costs and damages resulting from pollution incidents 

up to $1 billion. 

Again, cover is provided on a mutual basis, and it is important 

to note that cover is available worldwide for virtually all types of 

vessels arising from liabilities in many, many different jurisdictions. Cover is provided for liabilities that arise directly in connection with the operation of a ship. It is important to note that P&I 

cover is not available on a mutual basis for offshore oil exploration 

and production facilities, although there is limited cover available 

on a fixed-premium basis. 

The clubs operate on a very unique claim-sharing pool. For 

claims that exceed the individual club’s retention, which is currently $8 million, the pool is reinsured by commercial reinsurers 

worldwide, including virtually all major reinsurers in the U.S. market. Through these pooling arrangements, the group member clubs 

are able to offer the highest levels and broadest range of cover for 

the benefit of victims of marine casualties. 

25 

Mr. Chairman, you have already pointed out, I think very eloquently, the difference between the carriage of cargo aboard seagoing vessels from one port to another and that this represents a 

very different risk from deep-ocean drilling and exploration of undersea oil fields, such as the Deepwater Horizon incident, and also, 

back in the 1980’s, the Piper Alpha incident in the North Sea. 

Vessels have a limited capacity for oil and fuel. Coast Guard regulations require tank and nontank vessels to insure by contract the 

availability of resources to respond to a worst-case discharge, which 

is defined as the discharge of the vessel’s entire cargo- or fuel-carrying capacity in adverse weather conditions. 

Another important distinction between vessels and offshore facilities is that the enforcement and oversight of vessel safety and environmental protection has been delegated to the U.S. Coast Guard. 

Mr. Chairman, I work with the U.S. Coast Guard on an almost 

daily basis on compliance issues, and I don’t need to tell this panel 

that the Coast Guard does not rely on industry self-certification or 

self assessment. The Coast Guard personnel are motivated, dedicated, highly trained individuals who carry out systematic and vigorous on-site inspections of all vessels entering U.S. Ports to verify 

compliance with Federal law and regulations and international 

conventions. And statistics compiled by the Pollution Fund Center 

show that the Coast Guard Port State Control Program, in partnership with the shipping industry, has led to significant decreases in 

the number of ship-source oil pollution incidents in the U.S. 

Since my time is limited, I wanted to particularly emphasize the 

importance of vessel certification, or the COFRs. COFRs are essentially what makes ships able to trade in the United States. COFRs, 

however, are supplied by independent, dedicated companies, and 

they are not provided by the P&I companies. These COFR providers rely on the same system of reinsurance as the P&I clubs; 85 

percent of all ship owners trading to the U.S. use one of these dedicated COFR providers. 

It is important to realize, as I said, that these providers are reliant on the same system of reinsurance as the P&I clubs. Current 

proposals to remove caps on liability, or to have a one-size-fits-all 

limit regardless of vessel capacity or type, would require an enormous increase in reinsurance capacity at a time when it is questionable whether this capacity would be available. The reinsurance 

market is very broad in the sense that it must respond to a great 

variety of casualties, such as floods, earthquakes, and other disasters, and in any given year that capacity may be very limited. So 

the reinsurance capacity is finite and dependent on the risk perception of the reinsurance market and on essentially the experience of 

the reinsurance market in any given year with respect to these 

other claims. 

The current proposals, which would essentially strike out any 

limit for removal costs and replace the current vessel limits, which 

are a tonnage-based system, with an as yet unquantified damages 

limit, would lead to an uninsurable ship owner liability, and it 

would bring to an end the current system of certification of financial responsibility, which would in turn mean that ships would 

have to cease trading to the United States, or that job would be relegated to substandard ship owners who were willing to take risks 

26 

and bet the company assets essentially on delivery of oil cargoes to 

our country. 

Mr. Chairman, that concludes my remarks. Thank you very 

much for your time, and I am happy to answer any questions the 

Committee may have. 

Mr. OBERSTAR. Thank you very much. 

Mr. OBERSTAR. The distinctions you have drawn are very important, and we will come back to those. The administration’s proposal 

is going in one direction, and we are looking at bifurcation of the 

responsibilities; those of vessels where there is a quantifiable 

amount of oil, and from rigs and sea-bottom wells where there is 

both an unquantifiable and perhaps unknowable amount of oil. 

Mr. OBERSTAR. Now Mr. McAllister. 

Mr. MCALLISTER. Thank you. I am Bucky McAllister. I am the 

vice president and general counsel of McAllister Towing, a company that was founded in 1864. It is a fifth-generation, familyowned company with a fleet of U.S.-flagged tugboats, barges and 

ferries on the east coast of the United States. I am testifying this 

morning on behalf of the American Waterways Operators, the national trade association for the inland and coastal tugboat, towboat, 

and barge industry. Our company and other AWO members are in 

the business of marine transportation, not oil exploration or production. 

McAllister Towing and AWO’s 350 member companies share a 

deep commitment to marine safety and environmental stewardship. 

Our thoughts and prayers go with the deceased and all those who 

were impacted. 

We understand that no spill is acceptable. They damage the natural environment, and they jeopardize our ability to stay in business. We did not come to this realization this April. Our industry 

woke up long ago. Two decades ago Congress passed the Oil Pollution Act of 1990. Our fundamental message today is this: With respect to vessel spills, OPA 90 is working. 

Let me cite a few examples. Tank barge oil spill volumes have 

plummeted 99.6 percent since you passed OPA 90, with a record 

low of 4,347 gallons spilled in all of 2009. To put that in perspective, that is about the same amount of oil that is estimated to be 

escaping from the ocean floor in the gulf every 10 minutes. With 

nearly 69 billion gallons of oil transported by barge on U.S. waterways, this means that 99.99 percent of the oil moved by tank 

barges is being moved safely. More than 90 percent of the U.S. 

tank barges are double hulled, 5 years ahead of the schedule you 

set in OPA 90. 

Since OPA 90, our industry has been challenged to lead improvements in safety and stewardship above and beyond the requirements of law and regulation, and we have done so. Developed in 

1994, the AWO Responsible Carrier Program, which is a safety 

management system for tugboat and barge operators, has long been 

a condition of membership in AWO. All AWO members must undergo an independent, third-party audit every 3 years. Companies 

that fail their audit forfeit their membership. 

In 2004, AWO joined the Coast Guard in supporting legislation 

to bring towing vessels under a Coast Guard inspection regime and 

require all towing vessels to have a safety management system. 

27 

Mr. Chairman, we join you in urging the Department of Homeland Security to publish its Notice of Proposed Rulemaking. 

The liability and financial responsibility provisions of OPA 90 

have been an important contributor to this record. Vessel owners 

must demonstrate financial responsibility up to the limits that 

were raised by Congress in 2006 and by the Coast Guard in 2009 

to keep up with inflation. Those limits can be breached in events 

of gross negligence, willful misconduct or violation of regulation. 

Today, liability limits for vessels are two or three times higher 

than they were in 1990, and a mechanism is in place to continue 

increasing the limits over time. 

In exercising its oversight mission, we urge the Committee to be 

mindful of this history and the potentially severe consequences of 

changes in the liability and financial responsibility regime for vessel owners. The current statutory and regulatory framework reflects a careful balance. It ensures that vessel owners have access 

to appropriate levels of insurance cover, typically $1 billion for companies that obtain their coverage through the P&I clubs. If the 

costs of a spill exceed those limits, claims are then paid by the Oil 

Spill Liability Trust Fund you have been discussing. This fund is 

not drawn from the General Treasury to shift the cost of the spill 

to U.S. taxpayers; rather, it is essentially a supplemental insurance 

pool that is funded by the oil industry itself. 

We are troubled by proposals to further increase liability limits 

for vessel owners as a reaction to the current disaster. Tank vessels 

are not oil-production facilities. A worst-case discharge from a vessel is a quantifiable amount, as you have pointed out. The liability 

limits for vessels, unlike limits for offshore facilities, have already 

been increased by Congress and the Coast Guard. For a vessel 

owner, unlimited liability is not insurable. However, it is not only 

unlimited liability that places vessel owners at risk; proposals to 

raise liability limits also threaten to raise the cost of insurance to 

a level where responsible small- and medium-sized companies could 

not afford it. 

We urge the Committee to be sensitive to the impact of its 

changes on responsible, tax-paying American companies that provide family-wage jobs for tens of thousands of Americans citizens. 

We urge you to recognize the differences between a tank barge or 

a towing vessel and an oil rig, and we urge you to be thoughtful 

and judicious as you exercise your very important oversight responsibility. Thank you. 

Mr. OBERSTAR. Thank you very much. You referenced my concern 

in my opening remarks, and I will come back to that theme during 

the questioning period. 

Mr. OBERSTAR. Dr. Hartwig. 

Mr. HARTWIG. Thank you, Chairman Oberstar and Ranking 

Member Mica and Members of the Committee, for inviting me to 

testify here today. My name is Robert Hartwig, and I am president 

and economist for the Insurance Information Institute, an international property casualty insurance trade association based in 

New York. 

I have been asked by the Committee to testify on the insurance 

implications of the Deepwater Horizon accident; and specifically I 

will address the following three issues: the insurance arrangements 

28 

in place at the time of the Deepwater Horizon accident; the immediate and current insurance market reaction to the accident; and 

the potential market reaction to proposed changes by Congress to 

various acts governing the limits of liability associated with offshore drilling activity. 

Since April 20, when a fire and explosion on the Deepwater Horizon tragically claimed the lives of 11 workers, we have seen an estimated 800,000 barrels of oil spill into the Gulf of Mexico through 

June 1, and this is shown in figure 1 at the back of my testimony. 

This makes the Deepwater Horizon event the second largest oil 

well blowout in world history, and the largest ever in the U.S., approximately eight times larger than the magnitude of the largest 

prior event. And by way of reference, it is also three to four times 

larger than the 1989 Exxon Valdez event. 

Given these sobering statistics, and from an insurance perspective, offshore oil platforms are among the most difficult and complex commercial risks to insure in the world. They feature a number of risk-financing components such as: self-insurance; high retentions and deductibles; traditional insurance; reinsurance, which 

is insurance for insurance companies; participation in mutual insurers; the use of captives; and even accessing the capital markets. 

Many of the largest offshore energy operators, like BP, are selfinsured. In terms of discussing some of the key coverages that are 

in place, I have a page-long list of these in my testimony. I will not 

go through what is in the written testimony there. But basically 

these coverages provide these offshore operators with protection for 

physical loss, for instance the rigs and the pipes, but also the liability losses they might have obviously to workers, but also in terms 

of pollution and other sorts of liabilities they may incur. 

Specifically with respect to the operators involved in the Deepwater Horizon disaster, BP had a number of partners. The partners 

outside of BP all had private insurance protection in place. As I 

mentioned, however, BP, which was the lead in this particular endeavor with a 65 percent interest in the project, was self-insured. 

BP did self-insure in part through the use of a captive known as 

Jupiter Insurance, which had $6 billion of capital on the day the 

event occurred. This protected it mostly against property losses; 

but, in effect, BP’s prodigious earnings power are, in fact, its insurance policy. 

Now, ultimately in terms of when we add together the privateinsurance-sector losses that we are seeing from the other parties, 

again it is still too soon to tell ultimately where we will wind up, 

but estimates today range from private insurance that will be contributed to recovery from this event to be in the range of $1.4 billion to $3.5 billion. 

In terms of the immediate market response to the event, the 

global energy market response to the Deepwater Horizon loss has, 

in fact, been quite orderly. Capacity has not fled the market. Prices 

have indeed risen, but commensurate with the rapidly changing 

outlook in demand for liability coverages and mounting uncertainty 

over government action related to both future and potential retroactive liability, estimates are that the cost of insurance for drillers 

operating in the Gulf of Mexico has increased from 15 to 50 percent, depending on the nature of the operation. 

29 

In terms of capacity, the typical third-party limit for liability coverage that can be purchased on the market is approximately $1 billion, and that has not changed in the wake of the Deepwater Horizon event. At the same time, as I mentioned, prices have risen, but 

those increases in prices do not appear to have attracted significant 

additional capital. 

Contributing to the skittishness of new capital is the fact that 

the Deepwater Horizon event could, in fact, unleash one of the 

largest tort actions in United States history. As displayed in figure 

2 at the back of my testimony, a total of 126 Deepwater Horizon 

lawsuits have been filed through May 24 against just the four primary companies involved. 

In terms of potential market impacts associated with changes in 

the Oil Pollution Act of 1990, since the Deepwater Horizon incident, there has been a great deal of discussion in Congress and at 

this hearing about changing the limits of liability from those that 

existed originally under the act from $75 million to a number in 

the vicinity of perhaps $10 billion. Now, currently the OPA features a compulsory liability insurance structure combined with 

strict liability rules for oil pollution damages associated with offshore energy facilities. These parties are responsible for offshore facilities. They must establish and maintain oil spill financial responsibility capability to meet their liability for removal costs and damages associated with oil discharges. That capability is demonstrated in a variety of ways, but most importantly through insurance. 

Now, in the wake of the Deepwater Horizon spill, as we have 

mentioned, Congress has proposed raising the limit under OPA to 

$10 billion from the current $75 million. As discussed already, the 

typical maximum available third-party liability coverage is somewhere between 1- and perhaps, if you stretch it, 1.2- and perhaps 

even $1.5 billion. But as a practical matter, energy insurers and reinsurers simply cannot at the current point in time provide $10 billion in capacity. 

There are a number of reasons for this: The entire global energy 

insurance market currently consists of no more than $3 billion in 

premiums annually. Higher limits of liability will increase the demand for coverage, perhaps greatly, potentially, exhausting available capacity. Underwriting for very low-probability, extremely 

high-severity events is very challenging for insurers and reinsurers, and the higher cost of coverage, of course, as we have already heard, could disadvantage smaller offshore operators that do 

not have the resources to self-insure. 

The current tort liability environment increases uncertainty as to 

the frequency and severity of future events. As I mentioned, if Congress retroactively raises the limits of liability under OPA, it may 

well do so in the future, raising potential future payouts unexpectedly, thereby increasing the uncertainty in costs associated with offering such coverage in the near future. 

So in conclusion, while the availability of liability coverage in offshore energy insurance markets remains at pre-Deepwater Horizon 

levels, it is unlikely that the insurers at the current point in time 

could provide limits sufficient to meet a proposed $10 billion limit 

30 

in terms of what is being discussed today under the context of a 

revised Oil Pollution Act. 

Thank you for the opportunity to testify before the Committee 

today. I will be happy to respond to any questions that you have. 

Mr. OBERSTAR. Thank you very much for a thoughtful and very 

comprehensive statement. 

We now turn to Dr. Michael Greenstone, MIT Department of Economics, and a lot of other titles that you wear. 

Mr. GREENSTONE. Thank you for the kind introduction. I thank 

Chairman Oberstar, Ranking Member Mica, and Members of the 

Committee for inviting me here today. 

The Deepwater Horizon disaster is the worst spill that our country has experienced in both economic and environmental terms. A 

key purpose of my testimony today is to use economic theory and 

evidence to take a critical look at the economic incentives around 

drilling decisions that impact the chances of future oil spills. 

As I see it, we have two objectives related to oil drilling. The first 

is to support energy security through increased energy production 

in the United States. The second objective is to protect the environment by making sure that energy producers put the appropriate 

safeguards in place against oil spills and other environmental damages. These two objectives are often in conflict with each other. 

The American people depend on the government to determine the 

appropriate level, type and location for drilling. In trying to set 

safety standards and conduct inspections, the government faces an 

information disadvantage relative to industry. With that information disadvantage, it is crucial that drillers face the proper economic incentives to prevent spills. However, this is not the case 

under the current law. As has been pointed out today, the 1990 Oil 

Pollution Act capped firms’ liability for economic damages from oil 

spills at $75 million, and this cap effectively shields companies 

from responsibility for their decisions. This misalignment of incentives is a classic case of what economists like to call moral hazard. 

Firms just behave differently when they are protected from the 

consequences of their decisions. 

My primary argument here today is that the removal or substantial increase of the liability cap on economic damages is the most 

effective way to align oil companies’ incentives with the American 

people’s interests. 

I want to take a minute to explain why caps are so troubling in 

aligning oil company incentives with the interests of the American 

people. Consider what an oil company does. The oil company makes 

decisions about where to drill and which safety equipment to use 

based on benefit-cost analyses of the impact on their bottom line. 

However, the cap distorts a company’s decisionmaking because it 

protects them from the full cost of any spills. The result is that the 

cap effectively subsidizes drilling and substandard safety investments, like blowout preventers, in the very locations where the 

damages from spills would be the greatest. 

In the case of the Deepwater Horizon venture, BP and its partners made drilling decisions with the legal guarantee of a $75 million cap on economic damages. Just to put that in perspective, 

many estimates place the economic damages from the spill at more 

than 100 times the cap that BP was making decisions under. The 

31 

point is that the cap provides economic incentives for companies to 

cut corners. These incentives will remain as long as the cap is set 

at such a low level relative to the potential risk. 

In my written testimony, I evaluate several of the arguments 

from an economic perspective against lifting the cap. And here, I 

am going to try to provide a brief summary of some of those conclusions. 

Number one, lifting the cap will not have a meaningful impact 

on gasoline prices. The U.S. is a small producer. In total, the U.S. 

is a small producer in a very large, worldwide petroleum market. 

Two, job losses that may result from lifting the cap would be concentrated at risky drilling sites. And what I want to underscore is 

these sites are economically viable only because of the protection 

from the liability cap. 

Three, lifting the cap does not target small firms; rather, it will 

raise the cost of production for firms of all sizes that do not take 

adequate safety precautions. 

Number four, the economic case for lifting the cap on damages 

for shipping companies is as strong as it is for raising the cap on 

drillers, in my opinion. 

If the cap on liabilities is removed or raised, there are a number 

of important implementation issues, and I discuss them in greater 

detail in my statement, and I want to summarize them here. 

Number one, the economic case for a higher cap is equally strong 

for all well types. That includes shallow water, deepwater, productive wells and exploratory wells. 

Number two, an increase in the cap must be accompanied by a 

requirement for proof of liability insurance, a certificate of financial 

responsibility, or the posting of a bond to cover potential damages. 

Without those requirements, increasing the cap could allow for 

changes in corporate organizations that undermine the purpose of 

a higher cap. 

Number three, there is a very strong economic case for raising 

the cap on new drilling. 

Number four, the economic case for raising the cap on existing 

drilling sites is less clear-cut. One possibility with some intuitive 

appeal is a transitional strategy that raises the liability cap on existing operations slowly over the course of several years. 

Mr. GREENSTONE. The $75 million limit on liabilities for economic damages distorts oil companies’ decisions and actually provides economic incentives for spills to take place. 

Number 2, the removal or substantial increase of the liability cap 

is the most effective way to align oil companies’ incentives with the 

interests of the American people. 

Number 3, it is possible that a higher liability cap would reduce 

the domestic production of oil. If this is the case, a higher cap could 

be paired with targeted policies that promote domestic production 

and/or reduce domestic oil consumption. Such a pairing would 

allow us to keep both our energy security and environmental goals. 

Thank you once again for the invitation to participate in this discussion. I would gladly respond to any questions. 

Mr. OBERSTAR. Very fine statement. Thank you for addressing 

several of the key issues that we are exploring in the course of this 

hearing. 

32 

And, Kate Gordon, Vice President of Energy Policy, Center for 

American Progress. 

Ms. GORDON. Thank you, Mr. Chairman. Mr. Chairman Ranking 

Member Mica and Members of the Committee, thank you so much 

for inviting me to testify before you today. I am glad to be able to 

share the Center for American Progress Action Fund’s fundamental 

belief that the liability cap for damages must be changed and other 

policies put in place to more realistically account for the actual cost 

of oil spills to the environment and the economy. 

As you know well by now, the OPA of 1990 currently limits BP’s 

liability to this disaster’s impact on natural resources and the economy to $75 million— which sounds like a big number, especially to 

many Americans in this recession, but it does not come even close 

to the likely cost of the current disaster. The proof is in the last 

major oil spill in U.S. waters. The Exxon Valdez in 1989 spilled 

more than 11 million gallons in crude oil into Alaska’s Prince William Sound. Cleanup costs and immediate damages ran to at least 

2.5 billion, but these were the early and only immediately quantifiable in cleanup and damage costs. In fact, the damage was much 

greater, as we have heard especially lately, and continues to this 

day. 

