Liability Caps and the Oil Industry (Part A)

The oil industry has had a history of dealing with liability caps. Back in 1989 when the Exxon Valdez struck a reef near Alaska and dumped 11 million gallons of crude oil into the Pacific it was the largest spill in U.S. history. This brought about legislation to help alleviate public concern over the dangers of oil drilling and transport.

The Oil Pollution Act of 1990

Following the aftermath of the Exxon Valdez spill that raised public outcry regarding the oil industry's safety practices and spill response, the Oil Pollution Act was signed into law in August 1990. This act expanded the federal government's ability to present and respond to oil spills, as well as provide the money and resources necessary to do so.

New requirements for contingency planning by both government and industry were provided and the National Oil and Hazardous Substances Pollution Contingency Plan was also expanded. The 3-tier plan involves the federal government to direct public and private response efforts, area committees of government officials to develop location-specific plans, and owner/operators of transport vessels and oil rigs to prepare their own response plans.

The biggest matter came in the form of penalties and liability charges for companies involved in drilling. This is where the infamous $75 million liability caps come into play.

The Oil Industry and Financial Responsibility 

The Oil Pollution Act established several guidelines for regulation, reporting and planning for future oil disasters. One of the main points of focus was the lack of financial responsibility imposed on the oil companies for disaster response. The new laws not only established liability for various needs, but also the $75 million liability caps for individual spills.

For tank vessels larger than 3,000 gross tons the liability caps were increased to $10 million or $1,200 per gross ton, whichever is greater. Responsible parties at onshore facilities and deepwater ports are liable for up to $350 million per spill. Holders of leases or permits for offshore facilities, except deepwater ports, are liable for $75 million per spill, plus removal costs.

Keep reading for more information on how the liability caps of the Oil Pollution Act were set in place and what other changes the act created.

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