Firms in gulf drilling are working to limit liability in spill

Workers prepare to lay out new lines of boom to prevent oil from the BP Deepwater Horizon wellhead from reaching the wetlands in Cocodrie, La.
Workers prepare to lay out new lines of boom to prevent oil from the BP Deepwater Horizon wellhead from reaching the wetlands in Cocodrie, La. (Chris Graythen/getty Images)
By David S. Hilzenrath and Kimberly Kindy
Friday, June 25, 2010

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. The potential disputes have been percolating even as experts rush to contain the well, which late Wednesday was recapped after an earlier mishap forced removal of a containment device used to stem the flow.

Halliburton, a project contractor, says in its public statements about the rig disaster that it was following 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. Venture partner Anadarko Petroleum implies that it might be off the hook because BP probably 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.

Those in line for payment include workers who escaped when the Deepwater Horizon rig burned April 20 -- and survivors of the 11 crew members who perished. 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 of $1.5 billion to $3.5 billion. BP was essentially uninsured for disasters such as the gulf blowout, relying on its formidable profits and cash reserves to cover its costs.

Looking beyond BP

Early maneuvers are underway in federal courts to sort out liability, and lawyers representing 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 businessmen.

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.

An early legal test involves Transocean, the Swiss company that owned the Deepwater Horizon rig and helped run it. BP sent correspondence last month staking claims to Transocean's insurance, but the insurers have asked a federal judge in Houston to declare that they are beyond BP's reach. They say that under the contract, Transocean's reponsibility involves leaks "originating above the surface of the land or water."

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