More than 16,000 gallons of oil remain on the shoreline 21 years 

later and some fish populations, for instance the Pacific herring, 

have never fully recovered. Fishing communities in that region 

have seen a decline in income as well as higher suicide and alcoholism rates, damages that are hard to quantify but are very real. 

Under the OPA liability cap currently in place, Exxon would 

have had to pay only its immediate cleanup costs for the 1989 spill, 

which it ended up paying about $121 million in cleanup costs plus 

$75 million in damages. That means essentially that Exxon would 

have paid just under $200 million per spill, where the most conservative cost estimates were more than 10 times that amount; like 

a fire sale for oil spills, 90 percent off the actual price of a catastrophic disaster. 

The BP disaster is already more expensive than the Exxon spill. 

Here we have the tragic loss of 11 human lives. Here we have 

three times the amount of oil as from Exxon already in the water, 

with more flowing every day. Here the Obama administration authorities spent more on direct cleanup than Exxon did in 1989, and 

we are not fully even in cleanup mode until BP figures out how to 

stop the disaster from happening. Costs could go as high—as you 

have heard—as $1 billion per direct cleanup and between—I have 

heard estimates between 8 and 14 billion for damages. 

How did this happen and what does it have to do with the liability cap? Here is how it happened. Over the years, oil companies 

bike BP, as my fellow panelist Michael Greenstone has testified, 

have had no incentive to base their business decisions, including 

decisions about environmental and human health and safety, on 

the true cost of these decisions. With every decision BP made, it 

knew its liability would ultimately be limited to $75 million under 

the OPA. As Mr. Greenstone has said, this cap has a perverse result of actually encouraging risky practices, such as drilling in the 

most environmentally sensitive areas with cheaper equipment and 

fewer safety standards. 

33 

Take the current disaster. BP could have installed, as we have 

heard, a switch to remotely shut off the flow of oil. This technology 

is actually required in other countries like Brazil and Norway. Installing the switch would have cost BP $500,000 but the company 

had no incentive to spend extra money on such precautions. BP 

also has a long history of disregarding safety and environmental 

rules at its pipelines and facilities and of ignoring workers or intimidating workers who raise these safety concerns. 

BP has made these choices throughout with the comfortable 

knowledge that whatever happened, its liability for damages would 

be limited to $75 million. It took a calculated risk, one that will affect the gulf region for decades and one that in fact killed 11 people. 

We need to take away the incentive to trade American lives and 

livelihoods for oil company profits. Raising or eliminating the liability cap is one step toward changing that calculation. But we also 

must begin accounting for the other true costs of our oil addiction. 

Oil companies receive subsidies, including some tax deductions for 

damage payments under oil spills, that cost taxpayers billions of 

dollars per year. They operate in an environment where carbon pollution is not capped and has no real business cost. 

Taken together with liability limits, these policies, or, in the case 

of carbon caps, lack of policies, create a situation where polluters 

don’t pay, pollution pays. 

Thank you so much for allowing me to testify and I look forward 

to questions. 

Mr. OBERSTAR. Thank you very much for your splendid presentation and comments from all of the panelists. 

I will begin with Mr. Gerard. We expect, based on daily reports 

and observations and comments from Admiral Allen, the incident 

manager, that it will be August before relief wells begin to reach 

their goal, relieve the pressure. Some countries require relief wells 

to be drilled at the same time as the main well. Should we have 

a similar requirement? 

Mr. GERARD. I am not aware, Mr. Chairman, of any particular 

nation right now that requires a relief well at the same time. But 

I am happy to go back and review that and to determine. As you 

know, there are risks associated every time you drill a well; and 

what we do is we manage those risks each and every time. We are 

happy to take a look at that, Mr. Chairman. If you have got a particular reference I am not aware of it. 

I have had that conversation with others. Others have made that 

suggestion and I am not aware that there is any significant producing nation that does that now. But I will look into it and I will 

get back to you on it. 

Mr. OBERSTAR. We will provide that information to you Mr. Gerard. 

Mr. GERARD. Thank you, Mr. Chairman. 

Mr. OBERSTAR. The American Petroleum Institute has developed 

the standards for construction of blowout preventers, including the 

one used by Deepwater Horizon. There is a great deal of concern 

that there is little oversight by government of industry and little 

capacity by the Coast Guard to undertake such regulatory action 

because they don’t have in-house capacity. We are going to have 

34 

legislation that will direct the Coast Guard to establish that capacity, to understand the industry much better, much better than the 

Minerals Management Agency has done. And we are also considering directing the Coast Guard to develop the standards, much as 

the FAA establishes standards for aircraft and engines. 

What would be your view, that of the American Petroleum Institute, in response to such a requirement? 

Mr. GERARD. We would welcome working with you on that. 

Let me make a couple of other comments if I can, Mr. Chairman, 

related to that. Secretary Salazar said most recently it would be a 

mistake to assume that the U.S. oil and gas industry is not highly 

regulated. We are highly regulated. As he commented in a public 

hearing, we are one of the most highly regulated industries in the 

country. 

With that in mind, when we talk about standards setting, one of 

the original reasons for establishing the American Petroleum Institute in the early part of the last century, in 1924, we began a 

standard setting process. This process is accredited by an outside 

group, the American National Standards Institute, that is the same 

group that accredits, for example, our national laboratories, our 

governmental labs, that do a lot of research and development. 

Within that standard setting process, we work to develop best 

proven technologies and best practices, and then we promote those 

across the entire industry, not only here in the United States but 

globally. We audit those practices constantly and we review those 

standards at least once every 5 years. 

The standard setting process as is accredited to us, as the API 

requires that we have open forums and invite all relevant or other 

parties to participate in determining what those standards should 

be. So on many occasions we have governmental officials who sit 

in these panels, academics, industry experts, et cetera, to develop 

the standards. Our standards today, we have over 500 of them. 

There are 240 or so of them that relate to offshore development, 

another 78 of them that have been adopted by governmental entities as part of their regulatory regimes. 

I believe it was in 1995 when the Congress passed the National 

Technology Act and required governmental entities to look at these 

independent accredited standard setting processes and use them as 

part of the regulatory system. That is what we do. We put the best 

minds together. It is audited by outside third parties. And our real 

purpose is to drive to the best highest performance in the area of 

safety, technology as it continues to evolve, and best practices, and, 

like I say, to promote that across the entire industry. 

Mr. OBERSTAR. Thank you for those observations. 

We have looked at some of those 500 standards established, and 

some are certainly very well thought through. Others do not account, in my judgment, for human error. And that is the direction 

of aviation safety. The redundancy that is built into aviation does 

not appear to be present in the petroleum sector. And you will 

admit that there is a significant difference between tanker standards and facilities, drilling facilities’ standards, and the apparent— 

it is obvious—lack of redundancy with the blowout preventer on 

this particular tragedy in the gulf. 

35 

Those are the kinds of issues, the categories of concern that we 

have. And I will come back to those later. 

I will restrict myself at this point and recognize Mr. LoBiondo. 

Mr. LOBIONDO. Thank you, Mr. Chairman. For Mr.Anderson or 

Mr. McAllister, does the current tonnage-based system adequately 

assess liability in accordance with the risk of a major oil spill? 

Mr. ANDERSON. I think it does adequately address the risk from 

certain vessel types. There will almost certainly have to be review 

of these tonnage-based limitations over time. But I think, as the 

Committee has already recognized with respect to vessels, those 

limits have already been increased twice; once in 2006, and again 

in 2009. 

In certain industry segments it may be necessary to look at those 

industries more carefully, but I think on balance the existing limits 

are adequate. And one demonstration of that fact is that we have 

had very, very few incidents, in fact I believe only two incidents, 

since the inception of OPA 1990 involving ocean-going tankers 

where the limits have been exceeded. 

One was the Athos I spill in the Delaware River. In that case, 

you will recall a tanker was proceeding into berth and hit an underwater anchor, an obstruction that was not detectable by the vessel. 

Mr. LOBIONDO. Have the cost for response efforts and damages 

changed since the Oil Pollution Act was passed in 1990? Does anyone have an opinion? 

Mr. ANDERSON. I am not sure I understand the question, Mr. 

LoBiondo. 

Mr. LOBIONDO. The cost for response efforts. I assume costs for 

everything go up, so has this dramatically gone up; a little bit; 

what is your assessment? 

Mr. ANDERSON. It has dramatically gone up, given certain recent 

incidents. I think in part those may be driven, quite frankly, by 

media and political concerns rather than the actual extent of the 

environmental damage caused by those incidents. But there is no 

doubt that the per-barrel cost in some cases has significantly risen 

in recent years. 

Mr. OBERSTAR. Thank you Mr. LoBiondo. 

Mr. DeFazio, you are deep in thought and reviewing the testimony, as I observed. 

Mr. DEFAZIO. Thank you, Mr. Chairman. I always look at this 

job sometimes as an extended and ever-unfolding opportunity for 

graduate education. 

Mr. OBERSTAR. My view exactly. 

Mr. DEFAZIO. So one question I will throw out to whoever can 

answer it: What sort of limits are imposed on liability in the North 

Sea and what sort of certificates of financial responsibility do they 

require? Can anybody answer that question, all these experts here? 

Dr. Hartwig? 

Mr. HARTWIG. Very quickly, in terms of other parts of the world 

for the large operators, it is my understanding that these limits are 

typical not just in the gulf but in other places as well. The North 

Sea, of course, was the site of the Piper Alpha disaster more than 

20 years ago. That produced about $3.6 billion in insured losses, 

and that was the largest in history for an offshore event. 

36 

Mr. DEFAZIO. How is it that they had $3.6 billion of insurance 

on that? 

Mr. HARTWIG. There were a number of parties involved, when 

you add up all the parties involved. 

Mr. DEFAZIO. In this case, we line them up all up, we don’t get 

to that amount. 

Mr. HARTWIG. We don’t get to that amount. 

Mr. DEFAZIO. We don’t get to that amount; right. 

Yes? 

Ms. GORDON. Just a quick addendum to that. The international 

liability scheme that covers about 104 countries including Norway, 

does have liability limits as you just heard. It does have liability 

limits that are in line. 

One thing that is interesting is that those are taken off, the limits are removed, if there is an act of omission from the responsible 

party; for instance, not implementing required safety standards. 

And it is interesting to note that, for instance, the blowout preventer that BP did not put in in this case would have been required if this had been a Norway incident. So in that case, likely 

the liability cap would have been taken off. 

Mr. DEFAZIO. Right. I was here in 1990 and we had very vigorous debate over negligence versus gross negligence, which essentially would be more along the lines of omission, and we lost that 

debate. But I think in this case we will probably find that that is 

not going to be a problem from all the testimony. 

Mr. HARTWIG. I have one addendum to that. In the Piper Alpha 

event, we had 167 workers died, I believe, in that event, compared 

to 11. So a much higher contribution came from the liability with 

the deaths of the workers as opposed to the spill. 

Mr. DEFAZIO. Very unfortunate. 

On the argument that if we had unlimited natural resources 

damages that no one would operate or couldn’t get insurance, I am 

confused on two levels. One is I observed that Louisiana has no 

limit on natural resource damages. But I assume there are quite 

a few rigs operating within, in—fact, I think I visited one within 

3 miles within their State territorial waters. 

Can anybody explain how it is that they can do that, but, if we 

had unlimited liability further out, that companies couldn’t operate? 

It doesn’t seem to be a barrier. Aren’t there a number of rigs operating within 3 miles of the Louisiana coast? Yeah. OK. So no one 

can answer that question, but I think that kind of begs the question. 

And then the second part would be, we haven’t thus far, and 

none of the legislation proposed is to change the certificate of financial responsibility. So you lift the cap but the COFR limits the exposure of the guarantors or insurers. The company or the operator, 

responsible party, would have the excess over and above the COFR. 

So let’s say we left the COFR where it is, or perhaps we raise 

the COFR to a quarter of a billion, why would that provide a disincentive and a lack of insurability out there because the liability 

is incurring to the company, not to the insurer? It would be the 

same as today; there are limits on their losses. 

37 

Mr. ANDERSON. May I address that? The problem with that scenario is that I don’t know of any reputable shipping company 

whose board of directors would make a decision to call the United 

States, facing unlimited liability or liability that exceeds whatever 

the guarantor’s cap is. 

Mr. DEFAZIO. Right. But you are back to—you are talking shipping again versus rigs. 

Mr. ANDERSON. Yes, sir. I am here entirely to talk about vessels 

as opposed to offshore oil rigs. 

Mr. DEFAZIO. Although this was technically considered a vessel 

was it not, this rig? 

Mr. ANDERSON. It is only considered to be a vessel if it is in navigation between, say, a supply depot and the drill site. Once it is 

affixed to the ocean bed, or if the platform is stabilized and has an 

umbilical cord into the ocean bed, then it is an offshore facility. 

Mr. DEFAZIO. So we made clear we feel we should continue to 

distinguish between vessels and offshore facilities. I mean, I think 

he has made that point a number of times. And so if we were to 

lift the cap on offshore facilities, the operators, since we already— 

we would still have a COFR—I assume they could get insurance up 

to that amount; and beyond that, it will be the responsibility of the 

company. 

Dr. Greenstone, I am very concerned about your testimony. I 

think it is excellent testimony but it raises to me a question that 

I am very worried about. And you were talking about moral hazard, and at one point you reference the potential of spinning off liabilities. And I am very worried in this case that at some point BP 

is going to decide to create an entity which relates to this accident 

and this well, and, perhaps through a bankruptcy proceeding and 

otherwise, try to protect the rest of their assets. Have you considered that? Are you concerned about that? 

Mr. GREENSTONE. Yes, Congressman. I am quite concerned about 

that as well. I am concerned about that going forward with future 

legislation. And so the one point I tried to emphasize in my testimony is that if you raise the liability cap but don’t raise the requirement of having proven insurance at the same level as the liability cap or a COFR at the same level, what you have effectively 

done is create a loophole that you can drive a truck through. 

And so the consequence, what would happen, I suspect, is that 

major oil companies would then segregate themselves into smaller 

units and/or limited partnerships, and the result would be that 

they could use bankruptcy laws to get around the higher cap that 

Congress would have tried to impose. 

Mr. OBERSTAR. Would the gentleman yield? 

Mr. DEFAZIO. Yes, certainly. 

Mr. OBERSTAR. Just quickly, would the same rationale apply if 

there were no cap? You said ‘‘raising the cap,’’ but if there were no 

cap? 

Mr. GREENSTONE. If you had no cap it is a little bit more complicated. I think, I don’t know that one could get a COFR, this is 

outside of my expertise, but I don’t know if one could get an unlimited COFR or an unlimited insurance policy. But you would want 

to try and get the COFR or the insurance policy or the bonds that 

you are having the company post as high as possible, because effecVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
38 

tively the cap is not going to bind after you reach that limit. What 

these companies will be able to do is to segregate the risk and use 

bankruptcy to avoid damages beyond whatever the COFR or the insurance requirement is. 

Mr. DEFAZIO. If I could—thank you, Mr. Chairman—pursuing 

that line of thought, if in this case with BP, could we—it is very 

problematic to modify a contract or go back and retroactively 

change a statute—but could we ask at this point as a responsible 

party, would we have to have proved gross negligence in order to 

get them to put up a large bond now? I am just wondering what 

insurance can we get beyond their president saying, Oh, we will 

meet all legitimate claims. Every time they use the word ‘‘legitimate,’’ I wonder what that means. 

And secondly, I worry about the scenario where their stock goes 

low enough that someone will try to take them over. Or they will 

say, The heck with this, we will go bankrupt and get rid of this 

albatross we have created. And there will be no assets to pay for 

it. 

Is there some way we can segregate the money or assets now out 

of that corporation? 

Mr. GREENSTONE. Mr. Congressman, I wondered the same thing 

about what ‘‘legitimate’’ claims means, but you are asking a finely 

tuned legal question and that is outside of my area of expertise. 

Mr. DEFAZIO. Does anybody else have ideas on that? And with 

that, my time will have been expired. 

OK. Thank you, Mr. Chairman. 

Mr. OBERSTAR. Mr. Mica. 

Mr. MICA. Thank you. 

I think I heard some from Mr. Gerard about the economic impact of, I guess—did you say a $10 billion—increase to $10 billion; that 

would be pretty devastating if it wasn’t crafted properly. Who could 

comply with that? As I said earlier, you might limit it to the biggest of the big players if that was imposed. 

Mr. GERARD. When you say the ‘‘biggest’’ and the ‘‘big players,’’ 

let me just clarify that a little bit. Obviously it would have to be 

those that have the financial wherewithal to assume that. 

Mr. MICA. Exactly. The BP, the Shell, Royal Dutch Shell. I don’t 

know all the people who are in. 

Mr. GERARD. Some of the insurers, the underwriters and others 

that we have spoken to—and I am not in the insurance business— 

they have indicated, at least those that currently operate in U.S. 

waters, it would be less than a handful that would be able to qualify. But then they go on to remind us, and let me pull my list here, 

the only other ones that would likely qualify would be what we call 

the national oil companies, which are foreign governments, and 

that includes Venezuela Petrobras, PetroChina, and others. Those 

would be the only ones with sufficient financial wherewithal 

around the world to qualify to—— 

Mr. MICA. And I would imagine PetroChina, they are probably 

salivating at the opportunity to drill off of Cuba, and with everything we impose—— 

Mr. GERARD. They are there now. 

Mr. MICA. With everything we impose, there are consequences. 

And I think what we want to do is well-intended. Now the fund, 

39 

too, was set up to put some cap on economic damages. It is unlimited liability for the spill right now, and that is taking place. 

What concerns me is the drawdown of the energy portion of the 

fund; that to me it is clear responsibility that BP needs to be paying us back in some sequence in order to keep that from being depleted. I have no problem raising the cap and we are probably 

going to have to do that, that emergency cap that is in the current 

legislation. But, I am not front-financing people who are responsible and should be held responsible. 

The other question is, too, this fund was set up to cover the liability above where something happened—say, an orphan spill 

where you can’t identify the perpetrator or go after them or to 

cover the amounts larger than specified. 

Now when you create the fund and you get it, we increase the— 

again, the first thing everybody around here does is increase the 

taxes. So they go from 8 cents or the fee, whatever you want to call 

it, to 41 cents or 34 cents. Somebody is paying that. The consumer 

is paying that. It is sort of front-end loading an emergency backup 

fund; is that correct? 

Mr. GERARD. Yes. 

Mr. MICA. And what concerns me then, now, with what is proposed, there is somewhere between 12 and maybe 15 billion in the 

fund. And this gentleman over here, Mr. Greenstone, just said, 

These aren’t dummies that are operating these activities so now 

they will figure out a legal mechanism to limit their exposures. 

So what concerns me is we are using that fund to assume some 

of that responsibility that should be inherent. The fund was set up; 

if there wasn’t some, I thought primarily if there wasn’t somebody 

that could be held responsible, say an orphan spill, or someone who 

their resources ran out to cover us over and above that, is that simple explanation correct? 

Mr. GERARD. I think you raised a lot of issues, Mr. Mica. Let me 

raise a couple if I can. The first is, obviously, the fund is paid into 

currently by the oil industry at the refinery at 8 cents. 

Mr. MICA. But that is passed on in the costs. If it goes from 8 

to 34—— 

Mr. GERARD. Traditional cost. 

Mr. MICA. They are going to be paying big dividends and making 

big profits. That is what they are in business—and they stay in 

business, because they have a positive bottom line. 

Mr. GERARD. The point I was going to make, Congressman, is I 

think there is a combination here that needs to be looked at. We 

need to look at this from a broad policy perspective. 

To your point, if we create a significant fund in this trust fund, 

how does that play, then, into the risk equation? If the industry is 

paying for that fund, then how do we use that to set it up to balance, if you will, the potential impacts by an unlimited cap, or a 

$10 billion cap, so that we don’t have unintended consequences in 

the economic realm? I think it is important for consideration. 

Mr. MICA. Two final things here. This is the plan BP submitted. 

