REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on liability, compensation and financial security for offshore oil and gas operations pursuant to Article 39 of Directive 2013/30/EU
Date: 2015-09-14
Institutions: Directorate-General for Energy, European Commission
Subjects: damages, environmental liability, extraction of oil, man-made disaster, marine pollution, offshore oil structure, oil pollution, petroleum exploration, prevention of pollution

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 14.9.2015  COM(2015) 422 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on liability, compensation and financial security for offshore oil and gas operations pursuant to Article 39 of Directive 2013/30/EU {SWD(2015) 167 final}  
 
 
INTRODUCTION 

This  report  provides  an  overview  how  liability  for  damage  from  offshore  accidents  in  oil  and  gas 
prospection, exploration and production is addressed in the EU. In effect, it analyses how Europe deals 
with  a  series  of  societal  dilemmas  arising  in  relation  to  offshore  oil  and  gas:  first,  who  is  liable  for 
what  kinds  of  damage  and  loss  to  whom;  second,  how  to  ensure  that  liable  parties  have  sufficient 
financial  capacity  to  provide  rightful  compensation  for  the  damage  and  loss  they  are  liable  for;  and 
third, how  compensation  should  be  disbursed  so  that  it  reaches  legitimate  claimants  quickly  and  the 
risks of cascading impacts to the broader economy are minimized.  

There has not been a major offshore accident in the EU since 1988 and 73% of oil and gas production 
in  the  EU  comes  from  North  Sea  Member  States  already  recognized  as  having  the  world's  best 
performing offshore safety regimes. Despite this, the EU put in place a common regulatory framework 
for offshore oil and gas operations following the April 2010 Deepwater Horizon disaster in the Gulf of 
Mexico  in  order  to  raise  the  safety  and  environmental  protection  standards  of  all  EU  offshore 
operations further and make them consistent. Directive 2013/30/EU1 (henceforth the Offshore Safety 
Directive or OSD) defines the elements of such a comprehensive EU-wide framework for preventing 
major  accidents  and  limiting  their  consequences.  The  ratification  of  the  Offshore  Protocol  of  the 
Barcelona  Convention  by  the  Council2  was  also  part  of  the  EU  response  to  the  Deepwater  Horizon 
disaster. 

The OSD creates a harmonized EU-wide regulatory regime that establishes a goal-setting regulatory 
framework built around the concept of a "safety case" (a Report on Major Hazards) and enforced by 
offshore  regulators  whose  competence  and  independence  the  OSD  aims  to  ensure;  it  also  fosters 
introduces  EU-wide 
effective  cooperation  between  such  regulators.  Furthermore, 
requirements  on  transparency,  including  the  sharing  of  information  on  accidents  and  near  misses  as 
well as on other indicators of the safety performance of industry and regulators in the sector.  

the  OSD 

As regards liability for offshore accidents and their consequences, the OSD channels it unequivocally 
to  offshore  licensees,  i.e.  the  individual  or  joint  holders  of  authorizations  for  oil/gas  prospection, 
exploration,  and/or  production  operations  issued  in  accordance  with  Directive  94/22/EC3.  It  also 
makes  the  licensees  strictly  liable  for  any  environmental  damage  resulting  from  their  operations. 
Nevertheless,  the  OSD  does  not  aim  to  harmonize  the  liability  rules  in  the  EU  for  other  forms  of 
damage  and  loss  that  may  result  from  offshore  operations,  reflecting  the  inconclusive  results  of  the 
corresponding analyses in the impact assessment4 during the OSD's preparatory stages. 

1 Directive 2013/30/EU of the European Parliament and the Council of 12 June 2013 on the safety of offshore oil 
and gas operations and amending Directive 2004/35/EC, OJ L 178 of 28.6.2013 p.66. 
2  Council  Decision  of  17  December  2012  on  the  accession  of  the  European  Union  to  the  Protocol  for  the 
Protection  of  the  Mediterranean  Sea  against  pollution  resulting  from  exploration  and  exploitation  of  the 
continental  shelf  and  the  seabed  and  its  subsoil  (2013/5/EU).  See  also  Milieu  (2013)  Safety  of  offshore 
exploration  and  exploitation  activities  in  the  Mediterranean:  creating  synergies  between  the  forthcoming  EU 
Regulation and the Protocol to the Barcelona Convention. 
3    Directive  94/22/EC  of  the  European  Parliament  and  of  the  Council  of  30  May  1994  on  the  conditions  for 
granting and using authorizations for the prospection, exploration and production of hydrocarbons, OJ L 164 of 
30.6.1994, p.3. 
4 Impact assessment accompanying the document 'Proposal for a regulation of the European Parliament and of 
the Council on safety of offshore oil and gas prospection, exploration and production activities', SEC(2011) 1293 
final. 

 
 
                                                            
This report aims to fulfil the Commission's obligations under Article 39 of the OSD, which requires 
the Commission to submit reports on the following: 

  An  assessment  of  the  effectiveness  of  the  liability  regimes  in  the  Union  in  respect  of  the 
damage  caused  by  offshore  oil  and  gas  operations,  including  an  assessment  of  the 
appropriateness of broadening liability provisions; 

  An examination of the appropriateness of bringing certain conduct leading to a major accident 

within the scope of Directive 2008/99/EC5 (the Environmental Crime Directive); 

  A description of the availability of financial security instruments for offshore operations; and 
  A description of the handling of compensation claims for offshore accidents.  

These  topics  are  very  closely  related  and  addressing  them  together  in  one  report  facilitates  their 
coherent  analysis.  An  accompanying  Staff  Working  Document  (SWD(2015)  167  final6,  henceforth 
Liability  SWD)  provides  additional  details  on  the  issues  addressed,  as  well  as  on  the  analyses 
conducted in-house by the Commission and contracted from external experts and stakeholders in the 
preparation of this report.  

