Inflation adjustment proposed for spill liability
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March 07, 2014
Inflation adjustment proposed for spill liability

The Department of Interior’s Bureau of Ocean Energy Management (BOEM) is proposing to increase the limit of liability for damages from an offshore oil spill from $75 million to $133.65 million, a 78.2 percent adjustment based on changes to the Consumer Price Index (CPI).  

The Oil Pollution Act (OPA) requires inflation adjustments to the offshore facility limit of liability not less than every 3 years to preserve the deterrent effect and polluter-pays principle embodied in OPA Title I liability and compensation provisions.  The BOEM proposed rule would not address the liability of vessels and deepwater ports, which are covered by U.S. Coast Guard rules.  In 2009, the Coast Guard issued an inflation adjustment affecting liability limits for those facilities.  The BOEM proposal draws upon the Coast Guard’s work in that rulemaking. 

No adjustment since 1990

The BOEM states:  “Given the fact that no adjustments to the limit of liability for offshore facilities have been made since OPA was first enacted in 1990, as well as changes to our collective understanding about the risks of offshore drilling occasioned by the [Deepwater Horizon] explosion and oil spill, including the possibility of natural resource and other damages exceeding the OPA offshore facility statutory limit of liability, the DOI [U.S. Department of the Interior] has determined that it is appropriate to implement the most protective measures available within its existing statutory authority.”

In general, under Title I of the OPA, the responsible parties for any vessel or facility, including any offshore facility, that discharges, or poses a substantial threat of discharge of, oil into or upon U.S. navigable waters, adjoining shorelines, or the exclusive economic zone are liable for OPA removal costs and damages that result from such incident.  The proposed rulemaking would affect only the offshore facility limit of liability for damages.  The responsible parties’ liability for OPA removal costs arising from actions or events associated with an offshore facility oil spill incident would remain unlimited.

Coast Guard formula

The proposed rule would also establish a methodology for making inflation adjustments to the OPA limit of liability for offshore facilities.  To ensure maximum consistency in promulgating rules for CPI adjustments to the OPA limits of liability, the approach used by the BOEM in the proposed rule, in most respects, follows the inflation adjustment approach used by the Coast Guard in its 2009 CPI rulemaking, which adjusted the limits of liability for vessels and deepwater ports.  According to the BOEM, the proposed method uses the following formula:

New limit of liability = Previous limit of liability + (Previous limit of liability multiplied by the decimal equivalent of the percent change in the CPI from the year the previous limit of liability was established, or last adjusted by statute or regulation, whichever is later, to the present year), then rounded to the closest $100.

BOEM’s proposed rule was published in the February 24, 2014, FR.

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