I got criticized for—well, when we had the last hearing, I went over 

the Bush administration, they gave the lease, the Bush administration, the Minerals Management Agency, had three criminal investigations we submitted to the record went on there. We looked at 

40 

when this was submitted under the Obama administration. And it 

is interesting. Everybody should read what they approved and 

didn’t approve, but the lady here said there was no acoustical shutoff valve, no acoustical shutoff valve, which is common in deepwater off of Scandinavia. That is the only place I am familiar with. 

But then we saw the staff, the Committee staff, prepare that there 

is only three, maybe four dozen at the most, of really the deepwater 

permits that have been issued, and that is where we have had the 

problem. 

Does anyone know of instances where we have had the either onshore or at the lesser depths most of, I guess, 600 feet, which was 

200 meters, and is what 3,500 of the wells are—does anyone know 

of a problem that we have had similar that they could cite, or protections that we didn’t have? 

So what you want to do is focus where we have the risk is my 

point. Someone should pay the premium and be held responsible 

for economic damages. Again, I am not sure what the magic figure, 

the number, is. But we don’t want to let anyone off the hook. Mr. 

Gerard? 

Mr. GERARD. Congressman, I just had one other contextual comment there. We have been drilling in the Gulf of Mexico for over 

65 years and we have drilled 42,000 wells out there. And this incident, this tragic incident is unprecedented. And when you look 

across the spectrum of what has been going on, the protection of 

the environment, et cetera, I just put that in the context we are 

talking about. 

Mr. MICA. Two things, Mr. Chairman and others here. In addition to this liability issue which we must address and should address in legislation, I think it is important that we look at some 

backup; because if you look at the two biggest spills, and I went 

back and researched some of them, 1979, the biggest spill in the 

gulf district was not off of the United States, it was off of Mexico, 

and it went for 9 months. 

And then the gentleman just testified they are drilling now or 

testing—are the Chinese off of Cuba? 

Mr. GERARD. There are a number of interests that are off of Cuba 

right now exploring. 

Mr. MICA. But they are not getting permits from us. But we 

should have some backup system in place. I don’t know if the Coast 

Guard should contract it or we should get the oil companies, so 

that we are not developing a bell after the effect, or a top hat or 

whatever—so that we have a backup system. 

Here is the thing. If you go look at what was required, there is 

no backup system here. Now, I want it for the ones that are issued 

here. But I think in the interest of preserving our environment in 

the future—Florida, we are going to get the brunt of whatever happens, particularly off of Cuba—that we should have a backup system ready to go with tested technology to stop this in its track. 

We are learning a lot about this because I understand this is sort 

of a new venture, closing one of these down with that kind of a 

break at that depth. But maybe we can look at a requirement in 

that area for a backup system. Thank you. 

Mr. OBERSTAR. We are indeed. And as I mentioned, between us, 

with all the testimony that is going on, I have directed staff and 

41 

am working with them to develop a number of redundancy provisions as well as requirements for skills development by the Coast 

Guard to get up to speed and get ahead of this. 

Minerals Management Service clearly had no such capability, no 

understanding, and that is completely unacceptable. So we have to 

bring Coast Guard up to a level of understanding of all the skills. 

Mr. Cummings has already explored that matter through hearings 

and work in his Subcommittee. 

We have to address this issue of categorical exclusions. The previous administration extended the process for categoric exclusion 

from NEPA requirements for offshore leases. That was continued. 

And then the Minerals Management Service issued a multistate 

environmental impact statement for a proposed 5-year lease in the 

Outer Continental Shelf that estimated a likelihood of three spills 

from platform drilling that would produce 1,500 barrels for each 

spill. Completely missed the target, totally missed the reality of 

what has happened. And the assessed impacts from oil spills under 

the 5-year lease were described as minimal. 

And we have heard that from BP, which has a terrible record, 

to say the least. They were convicted in Federal court of a misdemeanor action and given an 18-month suspended sentence and 

a $12 million fine of criminal penalties for their actions on the— 

and failures on the North Slope. 

Now we will recognize the Chair of our Hazardous Materials and 

Railroad Subcommittee, Ms. Brown. 

Ms. BROWN OF FLORIDA. Thank you, Mr. Chairman, and thank 

you very much for holding this hearing. 

Let me just say, last week I traveled to the gulf with Mr. 

Cummings, and I really learned a lot while I was there. And this 

is not just the worst spill in U.S. history, this is the worst spill in 

the world. The world. 

You had scientists, you had agencies there, over 20 different 

agencies were there, working together along with the different—not 

just BP but other of the oil companies were all there. Everybody 

had boots on the ground. But it is kind of afterthought. 

We have called up over, I think, 15,000 National Guards from 

four States—Florida, Mississippi, Alabama, and Louisiana—and 

the Coast Guard has spent over $100 million to date, and they are 

coming back to Congress this week to authorize another $100 million. And so it is the concern that there is a cap at $1 billion, with 

a 500 million cap on environmental damage. 

And I guess I got a couple of quick questions. In the briefing that 

we had, one of them, I asked the question about the 500,000 technology, why did BP not have this in place as another backup, because they said they had five, none of them was working. And so 

they said that it works on shallow drilling but not to this depth. 

And when I listened to television and the—I was under the impression that the depth was like 5,000 feet. It is not 5,000. It is about 

15,000 feet, a lot like 3 miles deep. So there is no technology available for this problem. 

But can you respond to that first? 

Ms. GORDON. The specific technology is outside my expertise, but 

I do know that offshore, deep offshore drilling rigs in Norway and 

Brazil, for instance, are required to have backup technology such 

42 

as the acoustic backup preventer that BP did not install in this 

case. So my assumption is it works at those depths, but it is not 

my area of expertise. 

Ms. BROWN OF FLORIDA. OK, BP has stated—and this is for whoever wants to take it—that they would cover all legal claims. And 

I know there has been some discussion. But I am not clear on what 

their definition of legal claims would be. 

What recourses do States like my State of Florida have if they 

decide to declare bankruptcy or something like that? What are we 

doing to ensure that the taxpayers will not be left on the hook for 

this problem? 

Ms. GORDON. Something that we at the Center for American 

Progress have recommended is putting, and I believe it is being followed up on by Members of Congress, is putting some amount of 

money into an escrow fund now from the BP revenues so that we 

don’t run into this situation. Going back to Mr. DeFazio’s comments as well, there is a real concern among a lot of people that 

we are going to—BP will either find a way to not pay the claims 

that are currently being paid by the Federal Government that will 

run up against the limits in the trust fund. There is a real need 

to see the money right now put aside and kept safe. 

And I think we have recommended that that happen both for 

short-term recovery costs—and going to an earlier point on this 

side, those may include things like a conservation corps to do some 

of this cleanup, actually creating jobs, not just paying claims. 

But the second thing is we need to look at the long term, and 

we have recommended potentially not just BP, but all of the oil 

companies involved in drilling in the region, putting some portion 

of funds into some kind of a new gulf recovery fund that would look 

at long-term consequences of drilling in the region, like the erosion 

of the wetlands that has happened over the last 80 years. So there 

is a real need to do something immediately in order to protect 

those moneys. We agree to that. 

Ms. BROWN OF FLORIDA. Mr. Greenstone, would you like to respond to that? 

Mr. GREENSTONE. No, it is outside of my area. The only point I 

will make about the extra half million dollar device, as long as 

those caps exist, it will always be the case that the drillers or the 

shippers don’t bear the full costs of whatever their actions are. And 

as long as that is the case, the interests of the oil companies and 

the interests of the shippers will diverge from the interests of the 

American people. 

So I don’t know anything about the specific device, but as long 

as that diversion occurs, we are increasing the chances of spills 

going forward. 

Ms. BROWN OF FLORIDA. I was asking about the economic portions of it. Someone else wanted to respond? Yes, sir. 

Mr. MCALLISTER. When you ask what are we doing, the Oil Spill 

Liability Trust Fund does exist to help fund spills where the responsible party is either unavailable or the liability limits have 

been reached. So I think OPA 90 is already achieving what you are 

asking about: What are we doing to set aside? 

Granted, this bill is a very significant one, but I think that as 

you review this legislation and you look at alternatives for how you 

43 

may wish to amend it, you need to be careful with what you do; 

because right now you have a balanced system that is encouraging 

responsible entities to engage in maritime commerce in an economic environment where they have adequate insurance to fulfill 

their liabilities. And granted, those liabilities are limited, but you 

have responsible entities there. 

As you increase those limits or you maybe even make liability 

unlimited, you are creating an economic environment where some 

companies, perhaps my company, at some point is not going to be 

able to get the insurance that you may ask us for. And either we 

would have to get out of the business or we would have to roll the 

dice and continue to function in a liability scheme where we did not 

have adequate insurance. I think over time what you could see is 

a marketplace which is divided between very large corporations or 

corporations that are really being set up on a gamble. 

Just to answer your question, I think OPA 90 is doing its job. 

Ms. BROWN OF FLORIDA. My time is limited. And let me just say 

that the Transocean claim liability is capped at 26.7 million based 

on a maritime statute from 1851. 

Do you think that needs to be updated? 

And you said something that I find appalling. I don’t feel, not 

your company, but I do not feel that BP, an example, have been 

a responsible party. We have a history of them not following their 

own procedures or violating the law. We had deaths just last summer, 27 people got killed. So we got a culture here that if you don’t 

have strong incentive, and we talking about financial incentives, 

then the companies are not doing what they are supposed to do. 

Mr. MCALLISTER. I can only acknowledge what you are saying 

about the current situation in the Gulf of Mexico, and I don’t know 

the facts of what is going to happen there legally. It is a complex 

situation and I can’t disagree with you either. But I can tell you 

as for our company and the thousands of other companies that are 

operating under this OPA 90 law, there is a balance there that has 

been struck 20 years ago. It has been amended several times over 

the last 20 years. And to radically change the balance of that law 

is going to have consequences on many, many, many businesses 

other than British Petroleum. 

Ms. BROWN OF FLORIDA. Let me just say as I close, the situation 

in the gulf is radically changing how we do business. And so we 

have got to take a hard look at what we are doing and how we can 

protect the environment and how we can protect the public. And 

that is our responsibility to hold everybody accountable, and not 

hold the taxpayers paying this bill. I yield back. 

Mr. OBERSTAR. I greatly appreciate the gentlewoman’s passion 

and concern. She represents a district on the water, derives much 

of its economic activity from the water, and I appreciate her passion. 

Mr. Taylor also represents the water and the waters and those 

who ply the waters. 

Mr. TAYLOR. Thank you, Mr. Chairman, and thank you very 

much for holding this hearing. I want to thank all of our panelists. 

Mr. Gerard, this is—really you are the wrong guy to get this. I 

should have asked this a week ago to the representative from BP 

and Transocean, and I will admit by my mistake. But you are here 

44 

today. What I haven’t heard from the industry, going back to Mr. 

McAllister talking about OPA 90, what I haven’t heard from the industry is we have been 20 years without a major catastrophe, that 

we have learned our lesson and there will be a new generation of 

blowout preventers, there will be a new generation of skimmers, 

there will be a new generation of booms, there will be a new generation of technology so that this doesn’t happen again. 

It is fair to say boom technology hasn’t improved one iota in 40 

years. And I realize we are a market-based economy and for 20 

years there really hasn’t been a market for improvements because 

we haven’t had a disaster. But I am not hearing any reassurance 

from the industry that you guys got the message and you are going 

to do better. 

Let me take it a step further. Behind you is a Coast Guard admiral, Admiral Schultz. What I don’t have a clear delineation of, and, 

Mr. Chairman, I think we need to know, is who is going to determine if this new generation of things work? Is the Coast Guard 

going to be responsible? 

We tried letting the private sector come up with all the solutions. 

We put all of our faith in them that they would have blowout preventers that work, that they would have skimmers that work, that 

they would have booms that work. It didn’t. 

So the first thing that—Mr. Gerard, again, you are the guy that 

happens to be here, I should have asked this of the guys last 

week—who in your industry is going to reassure the American public you got the message and you are going to fix this? 

Second thing, Mr. Chairman, since we have limited time, is the 

term ‘‘gross negligence,’’ ‘‘willful misconduct.’’ We are going back to 

what everyone else is saying. We are basically waiting for a judge 

somewhere to say that BP was guilty of gross negligence or willful 

misconduct and therefore has unlimited liability. I don’t know if 

anywhere in the law that term is defined. 

So, again, I think if you ask the American people if after 40 days 

a company has not capped its leak in the bottom of the ocean, is 

that gross negligence and willful misconduct? Should we as the 

Congress determine, give them a certain finite amount of time or 

a finite amount of volume to be spilled and say, If you cross this 

threshold you are automatically guilty of it? Because in my opinion, 

in the absence of clear and precise laws, we are leaving some judge, 

we are giving him a free hand to come to a bad judgment. And I 

don’t think the American people want that. 

So I would hope that one of the things that we try to do is at 

least set a legal threshold of what constitutes gross negligence or 

willful misconduct. 

And last thing, Mr. Chairman, we spoke about this and I want 

to have Mr. McAllister possibly talk about it. I, as someone who 

represents shipbuilders and mariners and shrimpers and oystermen and people in the tourism business, all of which have been affected, I take personal offense that the vessel that did this was 

built in Korea. I take personal offense that it was chartered in the 

Marshall Islands. I take personal offense that the profits went to 

Switzerland. I take personal offense that the shipbuilders who 

didn’t get the contract to build it won’t get to run their shrimp 

boats this summer to make a little extra money, won’t get to take 

45 

their kids fishing on the weekend because the sound is polluted, 

probably can’t go swimming on the beach. 

For those folks, this is just injustice after injustice after injustice. 

Oh, and by the way, the profits went to Switzerland because that 

is where the corporation is headquartered. 

If someone is going to have the privilege of pulling minerals off 

the American sea bottom, that ought to be a U.S.-built, U.S.- 

flagged, U.S.-owned vessel. And if we are going to chase somebody 

down to pay the bill at the end of the day, I can tell you if the people of south Mississippi couldn’t get the folks in Springfield, Illinois 

to pay claims after Hurricane Katrina, you are going to have a 

heck of a time chasing somebody down in the Marshall Islands or 

Switzerland to pay these bills should they determine not to pay. 

But again let me start with you, Mr. Gerard. And I have not 

heard everything your industry has had to say, but has your industry at any time in the past 40-something days said, Do you know 

what, we got caught flat-footed, we are going to come up with better devices to keep this from happening and to respond should it 

ever happen again. 

Mr. GERARD. Thank you for the question, Congressman Taylor. 

And let me just reassure you here on behalf of the broader industry, we get it. And we understand what you are saying and we take 

this as a sober reminder that we have to look, we have to reexamine everything we do, how we do it, and how we can do it better. 

Let me just give you a couple quick anecdotes of what we are 

doing today. When this thing first happened, we were called by 

Secretary Salazar. We sat down with him at the highest levels of 

industry across the board. We immediately sat down and created 

a task force of the best minds and put together ideas where we felt 

we could improve practices and increase some of the regulatory 

processes. A lot of that was reflected in the President’s announcement and the Secretary’s announcement, because we understand 

our commitment not only to our employees and their safety and to 

the environment but to the country as a whole. 

We recognize these are U.S. waters. We also recognize we have 

a key role to play to provide the energy for this economy. We are 

60 percent of all the energy consumed in the United States. So we 

recognize that role. 

The other thing we are working on right now is we have three 

other task forces. One of them is focused on liability, as I mentioned to the Chairman earlier, and we want to be very responsive 

to figure out a way to make some exchanges in OPA without destroying the underlying activities, either the vessel traffic, be it in 

deepwater, et cetera, and also to preserve the potential opportunities for others in the business community, be they mid-sized, small, 

and others. 

And that is why I say through the Liability Trust Fund to use 

that potentially as pooling the risk where we can make sure this 

doesn’t come back on taxpayers. We recognize our obligation as an 

industry. 

The two others we focused on are task forces once again, and we 

do these in collaboration with the best minds, with government, individuals, is on control at the seabed floor, the very issue that has 

46 

been raised here today about technologies and other things. And 

the last one is on response. 

While there has been some improvements in the booms and others, clearly we need to look harder at that. We need to spend more 

money on research and development. This spill is unprecedented. 

We have lessons to learn. We understand, and we will learn those 

lessons. 

We want to work with this committee, the Congress, and the administration, though, to make sure as we come through this very 

difficult time that the public policy that is developed in this highly 

charged environment is such that we can continue to do what we 

do well for many years to provide the energy the country needs to 

fuel our economy, not only for those of you down the coastal States 

but across this land and elsewhere, so we can enjoy the high standard of living we do today. 

So I will convey your comments and sentiments back to the industry and give you my commitment in the roles—that as head of 

their trade association, we understand and we are going to do our 

part. 

Mr. TAYLOR. Anyone else? Thank you very much. Thank you, Mr. 

Chairman. 

Mr. OBERSTAR. I very much appreciate your observations that for 

20 years had no major spills, but similarly no significant dramatic 

improvements in blowout preventers, in boom caliber and quality, 

in vessel operation. And that led to complacency. Complacency then 

lead to categorical exclusions from NEPA and to rulings of the 

MMS that produced an estimate of the likelihood of three spills 

from platform drilling in deepwater that would produce 1,500 barrels for each spill. That is so categorically wrong on the face of it, 

so lacking in perception of the risks involved in drilling at those 

depths, that it is unspeakable. 

And then they extrapolated that or expanded it to impacts on 

spills under a 5-year lease with no understanding of or expectation 

of an uncontrolled failure. 

Mr. Cummings. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

And, Mr. Chairman, as I listen to Mr. Taylor, I just could not 

help but feel what he is feeling. It is very frustrating. 

And, Mr. Gerard, I think what Mr. Taylor is saying is that it is 

one thing for a business to go out and make money, that is important we all want that; but I think going along with that is certain 

responsibilities. And it does appear, and as I went down there and 

I saw what I saw, that there is a disconnect here in some kind of 

way. And I think that I know your industry is doing a whole lot 

of wonderful things, but—and I have said in it in the Coast Guard 

Subcommittee over and over and over again, that I do not want us 

operating in a culture of mediocrity. Because when we do that, 

what happens is this kind of thing happens. 

What I am saying is I think—I tell my kids, I tell them you have 

two tracks that you have to go down in life. One is your destiny, 

the other one is your development. And I said they have to be— 

you have to do both. 

And I wonder sometimes whether—when I see what happened 

here with BP, it seems like the destiny they were shooting off and 

47 

doing real fine and going way down below the sea. And the development part, and when I say development and the ability to control 

the situation, I wonder whether that kept up. Do you follow what 

I am saying? Because that is part of the development. It makes 

sense. 

I think it is kind of—and I am not beating up on you, I wasn’t 

even going to say this, but I am sitting here and I am thinking that 

is part of the problem. And then the Chairman, and I am so happy 

that the Chairman has taken this on, trying to make sure that we 

have the expertise that we need in the Coast Guard and the MMS. 

If we don’t have the expertise, we can talk all this stuff we want. 

If we don’t have the people that can properly inspect the rigs—we 

keep talking about when the rubber meets the road, everything is 

going to be fine. Well, guess what? Bulletin is coming over the 

wire; when the rubber meets the road we discover there is no road. 

And that is part of the problem we saw happening in Katrina. We 

are seeing it happening in a lot of ways. So I just wanted to throw 

that out for whatever it is worth. 

But let me go to you, Mr. Hartwig. Do you believe that the esti- mated $1 billion to around $3.5 billion in liabilities owed by insurance firms in association with the Deepwater Horizon incident 

could exceed oil premiums paid for insurance for offshore facilities 

in the past year? And what does this mean for potential impact for 

this event, from this event on the industry in offshore facilities? To 

be frank with you, I believe that it will exceed 3.5 billion. I think 

it will be much higher than that. But I am just wondering what 

you, how do—what happens then? 

Mr. HARTWIG. Well, what will happen here is, as I mentioned in my testimony, somewhere between 2–1/2 and $3 billion are earned 

annually globally by energy insurers, it is possible that the high 

end—— 

Mr. CUMMINGS. That is their earnings? 

Mr. HARTWIG. Sorry, that is the premiums they earned on their 

annual—not their net income or profits, it is the premiums that 

they generate from this business. 

