September 6, 2014 / 12:08 AM / 3 years ago

BP ruling raises liability stakes for high-risk industries

Fire boat response crews battle the blazing remnants of the offshore oil rig Deepwater Horizon, off Louisiana, in this April 21, 2010 file handout image. REUTERS/U.S. Coast Guard/Files/Handout

NEW YORK (Reuters) - A U.S. court ruling that dramatically ramped up BP Plc’s potential penalties for the 2010 Gulf oil spill could create new liability risks not just for deep water drillers but also for other industries like mining and nuclear power generation.

U.S. District Judge Carl Barbier in New Orleans, Louisiana, on Thursday found that BP was guilty of “gross negligence” ahead of the rig explosion in the Gulf of Mexico. The April 20, 2010 blast killed 11 workers and spewed millions of barrels of oil for nearly three months.

The “gross negligence” designation could quadruple BP’s federal financial penalties, adding as much as $18 billion to the bill for worst offshore environmental disaster in U.S. history.

BP said it would appeal the decision, arguing that “the law is clear that proving gross negligence is a very high bar that was not met in this case.”

Legal experts said that if Barbier’s interpretation is upheld and adopted by other courts, it may leave a range of industries more exposed to potentially greater penalties.

“Other regulated industries are also going to be looking at what are the standards that courts are going to impose on their actions,” said Jessica Owley, an environmental law expert at SUNY Buffalo Law School. These include activities that may accidentally pollute waterways or cause environmental harm, like nuclear power, fracking and paper processing, Owley and other legal experts said. These businesses may also be subject to penalties under federal statutes like the Clean Water Act and the Oil Pollution Act.

Barbier’s ruling remains a long way from setting a wide-ranging legal precedent. Considering the stakes, the case could drag on for years, ultimately landing before the U.S. Supreme Court.

MISTAKES WERE MADE

In reaching his finding of “gross negligence,” Barbier said BP employees misread a safety test, and that the company was responsible for their actions. He listed a series of what he described as negligent acts, including mistakes in drilling the final 100 feet of the Macondo well. All these acts together, he said, constituted a “conscious disregard of known risks.”

Legal experts said that under this definition, companies would have to be more careful about numerous everyday safety decisions that together could add up to gross negligence if they resulted in a disaster of a similar scale.

“It’s sort of like if the cops stop me once, it’s only a misdemeanor, but if the cops stop me enough times, a misdemeanor turns into felony,” said Blaine LeCesne, a civil procedure professor at the Loyola University College of law. “If that holds, that is a seismic development in tort law.”

Under the U.S. Clean Water Act, fines for “gross negligence” can be up to $4,300 per barrel of oil spilled, almost quadruple the limit on an act of simple “negligence” of $1,100 per barrel. In other industries, judges and regulators may also weigh the degree of negligence when considering civil penalties.

Barbier’s ruling said the inherent risks in deep-water drilling require a higher standard of care in this industry because of the huge potential harm.

Stephen Colville, president of the International Association of Drilling Contractors, declined comment on the BP ruling but said companies have been firming up safety practices in the wake of the Deepwater Horizon spill.

But outside observers said the ruling poses new challenges.

“It sends a very cautionary message to the oil industry,” said Joseph Lavitt and expert on insurance law at the University of California, Berkeley law school.

Reporting by Mica Rosenberg; Editing by Eric Effron and David Gregorio

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