Deepwater Horizon Owners Turn to Old Law Used in 'Titanic' Case

October 14, 2010

We've all heard about the oil spill in the Gulf of Mexico and the efforts by BP to cap the well, contain the oil, and clean the Gulf. In the wake of the tremendous economic loss to the region, many have forgotten about the original fatal maritime accident on April 20 and the eleven lives lost that day. But to the survivors of the explosion and the families of those who died, the initial accident remains the paramount concern.

With a catastrophe of this size, lawsuits are inevitable. What may surprise many is that Transocean, the owner of the sunken Deepwater Horizon oil rig, has turned to a nearly 160-year-old law to limit its liability in the accident; the same law that the owners of the Titanic used nearly 100 years ago.

An Ancient Law

The Limitation of Liability Act limits the liability of the owner of a vessel to the value of its interest in the vessel at the end of the voyage. In other words, the owner cannot be sued for more than the value of the ship at the end of the trip. The Act was passed in 1851 when insurance for commercial shipping was still in its infancy, so that U.S. shipping companies would be competitive with their European counterparts, which also enjoyed government-imposed limits on liability. The Act cannot be used when the loss occurred due to negligence or unseaworthiness.

The Titanic sunk a few hours after hitting an iceberg on the fourth day of its maiden voyage in 1912, killing over 1,500 people. Lifeboat priority was given to women and children; many people lost their husbands and fathers and other loved ones.

Because the Titanic was lost at sea, its owners turned to the Limitation of Liability Act to set its end-of-voyage value at just under $92,000--the value of its surviving lifeboats and related equipment. This meant that the many people who lost relatives and possessions on the ship were entitled to only a small share of that $92,000, regardless of the actual value of their loss.

Modern Application

In the case of the Deepwater Horizon oil rig, which sank two days after the explosion, the rig itself had been valued at $650 million. In its current position on the floor of the Gulf of Mexico it is valued at only $26.8 million. By invoking the Limitation of Liability Act, Transocean may only be required to pay claims totaling $26.8 million.

The Act carries other advantages for Transocean, as well. When the vessel owner invokes the Act by petitioning a federal court, all lawsuits stemming from the incident are required to be filed in that particular court, so the owner is not required to defend itself in multiple courts throughout the country. Ostensibly this requirement exists so that one court can make a fair distribution of assets to all the claimants, none of whom will be paid in full. In practice, it allows the owner to pick the court that is most convenient; Transocean has filed in federal court in Houston where its principal U.S. office is located. Anyone who has already filed a lawsuit in another U.S. court is therefore required to re-file in Houston. Moreover, the Act does not allow for jury trials, which could be advantageous to Transocean, placing the matter before a presumably dispassionate judge.

Legal Changes Possible

Legal observers have for years characterized the Act as outmoded in the modern age of protection & indemnity ("P&I") insurance. But the Act is still law and continues to be invoked by ship owners whenever a significant marine accident occurs. For example, New York City has twice attempted to use the Act in accidents involving the Staten Island Ferry in 2003 and 2010.

This may change in the wake of the Gulf oil rig disaster.

In June of this year, a bill repealing the Act was introduced in the House of Representatives and was sent to the Senate less than a month later. The bill had widespread support--it passed the House on a voice vote only--no roll call was taken. Now it is before the Senate Committee on Commerce, Science, and Transportation.

Dubbed as Securing Protections for the Injured from Limitations on Liability Act (or "SPILL Act"), the bill would also permit family members of those who died to sue for non-economic damages, such as pain and suffering, loss of care, comfort and companionship. The bill is an unquestionable response to the Deepwater Horizon incident, as it applies to any cases arising on or after April 20, 2010, the day of the explosion.

If the bill is passed by the Senate, it may provide relief for the families of the eleven crew members who died on the Deepwater Horizon--who, like the families of so many who died on the Titanic, now face life without their loved ones.

Article provided by Doyle Raizner LLP
Visit us at www.doyleraizner.com