Mr. CUMMINGS. That is the gross. 

Mr. HARTWIG. That is correct. That is the gross. 

Mr. CUMMINGS. So in other words these insurance companies get 

2—how much? 

Mr. HARTWIG. Two and a half to $3 billion a year in premiums 

that they earn from this business. 

Mr. CUMMINGS. Period. Now—— 

Mr. HARTWIG. Now the expectation is you aren’t going to see 

events along the lines of a Deepwater Horizon every year. They are 

very, very rare. So, just as in any type of insurance there are years 

when your bottom line can be larger than your top line. That is the 

nature of the insurance business. 

What will also happen in this instance is while some of the losses 

have already been paid, such as for the value of the craft itself, the 

Deepwater Horizon is a total loss. Some of the losses will emerge 

over time. Liability losses don’t all emerge instantaneously, they 

emerge over a period of years. Soinsurers will be paying that out 

out of cash flow of the next couple of years. And obviously, this impacts the capacity in the marketplace. And the cost of insurance, 

48 

as I mentioned, is rising in the gulf area 15 to 50 percent, the 50 

percent being among the deepwater rigs and 15 in the shallowwater rigs. 

So the market has been orderly. As I mentioned, insurers are accustomed to large-scale losses, although not typically this large, but 

it is something that the industry contemplates and plans for. 

Mr. CUMMINGS. And so the larger certificate of financial responsi- bility for a vessel appears to total just over $500 million; is that 

correct? 

Mr. HARTWIG. Well, the larger drillers can obtain $1 billion or so, 

or even more in terms of third-party liability coverage, so it is larger than that. They are not going to obtain all of that from one individual insurer. It is a program that gets put together. 

Mr. CUMMINGS. What is your biggest—and then I will yield back, 

Mr. Chairman—what is your biggest concern with regard to all of 

this? As I see it, it seems as if there is going to be unlimited—when 

I think about all of the folks that are affected by this incident, and 

then I think about the fact that you can be, we can be in a position 

where the liability is so great that some folks—I think it has been 

mentioned here by you, Mr. McAllister I think—folks won’t even be 

able to get insurance. Is that, that was your concern, Mr. 

McAllister? 

Mr. MCALLISTER. Certainly. 

Mr. CUMMINGS. And the question I guess, what is the reasonable, 

the way you—in other words, we all want to address the problem 

but we want to address it in a way that makes sense. And we don’t 

want to be in a situation, I think it was you, Mr. Hartwig, that 

talked about loopholes—and maybe it was Greenstone—and so we 

don’t want to have a Swiss cheese resolution where folks can kind 

of get around what we are trying to do, because then we just fall 

right back to the rubber-meets-the-road kind of situation with regard to payments. That is, paying for these problems. And we don’t 

want it to fall back to the American people. 

So what is the most reasonable way to do it so that we cover all 

of the folks that we want to cover and so the American people don’t 

get stuck with these kinds of situations, assuming something like 

this would happen again, God forbid? 

Mr. MCALLISTER. I think when we think about cutting-edge technologies, and Deepwater Horizon and ultra deepwater drilling is an 

example of one of those, when we look at the history of this over 

the past century or so, what we see is extraordinary new technologies being rolled out. When you think about aviation, when you 

think about space flight, when you think about satellites, when you 

think about even marine navigation, when you think about the 

Internet, what happens? All of these encounter very substantial 

problems. And the way that you solve these in the end is not 

through insurance, it is not through limits or higher limits of liability. Ultimately what winds up happening is there has to be a dedication towards better risk management practices here. Part of the 

answer is of course regulation, and, throughout the entire process, 

financial responsibility has had to be proven in each and every one 

of these industries. 

But at the end of the day, what do we have? We have sound risk 

management. What causes an airplane to crash? And now it is 

49 

safer than ever to fly around the world. What used to cause large 

ships to crash at sea? And that doesn’t really happen anymore. 

These are the sorts of things we don’t have to worry about too 

much. In the days of the Titanic you worried about hitting an iceberg or another ship. 

So what we wound up with is having technological innovations 

which allowed us to improve the risk management practices, a variety of them that come together. And I think I have been impressed in the course of American history as to how this has reduced losses. And this has even occurred in the offshore petroleum 

business. 

This is a terrible event that has happened, but if you look at over 

the past 40 years the number of events, both large and small, as 

well as the total leakage or spillage, whether we are talking about 

offshore platforms or whether we are talking about events involving tankers, all of these processes have gotten safer over time. Are 

we going to have setbacks? Yes. Can we learn from those? Absolutely. 

And I think that is what is going to happen here. It is going to 

be risk management, the best practices, that in the end are what 

is going to make the biggest difference. 

Mr. OBERSTAR. Thank you Mr. Cummings, and thank you again 

for your splendid work as Chair of the Coast Guard Subcommittee 

and following up on these numerous issues that you have done 

with great skill. 

The comments, though, Dr. Hartwig, about safety in aviation 

should be accompanied with an observation that the FAA has the 

skills equal to those of the industry to know the capabilities of engines and of airframes. We have, in addition, an investigative agency, the National Transportation Safety Board, that also has those 

skills. And we have a rigorous regime of oversight and a periodic 

issuance of notices to airlines, to their maintenance operations, of 

failures, and notices sent to the manufacturers, Boeing and Airbus, 

of responsibilities they must undertake in inspection or upgrading 

of equipment and operating parts on the aircraft. 

That doesn’t exist in the Minerals Management Service or in the 

Coast Guard because we have so relied on the industry for so many 

years. That must end. There has to be backup oversight. 

Mr. Teague, who has had greatly experience in this industry, 

New Mexico, good to have you. 

Mr. TEAGUE. Thank you, Mr. Chairman and Ranking Member. I 

also want to thank all of the panel for being here today. It has been 

interesting to listen to this question-and-answer. And I really do 

look forward to working with the Chairman and leaders on both 

sides of the aisle to craft legislation that responds to this disaster 

in a focused and responsible way. But as one of the only Members, 

if not the only Member, of Congress with direct experience in drilling oil and gas wells, I think I am in a unique position to understand the facts and hold BP accountable for the Deepwater Horizon 

disaster. 

There are some things that we have to do. First, we have to 

clean up the mess and compensate the victims of the disaster. We 

must hold the responsible parties accountable to make sure this 

never happens again. And we have to understand that some of the 

50 

responsible parties are ours, Minerals Management Service, but 

this is primarily a BP problem. 

You know, as we do this and pass the legislation that we pass, 

we need to be sure that we don’t act in haste, that we don’t legislate out of anger or out of fear. As we work real hard to ensure 

that the safety and update the laws that we need to from the liability statutes, we need to take care not to negatively impact the ability of smaller companies to compete both offshore and across America. Let us not let BP effectively put the smaller companies out of 

business by us painting with too broad a brush when we need to 

be painting BP and deepwater drilling and not everything else. 

As we investigate this accident and get all of the facts, I think 

we are going to be pretty pleased with the safety and technology 

that are available. We might not be happy with what was utilized, 

but we will be happy with what is available. 

Just like small businesses all across this country is the backbone 

of our economy and the backbone of America, the small oil and gas 

companies are the backbone of the oil and gas industry. We need 

to keep that in mind, that we don’t put penalties on the industry 

that hurt the smaller companies that the larger companies can 

work around. We need to hold the responsible people responsible 

at this time and take whatever measures we need to to make the 

people who make a living from the Gulf Coast, whether it be 

through fishing or restaurants or whatever. 

I think there are some responsibilities that BP needs to accept 

that they have and they need to stand up to. Their first responsibility is to their employees. They need to provide them with a good, 

safe workplace, all of the things that everybody needs to ensure 

that they get to come home. And they owe it to the industry. So 

many people in the industry work hard and abide by the rules and 

don’t try to take shortcuts. And then they owe it to the citizens of 

the United States and of the Gulf Coast to clean the mess up. They 

made the mess, and they need to clean it up. 

I guess that gets me to something that we need to be careful 

about as we move forward, and that is how we structure—and I 

will let any of you all comment—how do we structure the liability 

limits to ensure that independent oil and gas producers can still 

buy insurance and participate in the gulf, while at the same time 

ensuring the citizens of the gulf that the financial stability is there 

to take care of a problem they may have? 

Mr. HARTWIG. I think I did hear a suggestion earlier that they 

could be staggered or staged in a particular way. It is clear that 

many of the small operators that you are talking about simply 

don’t have the ability to create an economic or an environmental 

disaster along the lines of what we have seen with respect to British Petroleum. Clearly a tiered approach where some formula is developed in terms of output and is also sensitive to location of where 

the drillers are. 

Certainly when an insurer evaluates the risk associated with 

providing an insurance, it is looking at what the possible maximum 

loss is with every one of these. It is something that we would take 

a look at, and we certainly don’t expect many of the small drillers 

that are in your district to have anywhere near the same capability 

51 

of a BP in terms of the environmental damage. So this kind of 

tiered approach, I think, might make some kind of sense. 

Mr. TEAGUE. So we need to be sure that the requirements that 

we ask for differ as the water gets deeper, and that we don’t try 

to, with just one sweep of the brush, paint everything on land and 

offshore both. Thank you. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. Thank you, Mr. Teague. 

And a very patient Ms. Edwards, thank you for staying here and 

waiting so long for your turn at bat. 

Ms. EDWARDS. Thank you, Mr. Chairman. This may be a case 

where everything has been said, but I haven’t said it yet. 

Mr. OBERSTAR. No, not everything has been said. There are still 

a lot of questions that I have. But you go ahead. 

Ms. EDWARDS. Thank you. 

You know, obviously decisions that we have today going forward 

are related to when, where, how, and to whom to attach liability 

and where to strike the balance of risk. 

Dr. Hartwig, you spoke about risk management. I want to focus 

on that, because obviously there must be an environment where 

small and large companies can operate, can be competitive and efficient. But the problem with that formulation alone is when push 

comes to shove, under the current statutory framework, the taxpayer really bears the real risk. And as Dr. Greenstone pointed out, 

when that happens, companies can operate in a way that doesn’t 

effectively take into consideration what the real risk is, or the insurance industry in terms of its insuring that risk. So that is my 

concern, that the liability limit that we have under current day’s 

dollars, especially in these deepwater accidents, that the risk, in 

fact, doesn’t allow for the real allocation of responsibility. 

And so I am wondering, for example, when I think about some 

of the smaller spills—I think earlier was referenced a spill in the 

Gulf of Mexico. There was another one in the Timor Sea which was 

only 253 feet, but it took a couple of months before it could be retained, and then with a relief well. And my understanding, Mr. Gerard, is Canada required relief wells until BP pitched such a fit 

that they began to loosen those regulations for relief wells even 

this last December. 

We are in a circumstance, I think, where the allocation of risk 

is not full enough to allow for that competitiveness in terms of determining and investigating new technologies, but also place 

enough of a burden on the industry so it operates a little more safely and with greater concern. 

I mean, we saw this, for example, in the financial sector, where 

you had total lack of regulation, bad products, risky behavior, and 

at the end, in that game, too, the taxpayer bore the burden. 

Here I think a BP representative sat where Mr. Anderson is just 

a couple of weeks ago and said at that time they had revised their 

estimates, 1,000 barrels a day to 5,000 barrels a day, and estimating that the worst-case scenario was 250,000 barrels a day, but 

they weren’t insured for 250,000 barrels a day. And now today, just 

a couple of hours ago, it looks like the independent sort of group 

of scientists is estimating this to be about 28,000 barrels a day and 

perhaps more than that. So what that is saying to me is so BP 

52 

could say, well, if we are going to suffer fines in addition to our 

liability limit, then we will take on the possibility of only having 

to pay out $20 million or so in those kind of fines. Or if it is a 

28,000-barrel-a-day spill, as we are now beginning to believe, or 

perhaps more, it is more like $600 million for that spill. 

So I wonder what the relationship—and perhaps, Dr. 

Greenstone, you can answer this—the relationship between the 

gross negligence provisions rather than simple negligence, combined with the $75 million liability limitation, and what that does, 

in fact, to depress the proper allocation of risk among the entities. 

So could we consider from a statutory standpoint changing that 

gross negligence to absolve oneself of risk, and also look at shifting 

at some level or other that can be determined the liability limits? 

Mr. GREENSTONE. Thank you for the question, Congresswoman. 

I confess I am not a lawyer, so I can’t talk in great detail about 

gross negligence, but let me make a few points about the point related to the cap. 

From an economic perspective, there is no reason to have differentiated caps, depending on where the oil is being drilled or depending on the type of company. The reason which I tried to emphasize today is you then put a wedge between the oil companies’ 

interests and the American people’s interests. That has showed up 

in the Deepwater Horizon case. 

I think there is a more subtle way in which that affects the industry in the long run. It effectively removes incentives for developing the technologies that can reduce risks in the long run, because there is no price for it. There is no market for developing 

new technologies, new and better blowout preventers. There is a 

subtle, longer-running impact. 

Finally, one other thing which has come up several times here, 

and I thought it was worth discussing for a minute. Several people 

have said it would be very difficult, maybe impossible, for some 

companies to get insurance if the cap was raised. I want to make 

the point that I am very confident that oil companies that are taking adequate safety protections will have no problem getting insurance. The only companies that would have a hard time are the ones 

where insurers would find it not a good bet and would want to 

raise prices to the point where no one would buy it. 

There is another point about the rise in premiums that is related 

to all of this, which is if oil companies are already taking adequate 

safety provisions, then there will be no rise in premiums. So this 

claim about the rise of premiums, I think it all—I think it bears 

closer scrutiny. 

Ms. EDWARDS. Thank you. 

If I can just finish, we have heard suggested a couple of times 

that we should look at small, medium and large companies differently. So I take it that you would share the view that we 

shouldn’t attach different kinds of liability limits based on the size 

or scope of those companies or the depths at which they are drilling? 

Mr. GREENSTONE. Again, there is no economic case for doing 

that. Any differentiation will put a wedge, will allow the relevant 

oil companies not to take full responsibility or consider the full poVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
53 

tential of their actions, and that creates this incentive for not taking proper precautions. 

Ms. EDWARDS. Lastly, back to this point of gross negligence, because I would like to know if there is a way to capture the economic impact when you have sitting out there you can only lose 

your limit if there is an action of gross negligence, and what that 

does to affect the economics of your making a decision as a business person about where to allocate your risk or what risk to take? 

I am concerned about that high a bar being set out there so that 

a company could internally to its own operation say, well, you 

know what, the liability limit applies unless it is gross negligence. 

Anything in between that, all bets are off. 

Mr. Anderson. 

Mr. ANDERSON. May I may make a comment? First of all, gross 

negligence and willful misconduct are not the only grounds for 

breaking limitation under OPA 90. In fact, it is rather difficult to 

hold limitation under OPA 90 unless you have a pretty stringent 

operation with respect to safety. 

One of the grounds, for example, for breaking limitation would 

be violation of an applicable Federal safety or operating regulation 

which is the proximate cause of the incident; failure to cooperate 

with Federal officials in the spill response; failure to report a spill; 

failure to lend assistance consistence with the National Contingency Plan. There are a number of other grounds for breaking 

through the limits of liability under OPA, particularly this safety 

and operating regulation requirement. So that is one thing. 

I just want to go back to your concern, and also, Mr. Cummings, 

I am hearing your concern about what I think is really confined to 

the offshore oil industry, and I think there is a little bit of confusion about the differentiation between the risks here in terms of insurance cover. Right now in terms of vessel liability for oil spills, 

there is very little risk to the U.S. taxpayers because historically 

we have seen, since OPA 90 came into effect, almost no situation 

where the fund has been called upon to respond in damages to a 

spill. 

With vessels you have many layers of private risk absorption, including the COFR system, which I talked about before. The system 

depends very much upon gradation of risk. That is the point I 

wanted to get across. If you are considering raising limits of liability, and certainly removing caps on liability, you have to look at the 

specific risks in that industry, and there is a great difference between international shipping, which really involves navigational 

risks of moving cargo from point to point, and drilling in a deepocean environment in an untapped oil field. So if you are considering changes, what the international group and I think the ship 

owners association would ask you to do is look very carefully at the 

gradation of risk within each industry segment before you start adjusting those limits. 

Ms. EDWARDS. Thank you. I do understand those differences. I 

was speaking here principally about the offshore risk both in shallow water and deep water. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. I appreciate that very thoughtful line of questioning and the responses. 

54 

I yield to Mr. Olson in just a moment, but, Mr. Gerard, the pressure at the 18,000-foot level, below mud line where the oil reservoir 

has been located, is by various estimates in the range of 2,300 to 

12,000 pounds per square inch, or psi. Was the blowout preventer 

tested at those pressures? 

Mr. GERARD. I assume it was, but let me go back and inquire 

about that. I don’t want to speak for BP. But I am assuming 

through their typical practices, they are testing for the expectation 

of what they might encounter as they go into reservoir. And that 

is the way the system should be designed. 

Mr. OBERSTAR. I want to have that response in writing because 

API sets the standards for blowout preventer infractions. The manufacture is done by another industry representative or organization, but it is an API standard. And the standard was not set by 

MMS or the Coast Guard, and it is vitally important to know was 

it designed and tested to operate against those pressures from oil 

at that depth and against the thicker casings of steel for the pipe 

at that level, which is different from the thickness of steel for a 

300- to 600-foot well, correct? 

Mr. GERARD. I will have to inquire of BP to get the answer. We 

will do what we can to get the answer. 

Mr. OBERSTAR. Supply both the API standard and the response 

from BP; but it was Transocean, the driller, that actually acquired 

the blowout preventer and installed it with the confidence that it 

would operate at those levels. 

If it is not, if it was not capable of withstanding pressures of 

that—of those numbers that I just cited, then even if the sheer had 

worked and had been able to cut through the steel and shut off the 

flow, it might nonetheless have exploded at that level. We don’t 

know that because it hasn’t been tested. 

Mr. GERARD. That is right. But we haven’t pulled it up to see 

what the situation is. 

Mr. Chairman, I have a couple of smart people with me. We have 

a whole group of individuals. We probably should come up and sit 

down with staff, and we can walk you through the details of the 

standards-setting program. 

One clarification, in our certification process on these standards 

in a blowout preventer, we certify the manufacturer to make sure 

that they have the quality control and capability to build such 

products. We don’t certify the products. I think that is an important distinction for the record. But we can have folks that spend 

their lifetimes, engineers and others, and they can sit down and 

show you this process. 

Mr. OBERSTAR. There are a great many comparisons here between aviation safety and maritime safety. We have passed a Coast 

Guard authorization bill that substantially, dramatically changes 

the way in which Coast Guard will conduct marine safety, and I 

won’t go into all of those specifics, but it addresses this. The Senate 

has passed a similar bill, it doesn’t have our provisions in it, and 

we are working those differences out before conference, but the 

human factor in drilling operations, the master of the vessel is licensed by the Coast Guard, meaning that that person has to meet 

certain standards. But to the best of my knowledge, the drill master is not licensed by anyone, by any government organization, that 

55 

is, hired by the company and certified by the company to be capable, but there is no government standard, no Federal Government 

standard that the drill master must meet; is that correct? 

Mr. GERARD. I will get you the details on it. But they are trained 

in the processes and the procedures, and they are part of the inspections as people come out to see what is going on. 

Mr. OBERSTAR. But every mechanic who works on an aircraft, 

every carman in the railroad industry has to meet standards that 

the government has set. You are a licensed avionics and power 

plant—airframe and power plant technician, and if that technician 

does not sign off the ticket on that aircraft, it doesn’t move. That 

is the kind of standard I am looking for in this industry. 

Mr. GERARD. I understand. These individuals are highly trained 

in what they do, and we can go back and answer the question as 

to what certification processes aside from standard training. We 

provide a lot of that training through the API in certifying training 

schools and others. And we can go back and talk with your staff. 

Mr. OBERSTAR. We will engage you. 

Mr. Olson. 

Mr. OLSON. Thank you, Mr. Chairman, for having this hearing 

today. And I thank the witnesses for providing their insights on 

this incredibly important matter for our country going forward in 

the future with our offshore exploration. 

