Maritime Update: Judge Dismisses Economic Damage Claims Brought Against BP

On March 10, 2016, in the matter of  In Re:  Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, U.S. District Judge Carl Barbier granted BP Exploration and Production, Inc.'s motion to dismiss Oil Pollution Act ("OPA") Test Cases Plaintiffs ("Plaintiffs") moratoria/permitoria claims.  Parties who do not have loss of profits or impairment of earning capacity due to injury, destruction or loss of real property, personal property or natural resources will not recover such damages from BP if this ruling is affirmed on appeal. 

A.        Background

On April 20, 2010, a blowout, explosions and fire occurred aboard the DEEPWATER HORIZON, as it was abandoning a well known as Macondo.  Eleven men died, and others were seriously injured.  These events triggered a massive response, but before control of the well was regained and the oil discharge was stopped three months later, 3.19 million barrels of oil had entered the Gulf of Mexico ("GOM").

The Horizon/Macondo incident provided impetus for regulatory change affecting the offshore drilling industry, which included the Secretary of the Interior issuing several moratoria and a report which recommended a 6-month moratorium on permits for new wells being drilled using floating rigs, and an immediate halt to drilling operations on the 33 permitted wells already being drilled using floating rigs.  Permit delays continued to impede drilling activity in the GOM even after the moratoria were lifted.

B.        Arguments of the Parties

Plaintiffs claimed that pursuant to OPA, a responsible party, like BP, may avoid liability under OPA only in narrow instances that did not apply.  Plaintiffs maintained that BP was liable because a moratorium was not only foreseeable, but a mandatory response to the spill. 

BP argued that the cause of Plaintiffs' damages was the federal government's decision to impose a moratorium, not the spill.  BP described Plaintiffs' claims as consequential economic losses caused by the government-imposed moratorium.  BP averred that the Moratoria were newly crafted measures designed to facilitate an industry-wide review of drilling practices and, therefore, discretionary acts aimed at avoiding future spills. 

C.        Discussion

Under the OPA, damages for loss of profits and impairment of earning capacity are defined as:

Damages equal to the loss of profits or impairment of earning capacity due to injury, destruction, or loss of real property, personal property, or natural resources.

OPA requires that plaintiffs' loss of profit and/or impairment of earning capacity be "due to" the injury, destruction, or loss of property or natural resources.  The court found that Plaintiffs' losses did not result from the discharge or substantial threat of discharge of oil from the Macondo well; they resulted from the perceived threat (whether substantial or not) of discharge from other wells.  The court held the Plaintiffs' moratoria/permitoria claims were not recoverable under OPA and granted BP's motion to dismiss.

D.        Why is This Important?

1. This district court ruling clarifies and curtails the extent of economic damages available to third parties pursuant to OPA.

2. Private parties who are currently facing economic damage claims brought against them pursuant to OPA for losses caused by a moratorium should consider how this decision may help improve their tactical advantage.

3. Economic damage claims brought pursuant to OPA resulting from the closure of a river or other body of water to contain and clean up an oil spill will likely be treated differently.