The present report and the Liability SWD focus on the member countries of the European Economic 
Area (EEA) with offshore oil and gas activities. These 'Focal States' comprise (in alphabetical order) 
Bulgaria,  Croatia,  Cyprus,  Denmark,  France,  Germany,  Greece,  Iceland,  Ireland,  Italy,  Latvia, 
Lithuania,  Malta,  the  Netherlands,  Norway,  Poland,  Portugal,  Romania,  Spain  and  the  United 
Kingdom. Operations outside the EEA are not the primary focus. 

ENVIRONMENTAL,  CIVIL  AND  CRIMINAL  LIABILITY  AND  THEIR 

INTERCONNECTEDNESS 

It  is  important  to  distinguish  between  different  types  of  liability.  First,  there  is  civil  liability  for 
damage  caused  to  natural  or  legal  persons.  The  kinds  of  damage  and  loss  in  this  broad  category 
include bodily  injury, property  damage and economic loss. This damage is commonly referred to as 
third party damage or 'traditional damage' in the EU  acquis. In the particular case of economic loss, 
some  legal  systems  may  make  a  further  distinction  between  consequential  economic  loss,  which  is 
economic  loss  resulting  from  bodily  injury  or  property  damage,  and  pure  economic  loss,  which  is 
economic loss in the absence of bodily injury or property damage. 

Second, there is environmental liability within the meaning of the Environmental Liability Directive7 
(ELD),  which  refers  to  liability  for  ecological  damage  to  protected  species  and  natural  habitats, 
damage to water and damage to soil. Environmental liability is based here on a public approach, where 
the affected party is not a concrete natural or legal person but society as a whole due to the public and 
universal character of the effects of any damage to shared natural resources. The role of the claimant is 
fulfilled by public authorities, whose job it is to ensure that polluters remedy the ecological damage 
they  cause.  It  is  therefore  for  the  public  authority  entrusted  with  environmental  protection  to  ensure 

5 Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection 
of the environment through criminal law, OJ L 328 of 19.11.2008, p.28. 
6  Commission  Staff  Working  Document:  Civil  Liability,  Compensation  and  Financial  Security  for  Offshore 
Accidents in the European Economic Area, SWD(2015) 167 final. 
7  Directive  2004/35/CE  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on  environmental 
liability with regard to the prevention and remedying of environmental damage, OJ L 143 of 30.04.2004, p.56. 

3 

 
 
                                                            
that the liable operator is identified, the causal link is established, the remediation plan is established 
and approved, the necessary preventive action or remedial action is taken, etc.8  

Thirdly,  criminal  liability  refers  to  liability  that  arises  out  of  committing  a  criminal  act  qualified  as 
such by the law. There is a fundamental difference between civil as well as environmental liability on 
the  one  hand  and  criminal  liability  on  the  other.  Whereas  the  liability  rules  on  the  former  result,  in 
principle9,  in  penalties  that  are  exclusively  financial  and  aimed  at  compensating  and  remedying 
damage  caused,  criminal  liability  aims  at  punishing  wrongful  conduct  and  penalties  may  include 
imprisonment as well as fines and other non-custodial punishments. 

THE  APPROPRIATENESS  OF  CRIMINAL  LIABILITY  FOR  OFFSHORE 

ACCIDENTS AND RESULTING DAMAGE 

The European Court of Justice confirmed in 200510 that the European Community had the competence 
to  adopt  criminal  law  measures  related  to  the  protection  of  the  environment  if  this  is  necessary  to 
ensure  the  efficient  implementation  of  its  environmental  policy.  Based  on  this  case-law,  the 
Environmental Crime Directive (ECD) – the first EU directive to contain criminal liability provisions 
–  laid  down  in  2008  a  list  of  environmental  offences  that  Member  States  must  consider  criminal  if 
committed  intentionally  or  with  serious  negligence.  The  EU  thus  introduced  harmonized  criminal 
penalties  for  infringements  of  EU  environmental  legislation  in  addition  to  the  compensation-centred 
civil penalties that were already in place.  

Under the ECD, Member States must attach criminal sanctions to certain acts that cause or are likely 
to cause death or serious injury, or substantial damage to the quality of air, the quality of soil or the 
quality of water, or to animals or plants. However, the scope of the ECD is limited: the Directive only 
criminalizes the infringement of certain pieces of EU legislation that are listed in the Annexes of the 
Directive.  The  criminalized  acts  include,  for  example,  the  illegal  discharge  of  hazardous  substances 
into surface water if it causes or is likely to cause death or injury to persons or significant damage to 
the environment; the illegal shipment of waste from the European Union only if a significant quantity 
of waste is involved and if there is a clear intention to make a profit out of it; and the illegal export of 
ozone depleting substances to developing countries; but not the activities covered by OSD.  

As reflected in Article 39(3) of the OSD, this prompts considerations of also bringing certain conduct 
leading to offshore accidents under the scope of criminal law through EU legislation. While criminal 
liability  for  offshore  safety  breaches  would  not  directly  affect  the  remediation  of  damage  caused,  it 
adds a separate layer of deterrence beyond civil and environmental liability, which could improve the 
protection of the environment and compliance with offshore safety legislation.  

Offshore safety breaches already fall under the criminal code of some Focal States.  For example, the 
laws  of  both  the  United  Kingdom  (UK)  and  Denmark  contain  provisions  criminalizing  certain 
compliance failures11. However, neither the definition of the criminal offences nor the minimum type 
and  level  of  sanctions  are  harmonized  in  the  EU.  There  are  strict  legal  preconditions  that  must  be 
fulfilled  before  considering  whether  to  criminalize  offshore  safety  breaches  through  EU  legislation. 

