Gulf Oil Spill Report Identifies The Problem With Liability Caps

Gulf Oil Spill Report Identifies The Problem With Liability Caps

The National Commission on the BP Deepwater Horizon Oil Spill recently issued its report to the President. Consistent with previous findings, the Commission found that a series of missteps led to what’s been called the worst ecological disaster in U.S. history. In describing the multiple causes of the disaster, the Commission described how the participants missed warning signals, failed to share information, and lacked understanding of the real risks involved.

Another observation which may not get as much attention relates to oil spill liability. In discussing that topic, the Commission described exactly the reason why caps on liability are bad policy. It said the spill’s victims or federal taxpayers should not “have to pay the bill for industry’s shortcomings.” According to the Commission, increased liability limits “would also serve as a powerful incentive for companies to pay closer attention to safety, including investing more in technology that promotes safer operations.”

As the Commission recognized, caps do not make disaster costs go away. The families of the workers killed in the Deepwater Horizon explosion must still be supported financially, and the enormous costs of environmental cleanup must still be paid for by someone. Caps just shift these costs from the party or parties directly responsible to the taxpayers.

This is not just true for liability caps under oil pollution laws. When a person is seriously injured or killed, whether it is through an auto accident, medical malpractice, or a workplace hazard, someone has to pay for medical care or financial support. The question is not whether the financial burden exists; it does. The only question is who should pay for it.

There could not be a worse time for shifting costs from private industry to taxpayers. Unlike ordinary Americans, large corporations have recovered nicely from the affects of the recession. They are sitting on enormous cash reserves. Federal and state governments, on the other hand, are drowning in debt. Putting more liabilities on taxpayers to make life easier for private industry in these times is financially suicidal.

The Commission’s point about safety is also important. The threat of liability for injury or death claims, in the Commission’s words, create a “powerful incentive” to improve worker safety. Conversely, liability caps reduce a company’s incentive to strive for a better workplace. For-profit corporations, by their very nature, exist to make money. The best way to make them behave responsibly is to take the profit out of cutting corners in a way which puts others at risk.

The oil spill, the Massey mine disaster, phony documents used by banks in foreclosure cases, and the sudden acceleration problem with Toyota vehicles, were all major news stories last year. To see why liability caps are bad public policy, all you had to recently was read a newspaper.

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