IE 11 is not supported. For an optimal experience visit our site on another browser.

Drilling firms set stage for a long liability battle

Washington Post: For companies found legally responsible for spill, cost of compensating victims and cleaning up mess -- if that is ever possible -- could inflict heavy blow
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

As BP opens its checkbook to pay damages related to the Gulf of Mexico oil spill, it is beginning to do battle over a high-stakes question: Who else bears liability?

Some of the companies involved in the drilling operation are laying the groundwork to argue: not us.

In recent regulatory filings and other statements, they deflect responsibility, setting the stage for what is likely to be a years-long legal battle over corporate liability for a disaster whose financial toll is already estimated in the billions.

Halliburton, a project contractor, says it followed instructions from the well owner, a group led by BP. Transocean, which leased the rig to BP, says it was liable only for surface spills — not those emanating from the sea bottom. Anadarko Petroleum, a venture partner, implies that it may be off the hook because BP likely engaged in "gross negligence or willful misconduct." Schlumberger, another contractor, says it is figuring out if it is contractually insulated from liability.

"The responsibility for this event will be debated for some time, and there is a lot of confusion around where liabilities begin and end," said Bart Nash, a spokesman for the London-based Lloyd's marketplace, whose insurance syndicates face hundreds of millions of dollars of losses from the catastrophe.

As the daily specter of gushing oil, fouled coastline, dying wildlife and struggling families illustrates, the corporations connected to the Macondo well have powerful reasons to man the legal barricades. If they are found liable, the cost of compensating victims and cleaning up the mess — if that is ever possible — could inflict a heavy blow.

Those in line for payment include workers who made a harrowing escape when the Deepwater Horizon rig burned April 20 — and survivors of the 11 crew members who perished.

Sorting out liability
Disclosures from several firms sued alongside BP indicate that their insurance coverage pales beside the potential costs.

Robert P. Hartwig, president of the Insurance Information Institute, said companies involved in the project had "limited insurance in place" and estimated total coverage between $1.5 billion and $3.5 billion. BP was essentially uninsured for disasters such as the gulf blowout, relying on its formidable profits and cash reserves.

Early maneuvers are underway in federal courts to sort out liability, and lawyers seeking damages on behalf of spill victims say they will look beyond BP for compensation.

"There are dozens of companies that played a role in this disaster and hundreds of people who may be liable," said Florida lawyer Mike Papantonio, who represents fishermen, beach rental owners and other affected businesses.

Although BP has vowed to clean up the mess and has set up a $20 billion victim compensation fund, it also has signaled that it isn't letting others off the hook. "Other parties besides BP may be responsible for cost and liabilities arising from the oil spill, and we expect those parties to live up to their obligations," BP said in a statement Friday.

An early legal test involves Transocean, the Swiss company that owned the Deepwater Horizon rig and helped run it. BP sent correspondence in May staking claims to Transocean's insurance, court papers show. But the insurers have asked a federal court in Houston to declare that they are beyond BP's reach.

Citing BP's drilling contract with Transocean, the insurers said that Transocean's responsibility for pollution involves leaks "originating above the surface of the land or water."

"Because liabilities BP faces for pollution emanating from BP's well are from below the surface and from BP's well, those liabilities are not within the scope" of the coverage, insurers argued in parallel court filings.

Transocean took a similar position after the Coast Guard served notice on April 28 that, under a federal anti-pollution law, one of its subsidiaries was a "responsible party." Transocean responded that it has no such responsibility because discharges "are occurring nearly a mile below the surface of the water," according to a securities filing.

The insurers contesting BP's claims in the Houston court, including syndicates doing business through Lloyd's, have written policies for Transocean totaling $750 million. The company has about $1 billion of liability insurance.

'Claims and expenses'
Given the spill's magnitude, several companies linked to the operation have disclosed their connection in investor reports, describing to varying degrees their potential defenses, insurance coverage and loss exposure.

Halliburton, an oil services company, said in a filing with the Securities and Exchange Commission that its work on the project was "in accordance with the well owner's instructions."

Halliburton, which carries about $600 million in liability insurance, said its contracts indemnify it against "all potential claims and expenses" — except those for its own employees and property. In a recent investor briefing, a Halliburton executive qualified that explanation, saying the company faces damages if proven grossly negligent.

Congressional investigators have alleged that BP cut corners to save money. Halliburton predicted that one of those steps could lead to trouble, e-mails between Halliburton and BP officials show.

In a report for BP dated April 18, two days before the explosion, Halliburton said its computer analysis revealed a "SEVERE gas flow problem" could result if BP used only seven centralizers — devices to keep the pipe centered — instead of the 21 Halliburton recommended. BP used six.

Papantonio, the plaintiffs' lawyer, said Halliburton's warning does not shield the company because it also "had a responsibility to call regulators."

Cameron, manufacturer of the blowout preventer intended to serve as the last line of defense against a gusher, reported that it has insurance totaling about $500 million. Cameron said in an SEC filing that it was too early to measure potential liability.

BP's partners in the venture were Anadarko, with a 25 percent stake, and a subsidiary of Mitsui, with a 10 percent stake.

Mitsui said in a regulatory filing that is too soon to gauge the spill's impact on the company.

Anadarko fired a rhetorical shot at BP last week, saying the tragedy was preventable and resulted from BP's recklessness.

BP's contract with Anadarko says the companies bear responsibility for damages in proportion to their stake. But it adds that each party bears sole responsibility for damages resulting from its own "gross negligence or willful misconduct."

Anadarko said BP's actions likely met that test, but BP countered that partners agreed to share the cost of cleaning up "any spill."

Anadarko chairman and chief executive James T. Hackett acknowledged in a statement "that ultimately we have obligations under federal law," but he said Anadarko "will look to BP to continue to pay all legitimate claims."

Contractual disputes between partners are settled through arbitration, said Anadarko spokesman John Christiansen.

The Moody's debt rating agency has downgraded Anadarko, citing the company's "relatively small liability coverage of $178 million." Anadarko's ultimate liability "rests on its yet-untested ability to prove that BP was negligent, and that Anadarko should be held blameless," Moody's wrote.

Weatherford International, which helped place piping in the well, has been named as a defendant in lawsuits and as a "party-in-interest" in an investigation by the Coast Guard and the Minerals Management Service. It has made no explicit reference to the disaster in recent SEC filings, and a Weatherford communications coordinator said the company declined to comment.

As companies argue over responsibility, they could be providing ammunition for lawyers pursuing a plethora of suits on behalf of spill victims. Sidney Jackson, an Alabama lawyer who has sued BP, Transocean, Halliburton Energy Services and Cameron, said recent congressional testimony by company executives will become a part of lawsuits.

"I don't think they were thinking about how their finger-pointing could play out," Jackson said. "They were under oath and that is admissive evidence."

Research editor Alice Crites contributed to this report.