I want to talk to Mr. Gerard first, and I want to get to the issue 

of the limit on the insurance liability, the current $75 million that 

was part of the Oil Pollution Act of 1990. As you know, there are 

proposals from the administration and from Congress to up that to 

$10 billion. And there are even some indefinite proposals. 

I represent the 22nd Congressional District of Texas, and we 

have a significant petrochemical industry throughout the greater 

Houston area. At home last week I cannot tell you how afraid the 

operators were in the offshore industry if this provision would 

somehow become law. Again, many of them can’t afford—a lot of 

these are small businesses, smaller operators. They cannot afford 

and they cannot purchase a $10 billion or indefinite liability for 

some sort of spill. I want to get your thoughts. Is that what you 

are hearing from your members? What can we do to help them? 

Mr. GERARD. What we are hearing, the insurance industry has 

indicated to us, and there have been a number of letters sent to 

the Hill, there are not sufficient capacity within the industry to 

meet those limits. Therefore, you would reduce down to only a 

handful of the largest companies in the world to be able to operate 

because they would self-insure, clearly having an impact. 

One estimate done by a third party suggests that of the 170,000 

people employed in the Gulf of Mexico, with such a limit you put 

at risk 145,000 of those jobs just merely by raising that cap on liability. So as an industry we think it is an important part to have 

a conversation about what that should be and what this system 

should be, if you will, to make sure that the taxpayer doesn’t bear 

the burden of any particular spill. But we do think there has to be 

balance in this to make sure that at the end of the public policymaking process, we still have the ability to generate and produce 

the energy our economy requires moving forward. 

56 

So we share your concerns and think that is a very legitimate 

consideration that should be looked at as you develop this policy. 

Mr. OLSON. The people in my district, this is what I heard over 

and over and over, and then concerns about the moratorium. 

Mr. Greenstone and Dr. Hartwig, any comments? 

Mr. GREENSTONE. Yes. This point keeps coming up, and I think 

it is one that merits a lot of consideration about will small and medium-sized companies be able to get insurance policies going forward if the cap is raised to $10 billion or some indefinite limit. 

One thing I just want to point out is insurance rates are based 

on the risk; they are not based on the size of the company. So as 

long as the company is undertaking adequate safety provisions, it 

is a little hard for me to understand why they would have a hard 

time getting a policy. 

I also want to talk to a related point, which is that the current 

size of the insurance market is not very big, and so would not be 

able to insure such large risk, and only big companies would be 

able to do it, and they would have to self-insure. 

If we think back to this last decade, it is not hard to see that 

Wall Street is quite capable of shifting money around to new markets in the last few years. That was obviously the housing market, 

but shifting around to new markets where there are opportunities. 

So to the extent there was a higher cap, that would create a new 

market, and I have great confidence that Wall Street would find a 

way to shift capital to this sector and be able to write insurance 

policies with much higher limits than are currently being written. 

Mr. HARTWIG. Just a comment or two on this. I agree absolutely 

that insurance rates at the end of the day are going to be based 

on risk, and they are going to be based on the track record of the 

individual company involved. 

But at the same time, if a company is going to be obliged to demonstrate a very, very high threshold of ultimate potential responsibility beyond what the insurer would have potentially offered in 

terms of coverage, the insurer itself caps its own risk. It sets a 

limit to the coverage. If there is another standard set by the government whereby instead of $1 billion it is going to be $10 billion, 

that particular driller, even if they have never had a claim, is going 

to wind up paying more because the insurer has more dollars ultimately at risk, it has to tie up more dollars in order to hold that 

in reserve if it winds up having to pay that claim. 

Outside of the world of the offshore insurance industry, I can 

only think of one particular major type of coverage where there is 

unlimited liability, and it is a market that is completely falling 

apart. It is Michigan’s no-fault automobile system. It has nothing 

to do with offshore drilling, but that is where I am spending a lot 

of my time recently. I testified recently there in that State, and a 

quote from me is with unlimited benefits come unlimited costs, and 

that is exactly what is happening in that particular State. 

Mr. ANDERSON. I just wanted to reemphasize the role of reinsurance in this industry. It is not the question of a single insurer 

being responsible for damages, but also whether the capacity exists 

in the reinsurance market. The experience, I think, in the international group is there is not infinite capacity in that market. That 

has been demonstrated. It was demonstrated by the Exxon Valdez 

57 

where the group could not complete its reinsurance contract because of the magnitude of the damages. 

It would be compounded now by an order of magnitude by removing liability caps and by imposing a one-size-fits-all damages cap 

on all responsible parties under the act. 

As I said before, if you have major events in the world such as 

earthquakes, floods, storm damages as we had with Hurricanes 

Katrina and Rita, that is going to put incredible strains on the reinsurance market, and the capacity is not there. 

I would very much disagree that the insurance industry is comparable to Wall Street in coming up with different financial instruments. That market that we are talking about is much more limited, and covers a very, very broad range of risks besides simply 

offshore drilling and exploration. 

Mr. OLSON. Thank you very much for that perspective. That jibes 

basically with what I am hearing back at home. People feel if they 

are required to purchase, they won’t have the capital to purchase 

the insurance, particularly the smaller and middle-sized guys 

which do the bulk of the work out there. 

Mr. OBERSTAR. Mr. Cao. 

Mr. CAO. Thank you, Mr. Chairman. 

My question to the panel will focus on the moratorium. Based on 

the knowledge of anyone on the panel, how can we address at the 

same time the issue of safety, preventing another disaster from 

happening in the future, but at the same time trying to limit the 

economic impact of the moratorium? Right now there is a 6-month 

moratorium imposed. Is there any way for us to do the review work 

we have to do without extending it all of the way up to the 6-month 

period without compromising safety issues? 

Mr. GERARD. We think there is, Congressman. As you probably 

heard from our statements, the key to where we are now in the 

moratorium, as you know, there were 33 operations under way that 

were just stopped and told to cease. Each one of those drilling operations had attached to it about 1,400 jobs. That totals 46,000 jobs 

that were put in limbo as a result of the moratorium. We think it 

is very appropriate to take a pause and scrutinize and look closely 

at what is going on in the gulf from a safety standpoint and for 

protection of the environment, but we think there may have been 

better ways to do that without having such severe economic disruption take place. 

We believe one of the ways they could have done it is move 

quickly for increased inspection and oversight. Of those 33 operations, in the first week they had inspected 29 of them. And as an 

industry we recognize and welcome that additional scrutiny to 

come out and look closely and make sure that the testing and inspections and other things are taking place. Like you, we are very 

concerned that we are compounding the economic challenge in the 

gulf. This tragic incident has caused severe distress, and now we 

are going to compound that if we continue to pull back on the other 

economic activities that have provided for strength in the gulf all 

these years. 

Mr. GREENSTONE. I think the moratorium obviously has severe 

economic consequences, and obviously a lot of them are concentrated in your district. 

58 

Just speaking off the top of my head, one solution would be instead of having a moratorium for a 6-month period of time, you 

could have a higher cap. It could be a trial run to see how businesses operate with a higher cap on liability damages. 

Mr. CAO. Anyone else who has any ideas or comments on the 

question posed? 

My next question, I guess to Mr. Gerard, you basically conveyed 

an idea that I am pretty sure many Members, a lot of people in 

my district would support, is to look at an increase in liability, but 

doing it in a way that would be very responsible and to limit job 

loss. And I believe earlier in the session you conveyed to the Chairman that you have certain ideas and proposals which you want to 

submit. I would also ask that you submit to my office a copy of that 

proposal, if you don’t mind. 

Mr. OBERSTAR. Mr. Cao, if you would yield, any information submitted in requests to witnesses to the Committee will be distributed to all Members. That is our standard practice. We will be sure 

you receive it. 

Mr. CAO. Thank you, Mr. Chairman. With that, I yield back the 

balance of my time. 

Mr. OBERSTAR. Mr. Gerard, you said or you suggest that the pro- posal to go to $10 billion is too severe. What is the number between 

$75 million and no limit that the industry would support? 

Mr. GERARD. We haven’t yet decided what we think a fair number would be. However, we have looked closely at, for example, 

some of the letters we have received from some in the insurance 

industry who typically underwrite these policies. They are down 

closer—I think some of the comments that were made by the gentlemen on the panel today, they said the capacity in this area is 

1.2-, 1.5- at most. 

I am not in the insurance business, and I don’t fully appreciate 

all of the nuances of that, but I think it is important, Mr. Chairman, we take that in consideration and we look at that from 

spreading that risk and decide what the best policy should be. I realize this isn’t the Energy Committee, but we have also got to take 

into that equation the role and the impact it has on the energy production in our society. Today 30 percent of all of our oil comes out 

of the gulf; 70 percent of all of that comes out of the deep water. 

Actually 80 percent of that, I am sorry. And of the 11 percent of 

our natural gas that comes out of the gulf, 45 percent of that is in 

deep water. So there is a very serious economic energy dynamic 

that we think needs to be considered, as well as talking about what 

the right level of the cap might be. We will get you some feedback 

on that. 

Mr. OBERSTAR. Very true, but there is also another economic factor: Fifty percent of the fish and shellfish of the Nation come from 

the gulf. 

Mr. GERARD. We understand that. 

Mr. OBERSTAR. There are 300,000 jobs in the recreational fishery 

industry. 

I think the advantage of having long service in the Congress is 

to have been present when this body of law was created. I remember very well in the aftermath of the Torrey Canyon and the Amoco 

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59 

committee on the extent of liability that should be imposed upon 

the industry, and the repeated claims that you had to have a number against which the industry could insure. That became the 

standard for oil pollution liability in the1978 act andthe 1988–1989 

act and the OPA 90. Those were measures aimed at known quantities. We know how much oil there was onboard the Exxon Valdez 

and the Amoco Cadiz and Torrey Canyon and the big supertankers. 

That is a definable, measurable amount. 

But when a well breaks at 5,000 feet from a reservoir that is another 18,000 feet further, and the amount of oil in that reservoir 

is only an estimate, you have an unknown or unknowable quantity 

of oil coming out against which it is very difficult to insure. I understand that. So if the damages are in excess of a billion, $5 billion, or $10 billion, whose responsibility is it then? 

Mr. GERARD. Well, I think the other consideration we should talk 

about, we are talking about the liability cap, but we are also talking about the trust fund. That is paid into by industry. As you 

know, the House passed provisions recently to add $10 billion to 

that trust fund, and the Senate is considering legislation to add 

$15 billion to that. We think that is another piece of the equation 

that should be considered as we try to manage that risk. As it has 

been talked about, that is really what we are doing is trying to 

manage that risk. 

Mr. OBERSTAR. That is a fund to which all of the industry contributes. It is not just a company responsibility. 

Mr. GERARD. It is assessed at the refinery with the intent to pick 

up both the imported and the domestically produced crude. So it 

is paid for by the refinery sector. 

Mr. OBERSTAR. I think you have to do some serious soul searching about the very fundamental principle of this liability and cleanup, which is the basic principle of the Superfund Act, which goes 

back to what I said in this Committee room 25 years ago. I spilled 

something; my mother said, clean it up. I was responsible. And so 

when industry spills, as in the case of the Arrowhead refinery in 

Duluth, all manner of stuff was just dumped because it was a convenient location. We came back, and you had gasoline, waste motor 

oil, you had wastes from grease from automobile maintenance. 

They collected it all, and we said, you just dumped it all, and you 

are all responsible. They had to have a share and a cost in cleaning 

up that mess. 

So we are dealing with something that is really of unimagined 

magnitude compared to what we were considering in1978 and1988 

and1989, and 1990 thinking only about surface vessels. 

Mr. Anderson, there are 13 of these nonprofit, not-for-profit mutual insurance associations, the P&I clubs, which I have had some 

experience with over a period of many years. They will provide up 

to a billion dollars in coverage for pollution liability for vessels, but 

they do not issue documents necessary to enable a vessel to obtain 

a certificate of financial responsibility, COFR, to operate in U.S. 

waters. Backing for those certificates comes from other insurance 

firms, some of which are in Bermuda. It is like the BP vessel built 

in Korea, registered in the Marshall Islands, with a registry maintained in Reston, Virginia. Oversight is limited to the laws or the 

regulations of the IMO. To what extent does imposition of direction 

60 

action against firms providing backing for COFRs factor into the 

P&I club decisions not to provide such backing? 

Mr. ANDERSON. I feel I am preaching to the converted, Mr. 

Chairman, because I know you were present for the hearings for 

the original OPA 90. As you know, the problem for the clubs was 

the direct action provision in OPA 90 and the principle that P&I 

insurance is basically a contract between the ship owner member 

and the individual club wherein the member undertakes to keep 

his vessels in a very seaworthy condition and pay premiums in exchange for payment of claims. And the direct action provision 

would essentially mean that the club’s assets are at risk even 

though the ship owner may not be operating in accordance with 

club rules. 

Again, we deal with the principle of mutuality, that the clubs 

cannot put assets at risk simply because one jurisdiction imposes 

a very stringent requirement as opposed to worldwide trading and 

jurisdictions. 

The mechanics of the COFR system have operated in a very excellent manner because in my experience I don’t know many cases, 

if any, where the guarantor company, the Bermuda corporation, 

has actually been called upon to respond. In the vast majority of 

cases, the P&I club is on the front line of payment of pollution 

claims. The COFR basically is there as a backup in the rare case 

that the clubs, for reasons of perhaps individual members were not 

complying with rules, would not be paying. But the guarantor is 

basically there, as the industry and the trade would say, as a ticket 

to trade in the United States. It is a requirement to have the guarantee; but as a practical matter, at least with respect to the shipping sector, it is not in the first line of response to an oil pollution 

incident either in terms of payment of cleanup costs or third-party 

damages. 

Mr. OBERSTAR. Well stated, but following up on a question Mr. 

Olson asked about reinsurance, do you think— perhaps you also, 

Mr. Gerard—do you think the reinsurance market can issue coverage for $1 billion to a $1.2 billion COFR? 

Mr. ANDERSON. The capacity for a COFR in that amount is prob- ably there, between $1 billion and $1.5 billion. One of the problems 

with that is that, again, because of the market capacity, if you are 

increasing limits, as some of the administration bills are proposing, 

that will have an overspill effect on all of the market so that the 

costs for every operator, whether it be a vessel operator or a rig operator or a small driller, is going to be increased astronomically because reinsurance costs will be increased. 

Mr. OBERSTAR. The Bermuda operators will provide insurance 

only up to the level of liability based on the vessel’s gross tonnage. 

Mr. ANDERSON. That is correct, or the limits specified in OPA 90 

or the relevant law. 

Mr. OBERSTAR. But if there is a spill, the vessel spills and it has 

to file a claim, does it file first with the reinsurance firm in Bermuda and then file with the P&I club? 

Mr. ANDERSON. The way it typically works is the guarantor corporation in Bermuda will receive a notice from the fund center of 

the claim, and that is passed on to the P&I club, or in practice the 

P&I club will already have been involved in the response because 

61 

it is involved from day one. When we get a report of an oil spill, 

we will have correspondents on scene dealing with financial response of that spill. So once again, the guarantor corporations—and 

keep in mind that these are not simply paper corporations; they 

have the same reinsurance contracts essentially that the club has. 

So they are backed up by first-quality insurance on both the European and U.S. markets. 

This is not simply a paper operation that is necessary to get the 

ticket to trade. They can respond through reinsurance again in the 

event of a spill. But again, going back to the basic operation of 

OPA 90 with respect to vessels has operated very, very efficiently 

for 20 years. We have not had to call upon the guarantors to respond, because the P&I clubs are there in the forefront of a response. Whether it comes to removal costs that the government incurs, or damages to natural resources that NOAA has, or thirdparty claimants who are claiming economic loss or property damage, P&I clubs will respond to those kinds of damages. 

Mr. OBERSTAR. In fact, there is a relationship between the P&I 

clubs and the reinsurers, whether Bermuda or elsewhere, and you 

do have a relationship and you communicate with each other? 

Mr. ANDERSON. Absolutely. We would deal with the guarantors. 

Obviously they are going to be very concerned to know that the responsible party and the P&I club are responding, and so we have 

a dialogue with them whenever there is a spill incident which 

might involve a guarantor. 

Mr. OBERSTAR. If the limits were raised or eliminated, as occurred in those deliberations back in 1990, or 1989 and 1990, on 

OPA 90, your testimony refers back to the lack of any workable 

substitute to the international group’s insurance program threatened to cause withdrawal of the majority of the world’s commercial 

shipping from the U.S. trade. But if liability limits were raised or 

eliminated, would that same circumstance occur today? 

Mr. ANDERSON. If they were raised or unlimited? 

Mr. OBERSTAR. Or eliminated. 

Mr. ANDERSON. It certainly would. If some of the proposals were 

to come into effect, I think, quite frankly, we would be facing a 

similar train wreck to the scenario that we faced back in 1990. Mr. 

Oberstar, you know probably better than anyone else there are 

simply very few ship owners, and I am talking only about the international shipping sector, not the offshore—there were very few ship 

owners who could possibly meet those kinds of financial responsibility and liability requirements by using their own assets. They 

have to rely on P&I insurance to do that, and on the reinsurance 

scheme. So we would be faced with the same situation as we had 

back in 1990 where basically the wheels of commerce would come 

to a grinding halt if we had unlimited liability or if we had a onesize-fits-all liability limit to third-party damages. Those risks really 

would not be insurable or would be insurable at an astronomical 

cost to the industry, and that would cause smaller operators, as 

Mr. McAllister has already said, probably to cease their operations. 

Mr. OBERSTAR. That really raises the question of the capacity in 

the reinsurance sector. Dr. Hartwig and Dr. Greenstone, do you 

have comments on the ability of the first-line insurance and the reinsurance sector to back up a $10 billion spill liability? 

62 

Mr. GREENSTONE. Yes. I am not an expert on the first line of reinsurance markets, but I think one thing is clear: As they are currently constructed, it sounds like they would have a difficult time 

responding to higher limits. But if we have learned—when you 

watch the massive flows of capital fly from sector to sector, from 

country to country, what would happen, the lesson from that is 

when there are opportunities—so the notion that the wheels of 

commerce were going to come to a grinding halt is false—what 

would happen is that is a tremendous opportunity for some new 

firm to enter that market, or a series of new firms to enter that 

market, and the result is that it might not be the same people providing the insurance, but there would be new providers of that insurance because people would be willing to pay for it. 

Mr. OBERSTAR. Why would they be willing to pay for it, because 

the industry until up to now has had so few massive spills? 

Mr. GREENSTONE. Well—— 

Mr. OBERSTAR. Because they are out there evaluating risk. That 

is what they are doing. And in evaluating risk, they look at the 

record of the industry to some degree. 

Mr. GREENSTONE. I think they are evaluating risk, and they are 

evaluating what the cap is, because the companies are only asking 

to be insured up to the cap. If I understand the concern that is 

being raised, if you raise the cap, the current insurance companies 

would not be able to write policies for the entire level. The point 

I am trying to make is I think that would create a tremendous incentive for new firms to enter and provide insurance to the higher 

levels. 

Mr. OBERSTAR. Dr. Hartwig. 

Mr. HARTWIG. If I could on that, insurance is very different from 

the banking industry, and that is why during the financial crisis 

precisely zero property casualty insurers failed, and so far 300 

banks did. 

The reality is capital doesn’t go flying around the insurance industry at the touch of a mouse. Just because there is an opportunity to write $10 billion in limits, I would be very wary of a company that came in tomorrow and said they knew how to do that, 

because not even companies that have been around 400 years are 

doing that today. If anyone could do it, they could do it, and they 

are not. That might tell you something. 

So the reality is that while some additional capacity can potentially be brought into the markets, we are talking about orders of 

magnitude greater than what currently exists, idle capital having 

to stand by which is going to need to earn a risk-appropriate rate 

of return just for that 1-in-50-year type of event. It is very, very 

expensive to do. Can some be attracted in on the margins? Absolutely. The billion, billion and a half number we are talking about 

right now includes a share of loss that would be paid by the reinsurers. It is really spread around the globe. It is already a global 

marketplace. But I can’t see a situation where for such massive 

limits that would require extraordinary underwriting expertise, 

that a new company would come and write limits like that. I think 

it is impossible. 

Mr. OBERSTAR. We are looking for some way to insure, as Mr. 