8 An overlap between civil and environmental liability exists, see the Introduction of the Liability SWD. 
9 With the exception of the so-called "punitive damages" in common law systems. 
10 Case C-176/03, Commission v. Council, judgment of 13 September 2005. 
11 See Liability SWD, ANNEX II.  

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Article 83(2) of the  Treaty on the Functioning of the European Union establishes the legal basis for 
creating minimum rules for the definition of criminal offences and sanctions in a particular EU policy 
area. This expressly enables EU legislators to adopt: "minimum rules with regard to the definition of 
criminal  offences  and  sanctions  in  the  area  concerned"  if  this  "proves  essential  to  ensure  effective 
implementation of a Union policy in an area which has been subject to harmonisation measures". 

The adoption of EU criminal law measures is therefore subject to the assessment of whether they are 
"essential" to achieving effective policy implementation. As such, the decision to include breaches of 
the OSD under the scope of criminal law can only follow a thorough necessity and proportionality test 
on whether criminal law measures would be essential to achieve the stated objective. This cannot be 
done before the OSD in its current form has been transposed in national law of Focal States and some 
experience  with  its  effectiveness  has  been  gained.12  Member  States  have  not  yet  decided  on  the 
penalties for infringements of the national laws transposing the OSD; they had until 19 July 2015 for 
the  OSD  transposition  and  any  such  decision  may  be  made  in  that  context  or  in  the  process  of  law 
implementation  following  the  transposition.  It  is  therefore  too  early  at  present  to  assess  whether 
penalties  to  be  devised  by  Focal  States  in  the  context  of  the  OSD  transposition  and  subsequent 
implementation will provide sufficient deterrence consistently across the EU, or whether EU criminal 
penalties would be essential to ensure the fully effective safety of offshore operations.13 

If it were to be determined in the future that the OSD in its present form cannot sufficiently ensure the 
safety of offshore operations as intended, and that it is essential to link its aims with criminal liability 
for  offshore  breaches,  such  liability  could  be  introduced  as  a  new  provision  in  the  OSD  through  an 
amendment of that Directive. It could also be introduced through a standalone new legal act. However, 
the most coherent way would be to harmonize criminal sanctions through the ECD. This would avoid 
creating  a  different  standard  for  criminal  sanctions  compared  to  the  one  established  by  the ECD  for 
many  environmental  offences.  It  is  why  Article  39(3)  of  the  OSD  foresees  the  criminalization  of 
offences under the OSD via an amendment of the ECD. In practical terms, this would mean amending 
Annex  A  of  the  ECD  to  include  the  OSD  in  its  listing  of  legislation  the  infringement  of  which 
constitutes unlawful conduct. 

12 Communication from the Commission: Towards an EU Criminal Policy: Ensuring the Effective 
Implementation of EU Policies through Criminal Law ', 20 September 2011, COM (2011) 573, available at 
http://ec.europa.eu/justice/criminal/files/act_en.pdf. 
13  The  Commission  shall,  no  later  than  19  July  2019,  report  on  the  experience  of  implementing  this Directive 
pursuant to its Article 40.   

5 

 
 
                                                            
Conclusions and proposals 

Article 39 of the OSD tasks the Commission with examining the appropriateness of bringing certain 
conduct leading to a major accident within the scope of the ECD. However, at this point in time, it is 
too  early  to  properly  assess  whether  EU  criminal  law  measures  would  be  essential  to  achieving 
effective levels of offshore safety in the Union. In order to conclude whether certain conduct leading 
to a major accident should be brought under the scope of the ECD, the EU must gain some experience 
with the OSD's effectiveness.  

The  Commission  will  prepare  a  first  implementation  report  on  the  OSD  by  19  July  2019.  It  will  be 
important that the Commission returns to this subject at that time, and for Member States determine if 
it  is  appropriate  to  bring  conduct  leading  to  a  major  accident  within  the  scope  of  the  ECD.  In  the 
meantime,  the  Commission  can  arrange  for  Member  States  to  share  their  experiences  regarding 
criminal penalties and risk management in undertakings from a broad range of economic activities.  

In  accordance  with  the  above  conclusion,  the  rest  of  this  report  deals  only  with  civil  and 
environmental liability for offshore accidents. 

LIABILITY REGIME EFFECTIVENESS 

The effectiveness of liability regimes can be judged by how clearly they define: a) who is liable; b) for 
what kinds of damage and loss; and c) to whom.  

a) Who is liable? 

The OSD introduces in this regard two important points of harmonization. 

First, it always channels the liability to the licensee (i.e. the holder or joint holders of an authorization 
for oil/gas prospection, exploration and/or production operations issued in accordance with Directive 
94/22/EC). It is important that the OSD establishes this principle as it provides full legal clarity and 
should  ensure  that  licensees  take  primary  responsibility  for  controlling  the  risks  they  create  through 
their operations. 

Second, as regards environmental damage from offshore accidents, provisions introduced by the OSD 
include offshore operations under the ELD.  14 This means that strict liability now always applies for 
environmental damage – i.e. every licensee is henceforth liable for such damage without the need to 
prove negligence on their part as long as a causal link is established. 

Whilst  the  OSD  has  harmonised  these  two  aspects  of  liability  for  offshore  accidents,  it  has  not 
provided  for harmonization  with  respect  to  civil  damage.  Here,  offshore  accidents  mostly  fall  under 
the  tort  law  of  Focal  States  and  there  are  significant  differences  in  the  way  national  laws  deal  with  
licensees  who  have  caused  civil  damage  through  negligence  compared  with  licensees  whose  actions 
have not breached a standard of due care.  

