Deepwater Horizon and the Patchwork of Oil Spill Liability Law

An oil rig explodes in the Gulf of Mexico, with tragic results. Millions of barrels of oil leak into the water. Cleanup costs are massive—but could pale in comparison to the costs of damages to natural resources, private property, and livelihoods. Who will pay these costs? How much will be covered by the petroleum company (or its subcontractors) and how much will fall to the public at large (or go completely uncompensated)? All these issues will be the subject of major litigation. Counsel for BP and other involved firms, federal and state prosecutors, and private plaintiffs’ lawyers will undoubtedly spend many years in court and at the negotiating table. Predicting the specific results of this process is impossible.

But the process will be governed by an identifiable background of laws. Understanding these laws is a necessary first step to predicting how (and whether) adequate compensation for damages will be made—and not just for major disasters like Deepwater Horizon, but for the many smaller spills that happen much more frequently.

The law of oil spill liability is a patchwork, built from relatively ancient traditions of maritime law but with a major overlay of modern statutes. It is a mixture of civil liability (at both the federal and state level) and criminal regimes. Different claimants with varying types of damage claims are treated differently. While liability is the primary method of preventing spills, significant regulations exist as well, and these regulations influence the liability rules in turn. This complexity is the result of an uneasy compromise between industry interests and legislators motivated by damages from spills. Historically, this compromise has shifted in response to major spills, and is likely to do so again in the wake of the Deepwater Horizon spill.