Mica said earlier, so the public doesn’t pay for this spill. 

63 

Mr. ANDERSON. If I can comment on Dr. Hartwig’s comment, 

what would happen, I am afraid the analogy to Wall Street is a 

dangerous one. I think it is important to understand that the reinsurance that is available for the P&I clubs is first-class security. 

It has never failed in response to an oil pollution incident. 

If you were to open this up to other underwriters with more 

questionable securities, you may find yourself in a Wall Street scenario where the insurance industry is not able to respond to damages. That has not been a problem up to now because of the quality 

of the reinsurance the clubs are able to procure under their contracts of insurance. 

Mr. OBERSTAR. Mr. Garamendi was here earlier and had to leave 

for another committee. He has experience as the insurance commissioner for California, and I am going to recognize him at this point. 

Mr. GARAMENDI. Thank you, Mr. Chairman. I do have some experience. I ran a multibillion-dollar insurance program and oversaw 

even more over an 8-year period of time. 

It is entirely possible for the insurance industry, working together, to create an insurance program of $10 billion. It is possible. 

And the way it can be done is, for example, in the Skuld program, 

you have the first tranche. I don’t know what it is; maybe it is 100 

million, maybe more than that. Then there is a second tranche that 

may come through with the trust fund that already exists, whatever that number may be, and then the reinsurers take tranches 

above that. Let us say you want $10 billion, it is not just one company; it is multiple companies, each one assessing the risk. 

The thing that is critically important here is that you now have 

the insurance companies themselves involved in assessing the risk. 

You are not totally dependent upon the government regulators assessing the risk, the risk of a blowout or the risk of a particular 

piece of equipment doing the job. You now have multiple insurance 

companies, reinsurance companies involved in taking an assessment because they have money at risk. 

The other point I want to make is one brought up by Mr. 

Greenstone. You could not be more right about the economics. We 

have seen this over and over again. We have seen it in flood insurance. It is much discussed in earthquake insurance. As long as you 

put a cap on the potential liability, you then have incentivized 

risky behavior. If we want to incentivize risky behavior, leave the 

cap where it is today, and you will continue to have risky behavior 

because it is financially in the interest of the operator to run the 

risk. You know what the maximum potential liability is. It is $75 

million. Big deal. I can make $700 million by drilling this well, and 

I am going to drill the well. 

By superimposing on the risk a limitation, you have incentivized 

bad behavior. We see it over and over again in flood insurance. We 

see it in earthquake insurance. I saw it in California over and over 

again. In fact, it modified the way in which earthquake insurance 

is sold to take account of the risk of the building, the nearness to 

earthquake faults and the rest. The same thing applies here. 

The shipping industry, I am not focused on that, but certainly 

with regard to drilling, whether it is shallow water or deepwater, 

you need to build the cost—the risk potential into the cost of the 

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lems. You will also, by the way, have problems even if you do build 

it in, but you will guarantee—by eliminating the cap or setting a 

very high cap, you will guarantee that the operator is keenly interested in doing it safely. That is the critical point here. 

Thank you, Mr. Chairman. If you want more about reinsurance, 

we can have a great debate here about it. 

Mr. OBERSTAR. That was a very good textbook discussion. 

Mr. McAllister, I have one question. We have four votes, 6 minutes remaining. Should there be two standards for insurance, one 

for these very big operations and one for smaller operations? 

And in the case of your organization, your tugboat operators, 

where you are delivering home heating oil, there is also a provision 

in OPA 90 that eventually was dropped but that would make the 

owner of the product liable also. And the purpose in previous legislation, it was dropped in OPA 90, was to engage the owners of the 

oil in forcing the vessel owners to move to double-hull operations. 

If the owner of the oil was liable for the spill, then they would take 

care that the vessel in which their product was carried was the 

safest as could be. That would have had a devastating effect on 

home heating oil operators, because the owner might be a little filling station or home heating oil operator somewhere in the hinterland of the United States who have no ability to provide financial 

backup for a spill, so that provision was dropped. 

But should there be two standards for your organization, smaller 

operators and those several-hundred-thousand-ton tankers on the 

high seas? 

Mr. MCALLISTER. Well, I think that is a good point. And, the fact 

of the matter is if you look at OPA 90 right now, it already does 

make that differentiation. There are various different liability limits in OPA 90, and OPA 90 even differentiates between single-skin 

vessels and double-skin vessels. 

I think there is a lot of talk about whether this differentiation 

or these liability limits somehow incentivize reckless behavior, but 

I think it is worthwhile to look back at how the existing differentiation between types of operations and types of vessels has 

incentivized responsible behavior, and I think it is a success story. 

There has been a lot of focus on the P&I clubs, but the OPA 90 

law that you are talking about also affects fishing vessels, ferryboats, nontank vessels of all sorts. Not all of those vessels are in 

the P&I clubs. Not all of those vessels carry $1 billion worth of insurance. They carry insurance that is appropriate for the limits of 

liability that have been set up for them. 

If everybody is required to jump up to those high levels of insurance, I think you may see that some modes of transportation are 

going to become unaffordable. 

I would like to highlight here that maritime transportation is the 

most efficient and, in my view, environmentally responsible mode 

of transportation for lots of cargo in America. We produce fewer 

emissions than you would produce by rail or truck. We get trucks 

off the road, and I think it is important to keep in mind what is 

going to happen with the cargo that is being carried on America’s 

waterways if a large expense for required insurance is placed there. 

There is no question insurance is based on risk. So if you require—if you impose a larger liability cap and more risk, you are 

65 

going to require more money to go out the door to pay for the insurance for that risk. 

Mr. OBERSTAR. I am going to have to stop at that point. You have 

all been wonderful. You have been on the stand for 4 hours. It is 

a long time without relief. I will have a number of other questions 

that I will submit or have staff submit for your response for the 

record. 

Any supplemental comments that you have or observations and 

material that Mr. Gerard has already committed to providing for 

us, do that within a week. We will be developing legislation on a 

wide range of issues: liability and COFR vessel liability; cap per incident; limit on borrowing from the trust fund; Americanizing the 

U.S. Economic zone; the 1851 Limitation of Liability Act; and seven 

other items that are in my agenda to address, have legislation developed, and for an overall oil spill response package that the 

Speaker is going to put together by the end of this month. 

The Committee will stand in recess, and panel three will resume 

in roughly 40 minutes. 

Mr. OBERSTAR. The Committee on Transportation infrastructure 

will resume its sitting with Panel III, including Mr. Tom Perrelli, 

Associate Attorney General for the U.S. Department of Justice; Mr. 

Bob Abbey, Acting Director, Minerals Management Service; and 

Craig Bennett, Director of National Pollution Funds Center. 

I think some of you or your associates sat through the morning 

and afternoon session and heard a good deal of the testimony given 

and give-and-take with members, so I expect you are ready with 

not only that information but what you had already prepared. 

TESTIMONY OF TOM PERRELLI, ASSOCIATE ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE; BOB ABBEY, ACTING 

DIRECTOR, MINERALS MANAGEMENT SERVICE; AND CRAIG 

A. BENNETT, DIRECTOR, NATIONAL POLLUTION FUNDS CENTER 

Mr. OBERSTAR. So we will begin with Mr. Perrelli. 

Mr. PERRELLI. Thank you, Mr. Chairman, Ranking Member, 

Members of the Committee, thank you for the opportunity to testify 

today about issues related to liability and financial responsibility 

in the offshore oil production area. Before I begin I would like to 

take a moment to express my condolences to the families of those 

who lost their lives and those who were injured in the explosion 

and sinking of the Deepwater Horizon. 

The explosion and fire that took place aboard the Deepwater Horizon and the spill of oil that followed have created an unprecedented environmental disaster for the people and fragile ecosystems of the Gulf Coast. This disaster has been met with a massive and coordinated response from the Federal Government, led by 

President Obama. The activities have been focused, as they must 

be, on stopping the oil spill and preventing and mitigating its effects. While Admiral Allen and the unified command have directed 

these efforts, the Department of Justice is looking ahead to issues 

of financial responsibility and liability. 

Our mandate is to make sure that we recover every dime of taxpayer funds that the United States spends on all of the removal efforts or damages caused by this catastrophe. We have been working 

66 

tirelessly and will continue to do so to carry out this mandate and 

ensure that the American public does not pay for damages for 

which others are responsible. 

At the direction of the Attorney General we have been monitoring the situation on the ground, coordinating our efforts with 

the State attorneys general, and working with our Federal partner 

agencies and natural resources trustees to make sure we measure 

and track every bit of cost incurred in damage to the United 

States, the States and the environment. 

Those responsible for these events must be held accountable. To 

this end we will enforce the appropriate civil, and, if warranted, 

criminal authorities to the full extent of the law. This administration will explore all legal avenues to make sure that those responsible for this disaster pay for all of the devastation that they have 

caused. 

Some of these avenues arise under the Oil Pollution Act, or OPA, 

which is the subject of my testimony today. As you know, OPA was 

passed in the wake of the Exxon Valdez disaster to provide specific 

legal authority for dealing with the consequences of oil spills. OPA 

designates responsible parties who first and foremost are required 

to clean up oil spills and then pay removal costs and damages. 

In its current form OPA contains conditional caps that in some 

instances limit the liability of responsible parties, caps which are 

based on the size and nature of the vessel or the type of facility 

that is the source of the spill. 

BP has already stated in several fora, including before this Committee on May 19th, that it will not seek to limit its payments 

under an OPA cap. It has also said that it will not look to the Federal Government for reimbursement for the claims that it pays in 

excess of a cap. We expect BP to uphold these commitments. Rest 

assured, however, that the United States is committed to making 

sure that all responsible parties are held fully accountable for the 

costs and damages they have imposed on our people, our communities, and our natural resources. 

With respect to OPA itself, the liability provisions of OPA have 

not been updated in some time and it is clear that the liability caps 

must be adjusted and in some cases lifted altogether. We are convinced that the old liability framework is simply inadequate to deal 

with the potentially catastrophic consequences of oil spills. For the 

future, the liability provisions for activities covered by OPA should 

be reviewed and increased, as appropriate, to reflect the inherent 

risks associated with those activities. In particular, we support removing caps on liability for oil companies engaged in offshore drilling. We want to ensure that those companies have every incentive 

to maximize safety to avoid spills before they happen. And if for 

some reason a spill still occurs, those companies must bear full responsibility for all of the damages their actions impose. 

Arbitrary caps on the liability of offshore drilling implicitly subsidize drilling procedures that may not maximize safety, and we 

must remove those caps to decrease the risk of future spills and to 

ensure that if spills happen, the polluter pays. We will work with 

Congress to develop appropriate proposal and transition rules. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. Excellent, thank you very much. 

67 

We will go now to Mr. Abbey. 

Mr. ABBEY. Thank you, Mr. Chairman and Members of the Committee, for the opportunity to testify about the Minerals Management Service’s authority for oil spill financial responsibility pursuant to the Oil Pollution Act of 1990. I have worked with many 

Members of this Committee in my role as the director of the Bureau of Land Management. On May 28th Interior Secretary 

Salazar appointed me as the acting director of the Minerals Management Service. I appreciate the opportunity to be part of the 

Minerals Management Service organization for as long as Secretary 

Salazar needs me. 

Our focus at MMS has been and continues to be dealing with the 

Deepwater Horizon incident, but other important work continues to 

be performed. The enactment of the Oil Pollution Act in 1990 and 

its implementing regulation superseded the Outer Continental 

Shelf Land Act requirements. And today the Coast Guard and 

MMS jointly administer the offshore oil spill financial responsibility program. Under this program the Coast Guard has authority 

over vessels and MMS has authority over offshore facilities and associated pipelines located seaward of the coastline that handles 

store of transport oil, except for deepwater ports. 

This act gave the Secretary of the Interior, among other things, 

the authority to ensure that the designated applicant has the financial resources necessary to pay for the cleanup caused by oil 

discharges from covered offshore facilities such as the Deepwater 

Horizon. 

Pursuant to the regulations, each covered offshore facility must 

have a single designated applicant that must demonstrate the ability to pay a specified amount ranging from 35 million to 150 million, depending upon the worst-case oil spill discharge volume. 

These regulations also prescribe methods for demonstrating oil spill 

financial responsibility and the requirements were submitted related information. 

OPA 90 set lower and upper limits for financial responsibility 

coverage; the lower limit of $10 million for State waters and $35 

million for OCS waters; and the upper limit of 150 million. An applicant can demonstrate their financial capability to meet their oil 

spill responsibility requirement by self-insurance, commercial insurance, third-party indemnification, surety bonds or alternative 

methods at the MMS director’s approval. For example, under the 

oil spill financial responsibility, BP Corporation chose the maximum coverage of $150 million. BP subsidiary, BP Exploration and 

Production, was the designated applicant for Deepwater Horizon 

and was indemnified by BP Corporation, its parent company. 

In the case of an oil spill from an offshore facility, the liability 

of responsible party is not limited to the level of their oil spill financial responsibility. The responsible party is liable for all removal costs of the spilled oil and also liable for damages from the 

spill. 

It is important to note that under the Oil Pollution Act, oil spill 

financial responsibility programs attempts to balance the need for 

the responsible party to have sufficient financial resources available for adequate cleanup in the unfortunate event of an oil spill 

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sult in a chilling effect on the ability of smaller companies to operate and do business on the Outer Continental Shelf. 

Because there is no cap on a responsible party’s liability for removal costs, the limits also take into consideration additional layers of protections established by OPA 90, such as the oil spill Liability Trust Fund which covers costs for which the responsible 

party is unable to provide. The Administration supports a significant increase in the liability for operators of offshore oil and gas 

facilities and welcomes the opportunity to engage with Members of 

Congress to figure out where appropriate limits should be set. 

Mr. Chairman, this concludes my remarks and I will be happy 

to respond to questions from you or Members of the Committee. 

Mr. OBERSTAR. Thank you very much, Mr. Abbey, we appreciate 

it. We will have a number of questions for you and Mr. Perrelli. 

And Mr. Bennett next. 

Mr. BENNETT. Good afternoon, Chairman Oberstar and distinguished Members of the Committee. I am grateful for the opportunity to testify today about the Oil Pollution Act of 1990 limits of 

liability and financial responsibility. 

My role as director of the National Pollution Funds Center, or 

NPFC, in this response covers four areas: 

First, I fund the Federal response, using amounts Congress made 

available from the oil spill Liability Trust Fund, the so-called emergency fund. 

Second, I ensure the responsible party is advertising its availability to pay claims for removal costs and damages. If the claimants are not fully compensated by a responsible party, they may 

present their claims to the NPFC for payment from the fund. 

Third, I recover Federal response costs and claims paid by the 

fund from any and all responsible parties. 

Finally, I administer the vessel certificate of financial responsibility program, which ensures the vessels operating in U.S. waters 

have demonstrated that they are financially able to pay their obligations under OPA. 

With respect to limits of liability, the responsible parties in this 

case are liable under OPA for all oil removal costs. OPA does provide for a $75 million cap on damage liability under its offshore facility provisions, but that OPA limit, as with all vessel and facility 

limits under the OPA, may not apply under certain circumstances, 

including gross negligence, willful misconduct, or violation of Federal regulations. 

Whether there is any effective cap on liability for damages under 

OPA in respect to Deepwater Horizon has not been determined and 

pends further investigation and coordination with the Department 

of Justice. 

I can’t comment further on how costs or damages may eventually 

be shared or apportioned or how liability for costs and damages 

may ultimately be enforced against responsible parties or against 

any other person under the law. I will note that BP has stated it 

does not intend to assert a limit and that it intends to pay all legitimate response costs and damages. 

The NPFC has provided Federal funding through the OSLTF to 

11,000 spills from all sources over the last 19 years. Since OPA was 

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69 

shore facility that tested OPA limits provisions. Limits are believed 

to have been exceeded only 51 times, and in all cases those have 

been oil pollution from a vessel. The NPFC submits an annual report to Congress on the limits of liability and the adequacy of those 

limits and we can make that available to anybody who hasn’t seen 

it. 

With respect to financial responsibility, the NPFC issued certificates of responsibility to over 22,000 vessels that are required to 

demonstrate that they can pay if they cause an oil spill in U.S. waters. Certificates of financial responsibility are not required for vessels under 300 gross tons unless those smaller vessels are 

transhipping or lightering petroleum products in the EEZ. 

It is important to note, however, that these smaller vessels are 

still liable under OPA. They are simply not required to carry a certificate of financial responsibility. This would apply, for example, to 

smaller fishing vessels as well as most pleasure craft. Vessel operators can demonstrate that they meet the financial responsibility requirements through insurance, self-insurance or a financial guarantor. 

OPA liability limits were amended by the Delaware River Protection Act of 2006 which increased vessel limits by approximately 40 

to 50 percent and created different limits for single-hulled and double-hulled tank vessels. NPFC has since implemented consumer 

price index adjustments to vessel limits with an interim rule that 

was published in April 2009 and final rule adopted in January of 

2010. 

In conclusion, individuals, communities, and businesses have suffered as a result of this spill. The OPA regime is working to ensure 

a robust Federal response that those damaged from this spill are 

compensated and the polluter pays. The Department supports the 

administration’s review of the existing liability regime and we 

would look forward to working with Congress to set liability limits 

and caps that properly reflect the risk associated with oil spills. 

Thank you for the opportunity to testify today and I look forward 

to your questions. 

Mr. OBERSTAR. Well, excellent. 

Thank you, Mr. Bennett and all members of the panel. 

Mr. Perrelli, much of the testimony this morning from our congressional panel and a great deal of conversation about oil spill liability and its limits involves one raising the $75 million to some 

number above that. As you heard in the previous panel, Mr. Gerard 

was not prepared to respond to what number it should be between 

75 million and no limit whatever. But also we didn’t hear a response to the retroactivity. Should they increase the limit, whatever we agree upon, above that $75 million number apply to leases 

already issued? And in that connection, we requested from legal 

sources that would not—there would not be a constitutional prohibition, but there might be other real legal implications. Could you 

address that issue? 

Mr. PERRELLI. Certainly, Mr. Chairman. And let me state at the 

outset I think the Administration supports review of all of the OPA 

liability limitations. And in particular, our view is that caps should 

be removed for offshore drilling, because we think that will create 

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nologies that will ensure that a spill of this magnitude never occurs 

again. 

With respect to other activities, onshore activities and transport 

by vessels, we think that those liability provisions need review, and 

we would like to work with Congress on deciding what is the most 

appropriate level at which to set caps, if at all. 

With respect to this question of retroactivity, our focus is on 

going forward with the idea that we would like a new liability regime to apply to all activities going forward, recognizing that there 

may need to be a reasonable transition period to allow orderly transition in the industry. 

Let me take on the last set of questions which relate to constitutional or other issues related to making changes in the liability 

structure retroactive. I think we think there are very strong arguments that Congress could enact legislation that would have a retroactive effect, and indeed Congress enacts legislation all the time 

that has retroactive impacts. Here Congress would be enacting 

broadly to address problems related to compensation and cleanup 

of the oil spills and it would certainly have a rational legislative 

purpose in doing so. So we think there are strong arguments with 

respect to constitutional defense. 

More likely these issues may arise in the context of a breach of 

contract action, where I think we also think that there are good arguments and there would be substantial defenses to breach-of-contract claims. There is no question there would be litigation about 

it, no question there is some litigation risk. 

I would note that OPA itself says that Congress is reserving its 

authority to increase liability in this area, and so anyone who is 

going to operate in a context of, for example, offshore water drilling, knows that Congress has said explicitly in statute that it has 

the authority to increase liability. And so I think that it is difficult 

for a contractee to make the argument that it relied that the law 

would stay the same. 

Mr. OBERSTAR. Very good, thank you. 

In the administration’s May 12th proposal the administration 

recommended—on the matter of standard of judicial review for determination or assessments of natural resource damages, they recommended change. It appears the proposal would change the 

standard of review from rebuttable presumption to arbitrary and 

capricious test based on review of the operating record. 

Why are you proposing this change and what would be the significance of moving from rebuttable presumption to arbitrary and 

capricious? 

Mr. PERRELLI. In proposing that change, Mr. Chairman, we were 

trying to bring the litigation related to natural resource damages 

more in line with the way litigation on a record created by the government normally is done, which is under the APA and the arbitrary and capricious standard. 