While the establishment of a causal link between the activity and the damage is always necessary, the 
negligence rule often applies which means that courts must first rule that the liable party breached a 
standard  of  care  in  order  for  civil  liability  to  arise  and  for  corresponding  damages  to  be  awarded. 

14 Article 7 of the OSD amends the ELD to make licensees financially liable for the prevention and remediation 
of environmental damage as defined in the latter Directive. 

6 

 
 
                                                            
Whether the negligence rule or strict liability applies for civil damage varies from country to country 
depending on the kind of damage and loss15. 

b) What are they liable for? 

Liability  for  environmental  damage  from  offshore  accidents  is  available  throughout  the  EU  on  the 
basis  of  the  ELD.  This  legislation  also  sets  the  extent  of  damage  to  be  remedied  and  compensated. 
Accordingly, the licensee(s) will be held liable for damage to protected species and natural habitats as 
defined in the Birds16 and Habitats17 Directives, as well as damage to water as defined in the Water 
Framework Directive18 and the Marine Strategy Framework Directive19 anywhere in the EU. They will 
have  to  compensate  public  authorities  for  any  work  done  to  restore  the  environment  to  its  baseline 
condition, or do this work themselves. 

Whilst  EU  law  harmonizes  liability  for  environmental  damage,  and  whilst  the  law  in  Focal  States 
always provides for claims for bodily injury and property damage from offshore accidents, liability for 
different kinds of economic loss varies significantly. For example, the law in Focal States differs on 
how  directly  related  an  economic  loss  claim  must  be  to  an  accident  in  order  to  be  compensable 
("directness provisions"). The law of Focal States such as Cyprus and the United Kingdom excludes 
outright  economic  loss  claims  in  the  absence  of  bodily  harm  or  property  damage  (the  "exclusionary 
rule"). 

There are also  differences  in whether and how the legislation  in Focal States  deals specifically with 
industry sectors that rely on the good condition of the shared marine environment for doing business, 
such as the fishing industry. Experience has shown that these sectors, which often include many small 
and medium-sized enterprises, could suffer significant economic loss in the event of a major offshore 
accident20.  

Norway has in this regard put in place perhaps the most  comprehensive legislation to deal with civil 
liability for offshore pollution. This not only imposes strict liability for bodily injury, property damage 
and  economic  loss,  including  pure  economic  loss21,  it  also  specifically  states  that  “financial  losses 
incurred by Norwegian fishermen as a result of petroleum activities” are compensable22. 

c) To whom are they liable? Who can claim for compensation? 

The right to compensation for damage suffered can be based on legal provisions (the general rule in 
the offshore sector) or contractual provisions and is in principle awarded following a claim introduced 
by the affected party. In  specific cases, compensation  can also be 'automatic' (little action necessary 

15 A full description of these differences can be found in Table 2 and Annex III of the Liability SWD. 
16  Directive  2009/147/EC  of  the  European  Parliament  and  of  the  Council  of  30  November  2009  on  the 
conservation of wild birds, OJ L 20 of 26.1.2010, p.7. 
17 Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and 
flora, OJ L 206 of 22.7.1992, p.7 
18  Directive  2000/60/EC  of  the  European  Parliament  and  of  the  Council  of  23  October  2000  establishing  a 
framework for Community action in the field of water policy, OJ L 327 of 22.12.2000, p. 1. 
19  Directive  2008/56/EC  of  the  European  Parliament  and  of  the  Council  of  17  June  2008  establishing  a 
framework for Community action in the field of marine environmental policy, OJ L 164 of 25.6.2008, p. 19. 
20  Economic  loss  claims  made  up  to  96%  of  claims  from  the  Gulf  Coast  Claims  Facility  following  the  2010 
Deepwater Horizon incident in the United States. 
21 Albeit with limitations stemming from the need to establish that the economic loss suffered was sufficiently 
direct. 
22 See Annex III of the Liability SWD. 

7 

 
 
                                                            
from  the  affected  party),  for  instance  within  "opt-out"  types  of  class  actions23  or  where  legal  or 
contractual provisions specify so. 

As  defenders  of  the  common  interest,  public  authorities  bring  claims  against  liable  parties  for 
environmental  damage.  In  the  case  of  civil  damage  and  loss,  any  legal  or  natural  person  suffering 
damage or loss from offshore operations has a right to bring a claim, as equal treatment under the law 
is a central tenet in the Focal States. 

However,  there  are  legitimate  questions  as  to  whether,  and  to  what  degree,  tortfeasors  are  liable  to 
claimants in other countries harmed by their operations. Here, three interdependent questions must be 
resolved: 

1.  Jurisdiction: Which court/s should try the case?  
2.  Choice of law: What law/s should that court apply?  
3.  Foreign judgements: Will a judgment be recognised or enforced in another country? 

Two existing EU regulations address these questions. With regards to the question of jurisdiction, the 
Brussels  I  Regulation24  grants  victims  of  offshore  accidents  the  right  to  bring  proceedings  against 
defendants  domiciled  in  the  Union  in  either  the  country  in  which  the  defendant  is  domiciled,  the 
country in which the accident occurred or the country in which the damage was sustained. These rules 
also apply in Norway and Iceland on the basis of the 2007 Lugano Convention25. 

This means, for example, that a (natural or legal) person in the Netherlands who suffered damage from 
an  offshore  accident  caused  in  the  UK  waters  by  an  Italian  company  may  choose  to  pursue 
compensation  in  the  courts  of  either  the  Netherlands,  the  UK  or  Italy,  depending  on  where  they 
thought they would get the most suitable treatment and outcome. 

