BOEM Increases Cap on Offshore Oil Spill Liability to $134 Million

On December 12, 2014, the Bureau of Ocean Energy Management (BOEM), an agency within the Department of the Interior, published a final rule increasing the cap on responsible parties’ liability for discharges of oil from offshore facilities under the Oil Pollution Act of 1990 (OPA) to $133.65 million. The rule, effective January 12, 2015, almost doubles the previous limit of $75 million.

Under OPA, responsible parties for any vessel or facility that discharges or poses a substantial threat of discharge of oil into or upon the navigable waters or adjoining shorelines or the exclusive economic zone are liable for removal costs and damages resulting from such discharge. However, as enacted, OPA capped responsible parties’ total liability for damages for discharges from offshore facilities (except deepwater ports) at $75 million. In fact, OPA provides for the Oil Spill Liability Trust Fund to reimburse responsible parties for damages that they pay in excess of that $75 million statutory cap.

However, OPA Section 1004(d)(4) provides for the limit on damages liability to be periodically adjusted by regulation to reflect significant increases in the Consumer Price Index (CPI). Although the structure for adjustment of the liability cap has been in place since OPA was enacted in 1990, the final rule just announced by BOEM is the first such adjustment. The increase from $75 million to $133.65 million represents the largest possible increase of the damages liability cap allowable under OPA. The new rule also provides a mechanism for periodic increases of the liability limit to account for inflation. According to BOEM, responsible parties’ liability for removal costs – as opposed to damages – were, and remain, unlimited.

A statement released by BOEM indicates that increasing the liability limit is “part of the Obama Administration’s ongoing efforts to ensure the safe and responsible production of domestic offshore energy resources” and “is consistent with recommendations to increase the liability cap from the National Commission on the BP Deepwater Horizon Oil Spill and other studies . . . .” BOEM Acting Director Walter Cruickshank said the change is designed to “better preserve the ‘polluter pays’ principle of the Oil Pollution Act” and to keep pace with inflation which, according to BOEM has increased 78 percent since OPA’s enactment in 1990, without a corresponding increase in the liability cap.

BOEM first published the proposed rule to increase the liability limit on February 24, 2014. After an extension, the comment period closed on April 25, 2014. According to BOEM’s notice published in the federal register, none of the comments received on the proposed rule, including three comments from industry/trade associations, opposed the draft rule. Comments from 17 environmental organizations supported the proposed rule, but argued that the amount of the increase was too small, with the Center for Biological Diversity suggesting an alternative limit of between $20 and $50 billion.

Meanwhile, on December 12, 2014, the same day BOEM published the final rule, the Senate passed a Defense Authorization Bill with a rider, among dozens of others, that would open more federal land to oil and gas exploration, reduce permit delays, and extend a Bureau of Land Management pilot program designed to deal with a backlog of drilling permit applications. After passing 300-119 in the House, and 89-11 in the Senate, the 2015 National Defense Authorization Act now awaits President Obama’s approval.