The development of the record on natural resource damages is 

going to be done by Natural Resource trustees and the Federal 

Government, States, and Indian tribal governments over a number 

of years, and they will compile an enormous record documenting 

the damage here. Our view is that, again in line with the way most 

litigation over a government administrative record is conducted, 

71 

the APA standard of review is preferable. We think it will streamline litigation, and again we think it is consistent with the way 

most agencies build records and litigate over those records. 

Mr. OBERSTAR. Mr. Taylor was here a moment ago. I know he 

had constituents outside. If he returns he may ask this question, 

but I will ask it on his behalf. Oh, he is here. 

Legitimate claims, how and where is the term ‘‘legitimate’’ defined? I ask that for Mr. Taylor and for myself. 

Mr. PERRELLI. The term ‘‘legitimate,’’ at least as I have heard it, 

has been used by BP. It is not a statutory term. There is no 

term—— 

Mr. OBERSTAR. No statutory definition. The law is quite specific 

about the various factors: removal costs, natural resources, real or 

personal property, subsistence use, revenues, profits and earning 

capacity, public services. Within all of those categories I listed, 

there are very specific references for natural resources damage—to 

injury of, loss of or loss of use of natural resources, including reasonable cost of assessing the damage, recoverable by U.S. Estate 

trustee, Indian tribe trustee, or foreign trustee. That is very, very 

specific. Real or personal. The law says damages for injury to or 

economic losses resulting from destruction of real or personal property recoverable by a claimant who owns or leases that property. 

But it doesn’t say whether if you are living in—if you are a travel 

agent in Michigan and your clients drop their plans to travel to one 

of the Gulf States because of their concern of the oil spill, whether 

that person or agency has a claim and whether it is legitimate. 

How would ‘‘legitimate’’ be determined in that circumstance? 

Mr. PERRELLI. As I indicated, ‘‘legitimate’’ is not a statutory 

term. Our view is that the scope of damages that are available 

under OPA is quite broad. And we certainly recognize that this 

tragedy is going to raise—is going to cause the expenditure of 

funds in many ways that may not have come into play in prior implementation of OPA. But I think our view is that the definition 

of damages is quite broad and we anticipate pursuing BP and other 

responsible parties for a wide range of damages. 

Mr. OBERSTAR. And there is a significant body of case law on this 

subject as well that attorneys regularly turn to. 

Mr. PERRELLI. There is. Mr. Bennett and his office and the Coast 

Guard are charged with the fund and they have a tremendous 

amount of experience in this area. 

Mr. OBERSTAR. Mr. Abbey, how many of the firms that conduct 

drilling or production operations in the Gulf of Mexico self-insure 

their risks? 

Mr. ABBEY. I don’t have the specific numbers, but that certainly 

is something that we can share with you for the record, if that is 

fine with you, Mr. Chairman. I will say that BP, which you have 

heard from earlier testimony, was self-insured. 

Mr. OBERSTAR. Yes. But in supplying that information, give us 

the size, the value of those operations, and your assessment of 

whether they could or would ensure unlimited liability for the facilities. And I asked the previous panel, the reinsurance market, is 

it capable of handling an amount in excess of 75 million, beyond 

10 billion, or unlimited. They didn’t have a very concise answer to 

that question. 

72 

Mr. ABBEY. We will get you the information you requested, Mr. 

Chairman. 

Mr. OBERSTAR. Thank you. 

I now yield to Mr. Buchanan. 

Mr. BUCHANAN. Thank you, Mr. Chairman. 

Gentleman, I represent a district in Florida. We have 50–60 

miles of pristine beaches and our environment—the environmental 

environment in terms of clean water and beaches is critical, not 

only to future generations but obviously to our economic viability 

in our region. And you take into account coastal waters and inland 

waters and everything along there, it is probably 150 miles. 

But Mr. Abbey, I guess I want to get your thoughts. I think it 

was wrong that the MMS granted BP exemptions from environmental review. From what has happened this has obviously been 

a mistake reported in the Washington Post and other things. 

I have got three questions that relate to this category. Are these 

exemptions still being granted, number 1? 

Number 2, can you please tell us why Deepwater Horizon was 

granted these exemptions? And are these exemptions common practice or an exception to the rule? Again, I bring this up because, you 

know, I was told for a long time— because I am one member, at 

least in Florida, that has been against offshore drilling as it relates 

to our beaches anyway. I was told what happened in terms of the 

implosion in the gulf could not happen. 

We had the deepwater technology and the capability, so it is 

shocking to me. And we had people who wanted to drill 3 miles off 

our beach, and I have been consistently against that. So that is 

why this is so important, because I think the agency you are representing is someone that is looking out for the American public. 

And so when I see things like that, and your special exemptions, 

I want to know why that is. 

Mr. ABBEY. Well, Congressman Buchanan, first and foremost let 

me say that I grew up in Mississippi, so I am quite familiar with 

the beaches of the gulf out there in the State of Florida and what 

wonderful resources they are. I have spent a lot of time down there 

enjoying the opportunities to swim in the gulf and take advantage 

of other resources in that part of your State. 

Let me say that a spill of this magnitude certainly is unprecedented and we are learning an awful lot of lessons as a result of 

events that we are currently dealing with in the Gulf of Mexico 

today. 

I don’t have the specific numbers of how many exemptions have 

been granted. I would really need a little more specificity relative 

to the exemptions you are talking about. I will say this, though. As 

we go forward we are looking at all safety requirements that we 

have applied in the past. We are making changes. We made 

changes as late as yesterday afternoon regarding the issuance of 

notices to lessees for operations both in deepwater as well as shallow waters in the Gulf of Mexico. Those requirements for those operators in the shallow waters require them to certify that they are 

meeting many of the safety requirements that came out of the 30- 

day safety report that was issued to both Secretary Salazar and the 

President of the United States a couple of weeks ago. 

73 

We are also requiring the CEOs of the companies who are operating to actually verify and to sign their names to the fact that 

they are complying with all those new requirements. We are taking 

actions to move forward, based upon the lessons that we have 

learned from this event. 

I am not here to defend past practices for Minerals Management 

Service, but I would also say that there are a number of investigations underway, as well as the Presidential commission, that are 

looking into the facts of matter and we will let those facts speak 

for themselves. 

In the meantime there is a lot of business that needs to be done. 

We are looking at the opportunities to improve our overall performance so that the safety that you are looking for relative to any future drilling is assured. 

Mr. BUCHANAN. Since the implosion in the gulf, have we been 

giving consistently—or giving exemptions since that implosion? 

Let’s not talk about the past too much, but just in terms of what 

has happened in the last, say, 2 months? It is my understanding 

we are still giving environmental exemptions, and I can’t imagine 

why we would give any consideration to that. 

Mr. ABBEY. Congressman, you are probably talking about the 

categorical exclusion. 

Mr. BUCHANAN. Right. 

Mr. ABBEY. That are allowed under NEPA. Categorical exclusions are used when there has been previous environmental analysis performed that has been deemed sufficient to cover the proposed action from an applicant. We are certainly reviewing the environmental requirements that we have placed upon the operators 

in the past. We are looking at making some adjustments over the 

course of the next couple of weeks. We have not reached final determination of how we will move forward, but I can assure you that 

that issue is being addressed not only within the Department of 

the Interior, but we are working in close partnership with the 

Council of Environmental Quality to determine how best to move 

forward. Do I have more time? 

Mr. OBERSTAR. Yeah. 

Mr. BUCHANAN. Thank you, Mr. Chairman. 

The AP reported that since 2005, Deepwater Horizon has missed 

16 monthly inspections. I guess I want to know how can MMS let 

this happen? Is it common for these inspections to be missed? What 

are you doing to make sure that our rigs are not missing their 

monthly inspections? And are there consequences for missing these 

inspections? 

Mr. ABBEY. Congressman, it is my understanding that the Minerals Management Service strives to perform inspections once a 

month. That is the goal, that is the target that is incorporated into 

the annual work plans. There are some months that are missed as 

a result of weather that won’t allow the helicopters to get out in 

some of the deepwater facilities. There may be some other reasons 

why a particular platform was not inspected each month. But it is 

a goal. 

It is my understanding based upon the records that I have read 

that Minerals Management Service has done quite well in meeting 

that target, not 100 percent by any means, but they have done 

74 

quite well in meeting the targets of trying to perform inspections 

on the platforms that they manage on a monthly basis. 

Mr. BUCHANAN. They are saying they have missed 16 monthly 

inspections. I can understand missing a couple or being pushed off. 

How can you miss 16 in 4 years? That is almost half of the inspections. 

Mr. ABBEY. Is that just for BP or Deepwater Horizon? 

Mr. BUCHANAN. Deepwater Horizon. They are saying this in the 

AP report, that they missed 16 monthly inspections, which is concerning to me and I think the American people. 

Mr. ABBEY. Well, it should be a concern. And I will respond back 

to you in writing if that is OK with you. 

Mr. BUCHANAN. I would appreciate that. 

With that I yield back, Mr. Chairman. 

Mr. OBERSTAR. Thank you, and I will recognize Mr. DeFazio. 

Mr. DEFAZIO. Mr. Perrelli, I am not certain whether you were 

here earlier, but we are pursuing a line of questioning that related—one was, how can we secure or could we in some way secure 

some indemnification or assets from BP? I mean there have been 

numerous news accounts that BP may try and shed itself of these 

obligations by going into bankruptcy and forming one company 

over here with everything else that is performing well, and another 

company over there where it failed. Do you have any thoughts on 

that? 

Mr. PERRELLI. Congressman, this is an issue—we have obviously 

seen similar reports. It is an issue of real concern because we want 

to make sure that the responsible parties truly have the wherewithal to compensate the American people for the damage done. So 

this is something that we have been focused on. We are reviewing 

our options and hope to be able to report back to you soon about 

the action we will take. 

Mr. DEFAZIO. Then if we look to the future, if we were to significantly raise or eliminate liability caps, how in the future—what device might we use to segregate assets ahead of time, bonding? Are 

there things you could think of if we wanted to significantly increase the cap to be sure that there were assets there that couldn’t 

be removed? 

Mr. PERRELLI. Certainly I think in addition to looking at the liability caps, I think it is appropriate to reconsider the certificates 

of financial responsibility which provide on the front end a surety 

that payments will be available to be made in the event of a disaster such as this. So I think the administration also believes that 

we should, one, take another look at those and think about whether they need to be adjusted, as well as developing additional regulatory authority to allow them to be adjusted or modified over time 

as we learn about new or different risks. I think that is certainly 

a component of this. 

Mr. DEFAZIO. If you can have those thoughts quickly because I 

expect we may act very soon on these issues, we want to do things 

that make sense and provide more security and assurance to the 

American public. 

I would just observe, I am particularly concerned about that first 

one. And I will give you an example right in that neighborhood. 

There was a company, I believe it was called Entergy, that both 

75 

generated and distributed electricity in Louisiana. After all their 

lines blew down in the hurricane, they went to the PUC which happened to be captive to their interests, and said, we would like to 

split the company. We would like to put our distribution system 

over here and put our energy generation over there. And PUC said, 

Oh, it is a great idea. That would be really efficient. 

So they ended up with a totally bankrupt, destroyed distribution 

system which very much delayed the recovery of Louisiana, and, 

over here, a very profitable and ongoing energy producing company. And I worry that BP could do the same thing. 

I hope you have your best and most rigorous people looking at 

how to prevent them from scamming us that way and ducking out 

on what is their problem which they need to pay for in its entirety. 

So, thank you. 

Mr. Abbey, I know you are new to MMS. We usually talk trees 

and forestry issues, but on these I have raised concerns in a couple 

of hearings about the blowout preventers. And there were reports 

and evaluations done by MMS’s own employees, in cooperation 

with some engineers from BP and other companies, saying there 

were significant concerns about the capabilities of these blowout 

preventers to sever the pipe and seal off the well even if it was in 

functioning condition—and apparently this one was not, at least 

not optimally—and that with the well casings used at those depths 

and those pressures, that these blowup preventers which were designed for much shallower depths and thinner gauge pipe just 

couldn’t do the job certain percentage of the time. 

Are we going to take steps to require that all of the existing 

wells, let alone new ones, have blowup preventers that have proven 

capabilities to actually work, in addition to looking at their maintenance records? 

Mr. ABBEY. Congressman DeFazio, we took steps yesterday to do 

just that. We issued a notice to lessees requiring them to perform 

certain checks and tests and to certify by a reliability third-party 

independent reviewer that such tests—the operations pass those 

tests and require the CEOs of those companies to verify that they 

are in compliance with all of our safety requirements as well as the 

law. 

Mr. DEFAZIO. And if they sign that verification, could we attach 

some special sanctions to anyone who might certify that inappropriately? 

Mr. ABBEY. I would look to Mr. Perrelli to respond to that question. 

Mr. PERRELLI. I think that the full panoply of possible civil and 

criminal violations for making a false statement to the government 

would be available. 

Mr. DEFAZIO. Thank you. Thank you, Mr. Chairman. 

Mr. OBERSTAR. I have raised that question earlier with the 

American Petroleum Institute. They set the standards for the blowup preventer. And I asked whether their standards had been tested 

against the pressure of the oil reservoir at 18,000 feet below the 

mud floor and pressures of 2,300 psi to 13,000 psi, and the answer 

was, I don’t know. And I asked whether at that depth when thicker 

pipe casing—as you have just referenced—had been tested in the 

blowup preventer and whether the shear could cut through that 

76 

thickness of pipe and they said, ‘‘I don’t know. We will get back to 

you.’’ But they are the ones who should know. 

Mr. DEFAZIO. Right. 

Mr. OBERSTAR. Mr. Cummings. 

Mr. DEFAZIO. Could I ask what is the time line on having that 

testing done? 

Mr. ABBEY. Before any new wells are drilled. 

Mr. DEFAZIO. Right. But I am concerned about—there are 

some—as I understand, the blowup preventers are used in both the 

exploratory initial drilling and they are used until the well becomes 

operational. 

Mr. ABBEY. Yes. 

Mr. DEFAZIO. So are there any deepwater wells out there where 

the blowup preventers are in place now? 

Mr. ABBEY. Of course there is a moratorium on any new deepwater drilling. There are some maintenance actions being allowed. 

They will be required to comply with the notices to lessees that we 

issued yesterday for all those actions. 

Mr. DEFAZIO. Thank you. 

Mr. OBERSTAR. Mr. Cummings. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr Abbey, just following up on that, who does this certifying? 

When you say an ‘‘independent party,’’ and you know there would 

have been a time I would never even think of asking this question. 

But the integrity of these systems are so upsetting, and I see that 

we just seem to have these gaps where people are not doing what 

they are supposed to do. I am not knocking you, I am just talking 

about in general. I am trying to figure out who the certifiers are. 

The Chairman talked about the standard, so who are the certifiers and how do we know that we have got the right people doing 

the certification? Do you follow me? 

Mr. ABBEY. I do, Congressman Cummings. We are looking to engineers, professional engineers, as well as consultants. We are also 

seeking from the documentation that we are requesting from the 

operators to provide us a full listing of the qualifications of that 

third party who they were using to verify that such equipment can 

meet the standards. We will be reviewing the qualifications of 

those consultants for professional engineers to make sure that they 

are the best available, at least to the companies, and to have the 

credibility and integrity that they need to provide us as well as the 

American public greater assurance that the actions that are going 

to take place will be done in the safest manner. 

Mr. CUMMINGS. Because one of the things that happens in the 

law is that when somebody goes to a lawyer and asks for advice 

on certain things and the lawyer gives advice, in some instances 

they can go back and say, A lawyer gave me the advice and that 

is why I acted the way I acted. And in some instances it can get 

some consideration from a judge or—in other words, if they got into 

some trouble. 

I just want to make sure, Mr. Perrelli, that if—I don’t want a situation where we go to a ‘‘certifier’’ and then the certifier is not legit 

and doesn’t have the qualifications that we need. And then, say, BP 

would say, ‘‘Well, wait a minute now, you told me to go to a cerVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00100 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
77 

tifier. I did it and the certifier said I am fine.’’ And the next thing 

you know we have problems. 

Mr. DEFAZIO. Would the gentleman yield for just 1 second. Excuse me. I have worked together with the gentleman a lot on this 

as relates to the banking and financial services crisis, and this 

brings to mind the ratings agencies. You pay them for a rating and 

they would then ratings shop. We are worried about the same 

thing here, as opposed to perhaps the government designating and 

they are being—— 

Mr. CUMMINGS. That is exactly right. 

Mr. ABBEY. If I could respond to that concern because it is a 

valid concern. This certification does not take away the government’s responsibility to do our own routine checks and the 

verification. We intend to continue the inspections that we have 

been performing to make sure that the equipment that are being 

used will also pass our own inspections. But in lieu of our own inspectors going out and making a determination in every case, we 

are asking the operators themselves to also provide us that thirdparty independent verification. 

Mr. CUMMINGS. Now, the Chairman may have asked you about 

this because I know it is one of his major pet peeves. But let me 

ask you. How are we and MMS, with regard to people who are 

qualified to even do the inspections, because what we see here, it 

seems like we have got the industry that is speeding along, but 

again as I said a little earlier, they have created a monster that 

they can’t control. And so some folks tell us the only way it really 

gets this expertise so far is to be in the industry. That is kind of 

an expensive way, probably, to get it. 

So I am trying to figure out what mechanisms are in place to 

make sure that we have the people in place, and government 

doesn’t pay what some folks pay, private industry pays. I am just 

trying to figure out what is the plan there. I think after this incident I am sure antennas are going up to be even more careful with 

regard to inspections and whatever. But I want to make sure and 

the Chairman wants to make sure that we have got people in place 

to do the inspections. 

We have seen some problems in certain inspections with regard 

to the Coast Guard and some automatic safety matters. And we 

have had people come in and testify to say that they had personnel 

in the Coast Guard that were looking at their equipment and giving inspections and that they weren’t totally equipped to do that. 

That is a sad commentary. 

But this is where the rubber does meet the road. I am just trying 

to figure out, what do you see with regard to that issue? 

Mr. ABBEY. Well, the Minerals Management Service administers 

thousands of leases in offshore. We have 61 inspectors, 11 engineers, devoted to doing those type of inspections. Of that 61 inspectors I believe, if I remember the numbers right, there are about 50 

inspectors within the Gulf of Mexico where most of the operations 

are occurring. As you have read and as I have, some of these inspectors have worked previously in the industry themselves. They 

gain experience working within the industry. We hire them based 

upon that experience, based upon their abilities to know what to 

look for, how to document any deficiencies that they have noted on 

78 

these platforms, and to report back so that we can take appropriate 

actions to address any deficiencies. 

Mr. CUMMINGS. Just one last thing. Do you know of an instance 

where you sent inspectors out who were not fully qualified to do 

the inspections that we needed done to the degree that they needed 

to be done? 

Mr. ABBEY. Congressman Cummings, again I have very limited 

experience with the Minerals Management Service. I am not aware 

of any inspector that is not qualified to do the job that we are asking. 

Mr. CUMMINGS. All I am asking, can you give us documents? I 

mean, if you can go back in your files and provide us with information, because this is something that the Chairman has been really—we sat in a meeting with him yesterday with the Speaker. We 

are all concerned about this. Because we cannot have cultures of 

mediocrity; we just can’t. Because there is too much at stake. We 

want to make sure we have a pipeline so that we can have the people, if we don’t have them in place, have them in place so that they 

can do what needs to be done; because we can do all of this stuff, 

we can have all the standards in the world. If we don’t have people 

who are competent and people with integrity doing this stuff, we 

might as well be out playing golf or flying a kite. 

Mr. ABBEY. We have common goals in that regard. 

Mr. CUMMINGS. Thank you. 

Mr. OBERSTAR. Mr. Taylor. Excuse me. Mr. Taylor, you are next. 

Mr. TAYLOR. Thank you, Mr. Chairman. Can any of you tell me 

the legal definition of ‘‘gross negligence’’ or ‘‘willful misconduct’’ as 

it would apply to this instance? 

Mr. PERRELLI. Congressman, gross negligence and willful misconduct are not specifically defined in the statute. Gross negligence—— 

Mr. TAYLOR. OK to that point, Mr. Perrelli. So then it really is 

up to the judgment of a judge? 