With  regards  to  the  second  and  third  questions  on  choice  of  law  and  foreign  judgements,  under  the 
Rome II Regulation,26 the law governing non-contractual liability arising out of offshore accidents is 
the law of the country in which the damage occurs, irrespective of where the accident occurred. If the 
damages claimed are environmental damage or damage sustained by persons or property as a result of 
such  damage,  victims  may  also  choose  to  rely  on  the  law  of  the  country  in  which  the  accident 
occurred. It should be noted that the applicable law may be the law of a Member State or of a third 
country outside the EU27.  

This  means,  for  example,  that  a  Norwegian  claimant  for  damage  from  an  oil  spill  resulting  from  an 
offshore  accident  in  the  Netherlands  may  choose  to  pursue  compensation  under  either  the  laws  of 
Norway or the Netherlands, depending on which would be most favourable to them.  

Assessment of the effectiveness of liability regimes and the appropriateness of broadening liability 
provisions 

23 Where one or several named plaintiffs make a claim on behalf of a proposed class of individuals or business 
entities  that have  suffered  a  common  injury or  injuries,  and  individuals  must file  a  request for  their  exclusion 
from the class should they not wish to be automatically included. 
24  Council  Regulation  (EC)  No  44/2001  of  22  December  2000  on  jurisdiction  and  the  recognition  and 
enforcement of judgments in civil and commercial matters. OJ L 012 of 16 January 2001. 
25 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 
2007. See Section 2.10 of the Liability SWD. 
26 Regulation (EC) No. 864/2007 of the European Parliament and of the Council on the law applicable to non-
contractual obligations. OJ L 199 of 31.7.2007, p.40. The Regulation does not apply to Denmark.  
27 See Section 2.10 of the Liability SWD. 

8 

 
 
                                                            
As  sketched  out  above  and  described  in  detail  in  the  Liability  SWD,  liability  for  bodily  injury  and 
property  damage  is  already  available  in  the  Focal  States  and  environmental  liability  has  been 
harmonised  through  EU  legislation.  However,  Focal  States  approach  civil  liability  for  offshore 
accidents  in  different  ways  and  may  limit  it  to  different  degrees.  For  example,  whereas  the  laws  of 
Cyprus and the United Kingdom tend to impose greater limitations on liability by requiring a proof of 
negligence  or  of  the  directness  of  economic  loss  suffered,  the  laws  of  other  Focal  States  such  as 
Denmark, France, Iceland the Netherlands and Norway are more favourable to claimants28.  

However, it is important to note that, in spite of the differences between Focal States, it is difficult to 
clearly  identify  any  as  being  less  effective  in  dealing  with  possible  claims  arising  from  offshore 
accidents.  

The  situation  in  at  least  some  national  regimes  may  also  be  changing:  several  Member  States  have 
indicated  in  contacts  with  the  Commission  (including  in  meetings  of  the  EU  Offshore  Authorities 
Group - EUOAG29) that they may reappraise their existing liability regimes for offshore accidents in 
tandem  with  the  obligation  to  put  in  place  compensation  procedures  pursuant  to  Article  4(3)  of  the 
OSD.  Whilst  changes  to  the  handling  of  civil  liabilities  are  not  explicitly  required  by  the  Directive, 
liability and compensation are closely related issues, and changes to one may necessitate changes to 
the  other.  The  obligation  under  Article  4(3)  of  the  OSD  may  thus  lead  to  a  broadening  of  liability 
provisions in some Focal States. 

Broadening liability provisions at EU level could entail making strict liability apply to more categories 
of civil damage and loss in the Focal States and/or making more kinds of economic loss available for 
compensation – particularly the kinds of economic losses likely to be sustained by the fishing sector 
and local coastal economies (such as in seaside tourist destinations). Where a degree of ambiguity in 
the relevant legal texts makes some economic loss claims uncertain, the legislation could be clarified 
with  specific  reference  to  the  kinds  of  damage  likely  to  result  from  offshore  accidents  and/or  the 
parties  likely  to  be  affected.  Finally,  while  existing  laws  appear  comprehensive  as  regards  access  to 
justice across borders, broadening liability provisions could entail making redress more accessible for 
offshore  damage  claimants  by  introducing  the  possibility  of  opt-out  class  actions  for  offshore 
accidents. 

It can be argued that holding firms accountable for all damage and loss caused by offshore accidents 
facilitates access to justice for victims. It incentivizes firms to take adequate precautions and develop 
safer  ways  of  operating.  It  also  helps  ensure  that  offshore  activities  only  take  place  if  their  benefits 
outweigh their risks.  

However,  limiting  liability  is  a  practical  necessity.  Most  notably,  oil  spill  claims  litigation  can  be 
complex  and  a  balance  needs  to  be  struck  between  the  need  to  compensate  victims  adequately  and 
preventing the payout of 'illegitimate' claims. Economic losses are likely to be serially linked to one 
another in the economy and so well-defined liability parameters are essential to preventing excessive 
liability  –  also  known  as  the  floodgates  issue30  –  in  the  interest  of  the  desirable  exclusion  of  more 
indirect,  speculative  claims.  Legal  traditions  determine  how  the  justice  systems  of  Member  States 
distinguish between legitimate claims and ordinary risks faced by participants in the economy.  

28 More details in Section 2.2 and Sections 2.5 to 2.7 of the Liability SWD. 
29  Commission  Decision  of  19  January  2012  on  setting  up  of  the  European  Union  Offshore  Oil  and  Gas 
Authorities Group, OJ C 18 of 21.1.2012, p. 8. 
30 Impossibility to prevent remote claims that society would not view as legitimate but that would be likely to 
succeed. 

