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Jun 07

BP shows the limits of legal liability limits

Posted by Ron F in SustainabilityRiskRegulationlitigationcompliance

Ron F

The longer the Gulf oil spill goes on, the bigger the fallout for BP and the rest of the oil industry.

That fact may be obvious by now, but early reports stressed that the company's legal liability was limited under federal law to $75 million.

That liability limit clearly no longer applies. Why? The company waived its right to seek protection under the limit almost a month ago. That suggests that all bets are off when the fallout reaches a certain point, and that point was reached here when the Obama administration put enough pressure on the company to cave in on the question. It certainly doesn't hurt the administration's cause to have the Department of Justice open an investigation going into whether any law-breaking reached the level of criminality.

The point is, strict legal liability in a situation like this becomes meaningless when the fallout escalates and public anger reaches the boiling point, as it has recently in the form of protests against the company. Those seem likely only to grow larger as time goes on.

But all this raises a question for other companies, and not just those in the oil industry: How much stock can they put in formal limits on legal liability that they can get Congress to provide?

The answer is, not much when push comes to shove. And if the outrage is minimal to begin with, then a cap on legal liability isn't really necessary.

Sometimes lawyers and lobbyists can do only so much to limit a company's downside.


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