Mr. PERRELLI. Ultimately—— 

Mr. TAYLOR. Some judge could say 40-something days of pushing 

oil out into the Gulf of Mexico, ruining thousands of people lives, 

11 deaths, some judge could make an arbitrary decision that this 

is not gross negligence or willful misconduct; is that correct? 

Mr. PERRELLI. Certainly the interpretation of both those terms 

would be up to a judge. I will say that both gross negligence and 

willful misconduct are interpreted under many different Federal 

statutes. So I think there is an established case law, but they are 

not specifically defined in this statute. 

Mr. TAYLOR. Again, Mr. Chairman, with this point I would certainly hope the legislation be drafted, we try to establish at least 

a legal threshold of what would constitute this. We don’t need—I 

will leave it at that. 

Secondly, Mr. Chairman, I had asked in last week’s hearing for 

a side-by-side comparison of Coast Guard inspections versus foreign-flag inspections that were allowed in the case of the Deepwater Horizon. It has just in the past few minutes been supplied 

to me by the Coast Guard, and I would ask that that be submitted 

for the record. 

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Mr. OBERSTAR. Without objection, so ordered. 

[The information follows:] 

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Mr. TAYLOR. Mr. Perrelli, again I have only had about 2 minutes 

to look at this, so please forgive me if I read it to you. 

We will start with structure, stability and loading. If that vessel 

had been U.S.-flagged, the United States Coast Guard would have 

had to conduct a comprehensive holding section, a drydock inspection, an internal structural and cargo tank inspection, a structural 

watertight integrity and inadequacy. 

Contrast that with a foreign-flag vessel where they do a spot 

check for the condition of doors, cargo hatches, vents, railings, ladders, a spot check of stability and—but it gets better. When it came 

to fire safety, had it been a U.S.-flagged vessel the Coast Guard 

would have done a systems equipment reviewed and approved plan 

just to build it. They would have inspected for proper installation, 

they would have tested operation of all systems and equipment for 

compliance, and they would witness third-party maintenance inspections, and inspect the material condition of fire safety equipment. 

I would contrast that with what did occur, where the Coast 

Guard in this instance, because it is a foreign-flag vessel, review 

certificates of third-party maintenance inspections. So basically if 

the folks in the Marshall Islands, for a fee or for whatever reason, 

chose to just issue a certificate saying that these guys are living 

by the rules, that was good enough. 

Now, Mr. Perrelli, a lot of things will come out of these hearings. 

I would hope one of the things the U.S. Justice Department would 

be insisting for those vessels operating in United States territorial 

waters, they have to live by our rules. They can’t get a pass from 

some Third World country that says this is good enough. And we 

as a Nation shouldn’t be expecting the word of some Third World 

country that this is good enough. 

Obviously there are 11 dead mariners and thousands of people 

whose lives have been affected by this. And Mr. Chairman, again, 

U.S. Territorial waters, we should not relying on somebody else’s 

self-checkoff list if they are living by the rules. 

Going back to the question of who defines ‘‘gross negligence,’’ has 

there been any effort on the part of any of your agencies to come 

up with what you think is a fair definition of that in this instance? 

Mr. PERRELLI. Congressman, we have not focused on writing a 

definition, but we would certainly be happy to work with the Committee if you were looking at drafting a new definition for that. 

Mr. OBERSTAR. If the gentleman would yield. We will ask—following your earlier question, I discussed with counsel a request to 

Justice Department for drafting assistance in formulating the principles that you enunciated. 

Mr. TAYLOR. Mr. Abbey, under the Federal response plan, we are 

both from Mississippi, just this week I inspected the contractors 

that BP hired as far as their land cleanup. I visited one of their 

vessel-of-opportunity operations. And, again, they are trying. What 

I don’t see is a comprehensive plan to try to keep the oil from getting Mississippi’s barrier islands and Mississippi’s beaches. 

Is your agency, is the Coast Guard, is anybody within our Nation 

the lead agency to look over what should be a comprehensive plan? 

And in the absence of a comprehensive plan, is anyone stepping 

forward to say this is what it ought to look like? 

87 

Mr. ABBEY. Congressman Taylor, are you talking about after the 

spill or before the spill? 

Mr. TAYLOR. Yes, sir. I am talking about right now, what I don’t 

see—and, again, I am asking this in the form of a question—— 

Mr. ABBEY. Yes. 

Mr. TAYLOR. Are you, is the Coast Guard, is any—is the Department of Homeland Security, does anyone have the legal authority 

to turn to BP and say, ‘‘This is what your response plan ought to 

look like. We gave you 40-something days to come up with one and 

we are not satisfied with what you got.’’ 

Mr. BENNETT. Congressman, I can answer that, in that the national incident commander, Admiral Allen, and the FOSC are senior, running the response, so they do have the authority to direct 

BP and any response efforts—and that can be pretty broad—that 

they deem are required to respond to this incident. 

Mr. TAYLOR. Sir, that is my whole point. Is anyone giving them 

a specific list of things to do based on the mistakes that were made 

in Louisiana and apparently the mistakes that are being made 

where water washed up on the Florida panhandle? Is anyone giving them a list saying, You need more skimmers out there, you 

need a greater presence, don’t wait for it to hit the beach? I am 

asking this in the form of a question because I don’t know the answer. I am not so certain this is an answer coming from our Nation. 

Mr. ABBEY. Let me address that. I spent 3 weeks down in Robert, 

Louisiana at the Joint Command Center. There are reports and requests received each day by that joint command indicating what 

supplies are needed in order to accomplish the goals that are being 

laid out to protect the resources along the Gulf Coast. Based upon 

those requests there are decisions that are being made by the incident commanders to move forward and to provide the supplies and 

the actions that are necessary in order to meet those goals. 

So, as already alluded to by Mr. Bennett, there is an incident 

commander that is in charge, who has full authority to move forward with any actions deemed necessary in order to address your 

concerns. 

Mr. TAYLOR. Lastly, I know I am over my time Mr. Chairman, 

but for the record, are any of your agencies stepping forward to 

propose a new generation—since we all got caught flat-footed on 

this one—are any of your agencies stepping forward to propose a 

new generation of blowout preventers, skimmers, containment 

booms, collection booms? Because it is just a sad fact that this technology has not really progressed one iota in the past 20 years. And 

we sat back and hoped that the private sector would do it. They 

didn’t. 

Are any of your agencies making recommendations of what those 

things ought to look like now? 

Mr. BENNETT. Congressman, I can speak for the Coast Guard, 

and probably everybody, that this event is of such magnitude, the 

answer is yes, everything is on the table, and everything is being 

looked at, and no stone will be left unturned as to where we go to 

make it right for the future and that all risks are taken account. 

Mr. TAYLOR. Thank you, sir. 

88 

Mr. OBERSTAR. And further to the gentleman’s question, and I 

have discussed this with him and with Mr. Cummings, we are 

going to—in the crafting of legislation we are going to set standards for the Coast Guard and regime under which the Coast Guard 

and Minerals Management Service both can acquire the skills, the 

know-how, the understanding and technology of this industry to be 

able to do the certification and do the oversight that is necessary 

and to do it with knowledge of the industry. We have got to get 

closer to the airline sector than we are today in maritime safety. 

This regime that exists where the Coast Guard is limited to inspecting foreign-flagged vessels to the standards of the International Maritime Organization, which allow only a 6- to 8-hour review compared to 2- to 3-week review of a U.S.-flagged vessel operating in our territorial waters—these are two widely different 

standards and unacceptable. But more important is the reality that 

the Coast Guard doesn’t have the personnel, the skills, the training, the equipment to do the certification that is necessary. Anyway, we are going to follow-up on those points. 

Mr. Garamendi. 

Mr. GARAMENDI. Mr. Chairman, thank you for putting this hearing together. It is an extraordinary hearing and it is setting the 

stage for some very, very important legislation. 

Earlier we talked about the financial liability issue. I just came 

from an interview and I was asked a question—I guess this goes 

to the Attorney General—I was just asked a question that BP has 

accepted responsibility; what if they turn around and say, Well, but 

there are limits to the liability? What action and what opportunities are available to us to hold them to their earlier and present 

acceptance of full responsibility and full payment? 

Mr. PERRELLI. Mr. Congressman, we will unquestionably pursue 

them to require them to fulfill their promise. I would note that 

there are many legal avenues that we can pursue to ensure that 

they pay the full measure of damages here, whether it’s BP and 

Transocean or other potential responsible parties. 

We talk often about a liability cap. As I mentioned in my opening 

statement, it is conditional. It does not exist if there is gross negligence or violation of any safety, operational, or construction regulation that could be deemed to have proximately caused the explosion. 

I would note that my colleagues at the Minerals Management 

Service have many, many regulations. And so we anticipate that 

whether or not BP intends to fulfill its commitments, we will pursue BP, Transocean, whoever are the responsible parties, to the 

fullest extent we can. 

Mr. GARAMENDI. Exactly so. But, however, that pushes the responsibility to the government to prove negligence or the other factors that you just described. Nevertheless, I am pleased to hear 

your response. 

The second point I want to raise is that let us assume BP really 

is going to wind up in financial trouble as a result of this. There 

are rumors circulating that BP is interested in providing some $10 

billion of dividend going out to their shareholders. If that is, in fact, 

what they intend to do, do you have the ability to issue an injuncVerDate Aug 31 2005 18:50 Mar 30, 2011 Jkt 000000 PO 00000 Frm 00112 Fmt 6633 Sfmt 6633 P:\DOCS\56957.TXT JEAN
89 

tion to tell them to hang on to that money, that it might actually 

be needed for cleanup? 

Mr. PERRELLI. We are concerned. We have seen reports with respect to BP. We have also seen reports about Transocean and a 

planned dividend. And we are concernedthat—well, we want to ensure that these companies have funds available to compensate the 

taxpayers, the individuals harmed throughout the gulf, the families 

of the individuals who were killed or injured. So we are looking 

very closely at this, and we are planning to take action. As I indicated previously, we will report back to you once we have decided 

on what steps to take. 

Mr. GARAMENDI. I will tell you what an insurance commissioner 

in California did when faced with the situation where an insurance 

company that was in trouble decided that they would take the assets and run. I went to court the next moment, got what amounted 

to an injunction, hung on to the money so that it was available to 

the policyholders. I would highly suggest that the Justice Department take whatever action is necessary to make sure that none of 

these companies in this particular moment during this period of 

time is allowed to issue any dividends, to move any of their assets 

away from the company to the shareholders or to anyone else. If 

you don’t do that, I am going to be all over you in a way that you 

will not like. 

Mr. PERRELLI. We share your concern. 

Mr. GARAMENDI. Because I have been there, and I have done it, 

and I know it can be done. 

Mr. OBERSTAR. Thank you, Mr. Garamendi, and for adding your 

expertise in this insurance area, which is very, very valuable for 

us. 

Mr. Cummings, you had a few more questions. 

Mr. CUMMINGS. Mr. Chairman, just two questions. 

I want to go to you, Mr. Abbey. I was just reading this report 

by the Department of Interior, and it is talking about the problems 

that they had at MMS. And I am trying to figure out what are we 

doing to turn around that culture where people are—a confidential 

source said MMS is expected to allow oil and gas production company personnel located on the platform to fill out inspection forms. 

So, in other words, the company was self-certifying and basically 

committing fraud, Mr. Perrelli. Fraud. That is what I consider this. 

When I think about the accepting of gifts and things of that nature, I am trying to figure out, first of all, have there been people 

who have been fired? What have we done to begin to straighten 

this mess out now, because MMS is still conducting business. And 

I want to make sure that people who are basically—who we think 

are guarding us and taking care of us are not stabbing us in the 

back. And that is exactly what this is. 

So the question is—I know you have only been there a short 

time, but what is being done to turn that culture around? Because 

I am assuming some of those people are still there, and that is a 

major problem. Major. 

Let me tell you another reason why it is a major problem. One 

of the things about leadership is people, if they trust you, they will 

submit and say, OK, I know you have got everything under control, 

and it will work out. This report basically says we can’t trust the 

90 

very people that we are supposed to trust and that we pay to guard 

us. 

So what is being done to turn that culture around? I am not 

blaming you because you are new, but I want to know what is 

going on. 

Mr. ABBEY. That is fine. I appreciate you asking the question. 

First and foremost, it is my understanding, Congressman 

Cummings, that the allegation that industry employees were filling 

out those forms in pencil and sending them in to the inspectors, 

and all the inspectors were doing was writing—or using their pens 

to write over the pencil—— 

Mr. CUMMINGS. Traced over them. 

Mr. ABBEY. It is my understanding based upon the documents 

that I have read is that that is unfounded. That did not occur. I 

have seen those same reports that you just alluded to, but it is my 

understanding, based upon follow-up reviews, that did not take the 

case. 

As far as other deficiencies or other allegations of misconduct, 

Secretary Salazar has been very adamant from his very first day 

as Secretary of the Interior to implement a very high standard of 

conduct based upon our own ethical values that we have within the 

Department of Interior to make sure that all of our employees understand what the expectations are and that they are going to be 

held accountable. 

Let me also say that even though I have a short period of time 

with the Minerals Management Service as the Acting Director, I 

have had the pleasure of working with MMS employees for many 

years in many different roles. I have found everyone I have ever 

associated with or worked with to be professional and ethical. And 

even though there are some findings based on the reviews that 

have been conducted, and I am sure there may be some other deficiencies noted in the ongoing investigations, it is our intent to look 

at every deficiency that may come about from these reviews, and 

we are going to deal with those deficiencies in the appropriate 

manner. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I just 

want to make sure that when these kinds of reports come out, I 

am hoping—and I know you are there, and those are the people 

you work with, but if we have reports like that, I can’t believe they 

just fell out of the sky. So we need to—and I would hate for us to 

have this kind of information and then just sort of dust it up under 

the rug and say, oh, that doesn’t exist; everybody is the greatest 

employee that ever lived. I am sure 99.9 percent of them are. But 

at the same time, I think we need to be very careful with that. 

Mr. ABBEY. No one is more irritated about the conduct of some 

of those employees than the employees of the Minerals Management Service because it does bring this scrutiny, this allegations of 

inabilities, incompetence to the table, and no one is very happy 

with that. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr. OBERSTAR. Thank you for raising that issue. 

Mr. Abbey, it is in your interest and that of the administration 

to be squeaky clean. So you have made a statement absolving those 

implicated of having engaged in illegal activity, falsifying records. 

91 

We need independent verification of that. You have an inspector 

general in the Department, and that IG office should take this 

issue under review and submit a written report with his findings 

and be specific about it. We do that with the U.S. Department of 

Transportation. I know Interior is not directly under the jurisdiction of this committee, but I think that is in your interest and the 

administration’s best interest. 

Mr. Taylor. 

Mr. TAYLOR. Thank you, Mr. Chairman. 

Mr. Perrelli, I happen to represent the district where Katrina hit. 

A lot of homes were destroyed outright. A lot of homes were damaged by wind. A lot of homes were damaged by water. Those homes 

that were damaged by water, I have repeated questions from homeowners saying, what if that water that did all that damage last 

time; what if this time it has got crude mixed in with it? 

Now, it is my understanding that the refinery in Chalmette, Louisiana, when the dam burst there flooded approximately 1,800 

homes, and it took them several years of litigation for the refineries 

to pay those 1,800 homeowners what they were due. Now that 

there has been a legal precedent set in that case and other cases, 

I am making a request of you. I think you can give a great many 

Gulf Coast residents or coastal residents around this country—if 

your Department would step forward and say the precedent has 

been set, even if it is an act of God, that that company is responsible. 

I would like you to respond to that. 

Mr. PERRELLI. I can’t speak to the prior incident, but if we are 

talking about the Deepwater Horizon incident, I think it is pretty 

clear that there is damage to property arising out of oily water that 

has come from the Deepwater Horizon. I don’t think there is any 

question that falls within the category of damages that should be 

compensated. Those individuals should be able to bring a claim to 

BP, and if BP doesn’t satisfy it, they would then be able to bring 

it to Mr. Bennett at the fund. 

Mr. TAYLOR. I have heard you say it verbally. You have just said 

it on television. For the sake of the coastal America, I would like 

to see that in writing. The reason being, people shouldn’t have to 

go to court. You shouldn’t have to hire a lawyer. You shouldn’t 

have to wait years to get paid. And I think if BP knew what the 

ground rules were from the Justice Department, they would be 

more likely to settle those claims a lot quicker. 

Mr. PERRELLI. I think the whole idea behind OPA was so that 

people wouldn’t have to go to court and wouldn’t have to spend 

years waiting when their property was damaged as a result of an 

oil spill. 

Mr. TAYLOR. Thank you, Mr. Chairman. 

Mr. OBERSTAR. You have heard it very clearly. This is from the 

front line of those in harm’s way from this tragedy. 

I have a question for the panel, perhaps more for Mr. Bennett. 

We talked just in this exchange about next-generation technology 

and certification and bringing Coast Guard personnel skills to a 

new level and to a new reality, that is of dealing with deepwater 

drilling. How should the development of those skills be funded? 

92 

Could it come out of the trust fund without having to go to a direct 

appropriation? 

I draw a comparison with the Aviation Trust Fund.Airline passengers pay on their airline ticket tax into the Aviation Trust 

Fund, which finances construction of runways and taxiways, which 

pays for the facilities and equipment that is the air traffic control 

technology that guides aircraft safely. It pays for 80 percent of the 

operations of our air traffic control system, meaning the controllers. 

Is it fair to draw a parallel between these two? 

Mr. BENNETT. Mr. Chairman, I think it would be fair. In fact, as 

you probably know, in addition to paying for response costs and 

claims, the trust fund is already available to fund implementation 

and capacity of implementing OPA 90 to several Federal agencies. 

So I don’t think it would be unreasonable to look at the trust fund 

as a potential source of funding to—if needed, to do more support 

to any agencies that need extra resources. 

Mr. OBERSTAR. Thank you for that. 

The categorical exclusions that are listed in the Code of Federal 

Regulations were first adopted in 1986, and then reaffirmed in 

2004 by the previous administration. There is a list of a dozen such 

categorical activities that qualify for categorical exclusion. I am 

really surprised when I read number 10, approval of an offshore 

lease or unit exploration development production plan in the central or western Gulf of Mexico in areas of high seismic risk or seismicity, relatively untested deep water. 

That qualifies for a categorical exclusion, Mr. Abbey? 

Mr. ABBEY. Well, I am not familiar with the article or—— 

Mr. OBERSTAR. Don’t they have to go through the NEPA process 

to drill. 

Mr. ABBEY. Mr. Chairman, there is NEPA that you have to adhere to. And many of the actions that are being approved through 

categorical exclusion are being addressed in some manner with previous NEPA documentation or environmental analysis. Whether or 

not the Minerals Management Service has utilized categorical exclusions appropriately is one of those areas that we have under review right now in cooperation with the Council for Environmental 

Quality. We are looking at how this bureau or this agency has been 

using categorical exclusions to authorize some of those specific actions, and based upon that joint review, we will make a determination what we might need to do differently. 

Mr. OBERSTAR. Well, my review of these 15 categorical exclusions 

looks to me—I have done a fair amount of this kind of work over 

the years—was written by the industry, for the industry, for its 

own benefit. You need to take a broom and sweep through this 

whole listing and clean it up. Clean house with this. This is shocking. We would never see anything like this in aviation. We have 

never seen anything like this in the Motor Carrier Safety Administration. This is appalling, and it needs a house cleaning. 

Mr. ABBEY. I cannot disagree with you as far as the use of categorical exclusions and the appropriateness of categorical exclusions. 

Mr. OBERSTAR. We look forward to the receipt of the information 

requested in the course of this afternoon’s hearing within 10 days, 

because we expect to draft legislative language in cooperation with 

93 

the Minority on the Committee and to be part of a package of legislation to be introduced at the Speaker’s request before the July 4 

recess. So that gives us about 3 weeks to get all this work completed. We look forward to hearing from you. 

Thank you very much for your testimony and for your dedication 

to public service. The Committee is adjourned. 

[Whereupon, at 4:47 p.m., the committee was adjourned.] 

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