9 

 
 
                                                            
Conclusions and recommendations 

Whilst there are national differences in the way liability regimes govern access to justice for victims of 
offshore accidents, no clear case can be made at the present time that any of the current approaches to 
civil liability in the Focal States is less effective in reinforcing the OSD's aim of ensuring the safety of 
offshore oil and gas operations across the EU. 

However, it is clear that the transposition of the OSD in national law will prompt Member States to 
explore  in  which  ways  their  liability  rules  will  best  protect  general  public  interest  in  line  with  the 
compensation  requirements  of  Article  4(3)  of  the  OSD.  Because  ensuring  the  adequate  handling  of 
compensation  claims  may  entail  changes  to  the  liability  regime  giving  rise  to  compensation,  some 
Member States may revise their national regimes for determining the extent of liability from offshore 
oil and gas operations. 

When  reviewing  their  liability  regimes  in  the  context  of  implementing  the  OSD  in  national  law, 
Member  States  should  also  consider  adopting  provisions  specifically  for  economic  sectors  most 
vulnerable  to  offshore  accidents  without  introducing  the  widespread  uncertainty  on  financial 
responsibility  levels  that  might  impede  the  development  of  offshore  oil  and  gas  resources.  These 
efforts  should  be  tailored  to  the  substantial  national  differences  in  the  economic  benefits  and  risks 
derived from offshore operations that exist, as well as the industries exposed to offshore accidents in 
different  Member  States.  For  example,  Member  States  with  significant  offshore  activities  as  well  as 
large fishing and/or coastal tourism sectors should examine whether a reinforcement of economic loss 
provisions specifically for these sectors, as for example Norway has already done for its fishing sector, 
would be desirable. 

Furthermore,  the  Brussels  I  and  Rome  II  regulations  mean  that  Focal  States  must  factor  into  their 
financial security requirements the potential damages that their licensees and operators could incur in 
other jurisdictions. These damages could be much larger than the damages incurred domestically due 
to  the  large  geographical  footprint  of  major  accidents  and  the  possibility  of  more  stringent  civil 
liability rules in other jurisdictions. 

The Commission is well placed to raise awareness of these specific transposition issues through fora 
such as the EU Offshore Authorities Group (EUOAG), together with national authorities, the oil and 
gas industry, other industries and civil society. It has regularly brought the discussion on the agenda of 
EUOAG  meetings and will continue to do so through  targeted seminars  and structured best practice 
exchange sessions. 

However, the Commission should go beyond stimulating discussions with stakeholders and ensure that 
all Member States address the points raised above through conformity checks that are focused on the 
relevant  liability  and  compensation  provisions  in  the  OSD.  In  parallel,  the  Commission  will  use 
EUOAG  meetings  for  systematic  data  gathering  covering  all  liability-related  aspects  of  the  Member 
States' newly transposed laws.  

These  three  measures  will  allow  the  Commission  to  include  in  its  first  implementation  report  a 
comprehensive analysis of the changes to individual national regimes specifically with respect to the 
effectiveness  of  liability  provisions.  On  the  basis  of  this,  the  Commission  should  be  well  placed  to 
conclude on the need for further steps. 

10 

 
 
FINANCIAL SECURITY INSTRUMENTS AND THEIR AVAILABILITY 

Once  liability  is  established,  the  question  naturally  turns  to  how  the  tortfeasor  will  finance  the 
damages they are liable for. Deepwater Horizon showed that the worst  offshore accidents can cause 
such  great  damage  that  only  the  largest  firms  would  be  able  to  fully  absorb  their  costs.  This  raises 
questions  about  the  existence  of  financial  security  instruments  that  will  ensure  compensation  is 
available, and companies remain solvent, following a major accident. 

There  is  broad  variety  of  financial  security  products  available  to  hedge  oil  and  gas  companies’ 
operating risk. These range from self-insurance options31, to third-party insurance32, to mutual schemes 
such  as  the  Offshore  Pollution  Liability  Association  Ltd  (OPOL)33,  to  alternative  risk  transfer 
mechanisms34 and others. 

Text Box: OPOL 

The  Offshore  Pollution  Liability  Association  Ltd  (OPOL)  is  an  industry  mutual  agreement  open  to  offshore 
operators in many Focal States. Member companies benefit from a guarantee that other companies in the scheme 
will  pay  for  any  liabilities  they  are  financially  unable  to  pay  for  themselves  up  to  set  financial  limits  ($125 
million for remediation costs and $125 million pollution damage). Following an incident, claims are not made 
directly against OPOL itself, but against the member company liable for damage and loss.  

OPOL is not a compensation fund nor is it a guarantee against a company's bankruptcy for the company itself. 
This  mutualisation  of  insolvency  risk  borne  by  the  third  parties  helps  reduce  insurance  costs  and  reassure 
regulators and the public of the financial capacity of offshore licensees. The criteria on OPOL membership also 
adds  a  layer  of  industry  mutual  monitoring  that  complements  the  regulatory  scrutiny  of  companies'  financial 
capacity at licensing.  

OPOL  membership  requires  operators  to  accept  strict  liability  for  damage  and  loss  and  is  a  prerequisite  of 
licensing in the UK. Membership of the scheme also satisfies Ireland's licensing terms for offshore operations. 
However, OPOL's $250 million cap on reimbursement and compensation per incident may not cover all damage 
and loss from the worst accidents.  
More details in Sections 2.3 and 4.2 of the Liability SWD. 

