BP contract shielded rig owner from spill liability, judge rules

Associated PressJanuary 26, 2012 

NEW ORLEANS -- The rig owner involved in drilling the ill-fated well that blew out in the Gulf of Mexico and spewed more than 200 million gallons of oil will not have to pay many of the pollution claims because it was shielded in a contract with well-owner BP, a federal judge ruled on Thursday.

The decision may have spared the driller from having to pay potentially billions of dollars. However, U.S. District Judge Carl Barbier said that Transocean still is not exempt from paying punitive damages and civil penalties that arise from the April 20, 2010, blowout 100 miles off the Louisiana coast.

The ruling comes as BP, the states affected by the disaster and the federal government are discussing a settlement over the nation's largest offshore oil spill. The Justice Department is working with the states to create an outline for a settlement that would resolve their potentially multibillion dollar claims against BP and the other companies involved in the disaster, Alabama Attorney General Luther Strange told The Associated Press.

Justice led a meeting last week in Washington among the states in an effort to formulate an agreement that would satisfy government and state claims, including penalties and fines, Strange said. He also indicated if there is a settlement that officials are discussing what to do with the $20 billion fund set up by BP to pay victims.

A first phase of the trial is set for Feb. 27 to determine liability for the spill.

Despite the setback, BP claimed victory and said Barbier's ruling "at a minimum" left Transocean facing "punitive damages, fines and penalties flowing from its own conduct."

Blaine LeCesne, an associate professor at Loyola University law school, however, said Barbier's ruling was a "major victory" for Transocean.

"If anything is going to compel the parties toward settlement, it's going to be this," he said. "I think BP is in a very bad position now, and they don't have a lot of leverage."

BP PLC, Transocean Ltd. and Halliburton Co. have been sparring over who was at fault for causing the blowout. The out-of-control well was capped in July, 2010. Federal investigators have said that BP bears ultimate responsibility for the spill, but has faulted all three companies to some degree.

Under a drilling contract, BP and Transocean agreed to indemnify each other in the case of an accident, with BP taking responsibility for pollution originating from the well and Transocean for any pollution or accidents aboard the rig.

However, in court BP argued that the contract did not shield Transocean if the drilling company acted in manner that was grossly negligent.

Barbier, though, largely sided with Transocean and said the contract was a "clear and unequivocal agreement" to provide "broad indemnity."

"As we have said from the beginning, Transocean cannot avoid its responsibility for this accident," BP said.

The British oil giant said it had "stepped up" and admitted its role in the spill and paid billions of dollars in claims.

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Associated Press writer Michael Kunzelman contributed to this reported. Weber reported from Atlanta.

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