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Transocean cites 1851 law to limit spill liability

The owner of the rig that exploded in the Gulf of Mexico and set off a massive oil spill will try to limit its liability to about $27 million.
Image: The logos of Transocean and BP Plc are seen on the derrick of the Development Driller III in the Gulf of Mexico
The logos of Transocean and BP Plc are seen on the derrick of the Development Driller III, which is drilling the relief well at the site of the Deepwater Horizon oil spill, in the Gulf of Mexico, off the coast of Louisiana, May 11, 2010. POOL / Reuters
/ Source: The Associated Press

The company that owns the sunken Deepwater Horizon rig said Thursday it will petition a federal court in Houston to cap its overall liability from the incident at less than $27 million.

If successful, Transocean Ltd. would be left with as much as $533 million in insurance money from the failed venture. That's almost enough to cover the revenue the company was expecting from a three-year contract with BP PLC. However, it has also estimated additional expenses from insurance deductibles, higher insurance premiums and legal fees at about $200 million.

The move comes as lawsuits pile up against Transocean and BP, which leased the rig and is trying to shut off a well that's spewing 210,000 gallons of crude into the Gulf of Mexico each day. In addition, hearings by congressional and administration panels this week have raised questions about safety procedures and equipment employed at the drill site.

Karen McCarthy, a New Orleans lawyer who represents a group of Louisiana crab fishermen in one lawsuit, said she'll oppose the liability cap.

Transocean "will point fingers at BP, but they will also pursue every avenue available to them to limit the loss," she said.

Tim Howard, a Northeastern University law professor who has filed potential class-action lawsuits on behalf of numerous interests in the gulf, predicted Transocean's petition will ultimately fail, and the matter would eventually be merged along with dozens of other lawsuits.

Trying to cap liability is a smart thing to do "if you're Transocean," Howard said. "Because the evidence so far shows a tremendous amount of culpability on their part."

1851 law
A Transocean spokesman said it will cite an 1851 law that makes the owner of a sunken vessel liable only for its value after the accident. The $27 million figure reflects the value of oil the rig was holding when it exploded.

Transocean seeks to cap the amount it would be forced to pay if it loses any of the numerous lawsuits related to the Deepwater Horizon explosion. The company could also delay other proceedings for years while a judge determines the size of Transocean's liability, said Keith Hall, a New Orleans lawyer who represents oil and gas companies.

Transocean has been named in more than 100 class-action, personal injury and wrongful death lawsuits. The plaintiffs, who are seeking billions of dollars, include commercial fishermen, seafood companies, property owners and charter boat captains.

Company CEO Steven Newman told investors earlier this month that its contract with BP holds the oil giant responsible for all damages and liability from the spill.

"There is a long history of contract sanctity in our industry, and we expect that BP will honor that contract," Newman said.

But if investigators find that Transocean failed to meet federal safety guidelines, a judge could throw out any liability limits, Hall said.