Whilst  not  all  of  these  products  may  currently  be  in  widespread  use  by  the  offshore  industry,  the 
marketplace for financial security instruments appears to have the depth and innovation necessary to 
cater to all oil and gas companies operating under the current EEA liability obligations. It also allows 
oil and gas companies to spread their risk to a diversity of market actors, from insurers and reinsurers, 
to financial market actors such as private equity groups and hedge funds, as well as to other oil and gas 
companies. 

In spite of this, there is currently a lack of uptake of financial security instruments to cover all damage 
from the most infrequent and costly offshore accidents. There could be several reasons for this, one of 
which has already been discussed in this report: the scope of liability for damages may not in certain 
Focal States make such products necessary at present.  

Another key contributing factor is that many Focal State regulators limit what forms of coverage they 
accept,  precluding  outright  the  provision  of  a  range  of  innovative  solutions.  Twelve  out  of  twenty 

31 Liability SWD, pp. 35-36. 
32 Liability SWD, pp. 36-38. 
33 Liability SWD, pp. 40-41.  
34 Liability SWD, p. 41. 

11 

 
 
 
 
                                                            
Focal  States  explicitly  specify  insurance  as  a  financial  security  mechanism  for  licensing  and/or 
operations, of which nine do not specify any other type of mechanism. This high proportion of Focal 
States  that  favour  insurance  may  be  even  higher  because  the  model  contractual  agreements  for  six 
Focal States were not available for review35. 

This  prevents  a  full  understanding  of  the  extent  to  which  other  factors  may  be  limiting  the 
development of financial security instruments for offshore liabilities. These other factors may include 
a  lack  of  regulatory  requirement  for  appropriate  levels  of  coverage.  Coverage  may  be  beyond 
individual  insurers'  capacities,  or  the  availability  of  reinsurance  on  the  market.  Alternatively,  where 
coverage  is  available,  insurers  and  the  offshore  industry  may  be  unable  to  agree  on  risk  levels  and 
therefore a price for these products, leading to their non-provision.  

This situation is likely to change with the implementation of the OSD. Articles 4(1) to 4(3) of the OSD 
put  in  place  exposure-based  financial  security  requirements,  obliging  Member  States  to  take  due 
account  of  license  applicants'  "financial  capabilities,  including  any  financial  security,  to  cover 
liabilities potentially deriving from the offshore oil and gas operations in question".  

In  addition,  Article  4(3)  of  the  OSD  also  requires  Member  States  to  "facilitate  the  deployment  of 
sustainable  financial  instruments  and  other  arrangements  to  assist  applicants  for  licences  in 
demonstrating  their  financial  capacity".  Several  steps  could  be  taken  here,  including  broadening  the 
forms of coverage accepted by national authorities. 

The  provisions  in  the  OSD  are  further  echoed  by  Offshore  Protocol  of  the  Barcelona  Convention, 
which has recently become a part of the EU acquis.36 This Protocol stipulates in its Article 27(2)(b) 
that Parties shall  ensure that operators have and maintain  insurance cover or other financial security 
for damages caused by activities covered by the Protocol. 

The experience of the ELD shows that a competitive market for financial security instruments – pools, 
insurance, bonds, guarantees etc. – can develop following a significant EU regulatory change, albeit 
with a time lag to allow for market players to adjust to the new requirements.37 The availability and 
uptake  of  financial  security  instruments  for  offshore  accident  risk  can  therefore  be  expected  to 
improve in the years following the implementation of the OSD in national law. 

Conclusions and recommendations 

Although  financial  security  instruments  to  cover  all  damage  from  the  most  infrequent  and  costly 
offshore accidents are not readily available from the insurance market, the market appears to have the 
depth and innovation necessary to cater to all oil and gas companies operating under the current EEA 
liability  obligations.  Furthermore,  the  market  for  financial  security  instruments  can  be  expected  to 
adapt  to  new  requirements  introduced  by  Article  4  of  the  OSD,  particularly  if  national  authorities 
broaden the forms of financial instrument coverage they accept. Such anticipated changes should be 
seen  following  the  July  2015  implementation  deadline  for  the  OSD  and  the  implementation  of  the 

35 See Liability SWD, Section 3.2. 
36  Council  Decision  of  17  December  2012  on  the  accession  of  the  European  Union  to  the  Protocol  for  the 
Protection  of  the  Mediterranean  Sea  against  pollution  resulting  from  exploration  and  exploitation  of  the 
continental shelf and the seabed and its subsoil (2013/5/EU), OJ L 4 of 9.1.2013, p.13. 
37  Report  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European  Economic  and  Social 
Committee and the Committee of the Regions under Article 14(2) of Directive 2004/35/CE on the environmental 
liability  with  regard  to  the  prevention  and  remedying  of  environmental  damage,  12/10/2010,  COM(2010)  581 
final. 

12 

 
 
                                                            
Offshore Protocol of the Barcelona Convention. The Commission will make the full implementation 
of Article 4 a priority area of scrutiny in the conformity checks for the Directive. 

The decision on whether to accept or require membership of a mutual insurance scheme like OPOL for 
offshore licensing is best left to Member States as it is closely linked to their national liability regimes, 
the characteristics of the scheme in question, the licensees in their waters and the risks faced by these 
licensees. The significant regional differences in offshore operations within the EEA  – and therefore 
the kinds and levels of risk faced by operators – might lead to an unjustified cross-subsidization of risk 
between these regions and potential moral hazard in case of a one-size-fits-all solution.  

HANDLING COMPENSATION CLAIMS 

Having established the extent of liability and ensured the capacity to finance the compensation due for 
the damage either from a company's own resources or through a financial instrument, the final piece of 
the  puzzle  is  how  to  disburse  this  compensation  so  that  it  reaches  legitimate  claimants  quickly.  The 
2010 Deepwater Horizon disaster showed that major offshore accidents can affect a large number of 
people and stretch the resources of any scheme set up to process claims and provide compensation to 
victims.  It  demonstrated  the  importance  of  proactively  putting  in  place  well  thought  through 
compensation  mechanisms  before  major  accidents  occur  to  minimize  the  cascading  effects  of  loss 
through the economy. 

There are just two compensation mechanisms currently in place specifically for oil and gas accidents 
in the Focal States. First, Norway has established a legislative compensation mechanism to deal with 
offshore  accidents.  Its  Petroleum  Activities  Act  codifies  rules  for  managing  aggregated  claims  and 
compensation  to  fishermen.  The  legislation  also  provides  for  transboundary  claims  from  Denmark, 
Finland and Sweden, as established by the Nordic Environmental Protection Convention38. 

Second, OPOL,  although  primarily an industry mutual  agreement, also outlines procedures  aimed  at 
expediting  claims  without  the  resort  to  court  proceedings.  An  important  shortcoming  of  the  OPOL 
compensation  scheme,  however,  is  its  stipulation  that  the  liable  operator  decides  whether  claims 
against them are applicable under the OPOL agreement in the first instance 39. 

In  the  absence  of  a  purpose-built  compensation  scheme  for  offshore  oil  and  gas  accidents,  claims 
would  proceed  under  national  tort  law.  Here,  civil  rules  of  procedure  apply40  and  cases  can  be 
expected  to  last  for  between  six  months  and  several  years  (decades  in  some  cases)  if  they  are  not 
settled outside court. Whilst Belgium, Italy, Portugal and the Netherlands have recently adopted new 
legislation to simplify mass claims, even this could be streamlined further to better handle the specific 
forms of damage an offshore accident might cause and the needs of the sectors likely to be affected – 
fishing and tourism, in particular41. 

Whilst  there  are  currently  very  few  compensation  regimes  for  offshore  accidents  in  the  EEA,  this 
situation should change significantly with the implementation of the OSD. Pursuant to Article 4(3) of 
the OSD, Member States are obliged to put in place procedures for ensuring the prompt and adequate 

38 See Liability SWD, Section 4.1. 
39 See Liability SWD, Sections 2.3 and 4.2. 
40 The rules that courts follow when adjudicating civil lawsuits. 
41 More details in the Liability SWD, Section 4.3. 

13 

 
 
                                                            
handling  of  compensation  claims,  including  transboundary  claims,  as  far  as  liability  is  provided  by 
national law. There may be several ways to improve on the current provisions. These include: 

refining the accessibility, clarity and simplicity of claim procedures; 

independent claim-handling; 

 
  equal treatment for transboundary claims; 
 
  clear accountability for claims management responsibility; 
  pre-defined timing obligations that minimize delay; and 
  means for redress in the case of system failures. 

Conclusions and recommendations 

Whilst there are just two compensation mechanisms currently in place specifically for oil and 
gas accidents in the Focal States, the OSD obliges Member States to put in place procedures 
for ensuring the prompt and adequate handling of claims. The Commission can, by working 
together with Member States, help achieve adequate safeguards for claimants in this regards. 
Should  the  new  national  compensation  schemes  not  succeed  in  establishing  adequate 
safeguards  for  victims  of  offshore  accidents  and  fully  reflect  the  rights  of  transboundary 
claimants under Brussels I and Rome II, there may be a need for the Commission to reassess 
in  or  after  OSD's  first  implementation  report  whether  and  what  further  EU  action  could 
achieve these objectives.   

OVERALL CONCLUSIONS 

The effects of the OSD, as implemented by Member States, will show in the coming years whether it 
is appropriate to bring certain conduct leading to major offshore accidents within the scope of criminal 
law  for  further  re-enforcing  offshore  safety.  When  appropriate,  the  Commission  will  put  forward  a 
legislative proposal. 

Broadening liability provisions through EU legislation does not appear appropriate at this juncture. In 
certain  cases,  the  Brussels  I  and  Rome  II  regulations  prevent  differences  in  national  regimes  from 
disadvantaging  claimants  from  other  EU  Member  States.  In  addition,  some  Member  States  may  be 
reappraising  their  existing  liability  regimes  for  offshore  accidents  in  tandem  with  other  changes 
introduced by the OSD.  

However,  the  Commission  will  be  able  to  conclude  on  the  need  for  further  steps  by  the  time  of  the 
OSD's first implementation report. Notably the Commission can: 

continue to advance liability issues through structured EUOAG discussions;  
focus on liability-related provisions in the OSD conformity checks; and  

 
 
  use  EUOAG  meetings  for  systematic  data  gathering  covering  all  liability-related  aspects  of 

newly transposed laws. 

There is currently a lack of uptake of financial security instruments to fully cover the more infrequent 
and  costly  offshore  accidents  in  the  EEA.  In  addition,  there  are  just  two  compensation  mechanisms 
currently in place specifically for oil and gas accidents in the Focal States. However, provisions in the 
OSD should lead to significant improvements in both of these areas.  

14 

 
 
Should the new national laws not improve the availability of financial security instruments and put in 
place procedures for ensuring prompt and adequate handling of compensation claims, the Commission 
will reassess whether and what further EU action could achieve these objectives. 

The  Commission  encourages  Member  States  to  share  their  experiences  on  financial  security 
instruments,  liability,  compensation  and  criminal  penalties,  first  of  all,  in  the  framework  of  the 
European  Offshore  Authorities  Group.  After  the  implementation  of  the  Directive  and  based  on 
experiences  of  Member  States  working  with  the  new  legal  basis  the  Commission  may  update  its 
assessment as provided by this report. 

15