Spring 2015
Fordham Law School

The BP Horizon Gulf Oil Spill
Proving Damages
Part 1 - Common Law, OPA, GCCF
George W. Conk
Adjunct Professor of Law & Senior Fellow, Stein Center for Law & Ethics
Room 409
Torts Today:
Otherwise – Commentaries on Law, Language & Politics

BP Proving Damages
part 1



§ 1. Liability for the unintentional infliction of
economic loss: general principles
Restatement – Economic Loss ( TD1 – approved 2012)

(a) An

actor has no general

duty to avoid the unintentional
infliction of economic loss on

Exceptions – breach of
professional duties,
BP Proving Damages part 1


Pure Economic Loss

Pecuniary harm not resulting
from physical harm or physical
contact to the person or
property of the plaintif.

Business Torts - Introduction


The default rule

In general there is no liability in
tort for pure economic loss
caused unintentionally and
without dishonesty or disloyalty

Business Torts - Introduction


Reasons for the economic loss rule

Indeterminate liability may
unreasonably burden business

Parties with contractual
relationships can better allocate
risks by agreement

Liability that bankrupts
businesses does little to
compensate victims of negligence
Business Torts - Introduction


Reasons for the economic loss rule

If line-drawing is difficult,
prudence prefers private

Damage to person or property is
an efficient limiting rules of

Commercial expectations are
less important than personal
Business Torts - Introduction


Indirect injury not protected

Robins Dry Dock & Repair Co. v. Flint,
275 U.S. 303 (1927) Justice Holmes:
“… a tort to the person or property of
one man does not make the
tortfeasor liable to another merely
because the injured person was
under a contract with that other
unknown to the doer of the wrong. . .
. The law does not spread its
protection so far.”
Business Torts - Introduction


§ 7. Economic loss from injury to a third person or
to property not belonging to the claimant. (TD 2
Restatement Economic Loss 2014)

A claimant cannot recover for pure
economic loss caused by

(a) unintentional personal injury to
another party or

(b) unintentional injury to property in
which the claimant has no proprietary

BP Proving Damages part 1


§ 7 Illustration 3
 Carrier in delivering toxic chemical
spills it on Factory grounds, requiring
shutdown for one week. Factory
owner recovers lost profits, but laid
off employees have no tort claim, nor
do customers of Factory.

Rationale - no causal relationship
between damage to property and
employees or customers losses
Such claims would open
BP Proving Damages part 1


§ 7 Illustration 9

Barge spills oil, closing harbor,
delaying work by Contractor, and
wrecks Contractor’s equipment
Contractor recovers from Barge for
machinery damage but not for delay
if need to replace machinery did not
cause delay.
BUT § 8 public nuisance rule may
BP Proving Damages part 1


§ 7 Comment (e)

(a) Fishermen operating on a “lay” or
share of catch basis have right to
recover directly for losses caused by
tortious damage to ship
(b) Oil spill damages natural
resource. Affected fishermen recover
under § 8 public nuisance since they
suffered particular loss distinct from
that of general public
BP Proving Damages part 1


§ 8. Public nuisance resulting in pure economic
loss (TD 2 Restatement Economic Harm 2014)

An actor whose wrongful conduct
harms or obstructs a public resource or
public property is subject to liability for
resulting economic loss if the
claimant’s losses are distinct in kind
from those suffered by members of the
affected community in general.
BP Proving Damages part 1


§ 8 Public Nuisance

At common law may be strict liability
Special injury requirement block
“large and unwieldy lawsuits”
Often a matter of statutory law
Often broader than common law
Statutes may allow more expansive
rights of recovery than common law
BP Proving Damages part 1


§ 8 Illustration 1

Barge spills oil into bay. Hotel on nearby
beach suffers customer cancellations

Losses are “similar in kind” to those
shared by all businesses in area.

Carrier is not liable to Hotel

BP Proving Damages part 1


§ 8 Illustration 2

Fishermen and clam diggers
sufer economic losses due to
environmental damage

Court rules their damages are
“distinct in kind”

Barge is liable for economic loss
due to public nuisance it created
BP Proving Damages part 1


Common law antecedents

1943 – fishermen downstream of N.C.
pulp company can recover against
polluter who interfered with the
common resource
1945 – fishing resort entitled to lost
profits due to Masonite’ s effluent
killing fish in Mississippi river
1974 – St. Barbara Channel Oil Spill
- fishermen directly using the
resource owed duty due to high
degree of foreseeability of harm to
Business Torts BP Gulf Oil Spill


Claims NOT recognized in Exxon
Valdez cases, 767 F Supp. 1509 (1991)

Fishermen limited to lost catch – not
decline in license value
Sellers of fishing goods and services
Wholesalers, processors, lodges,
taxidermists, air services to fishing
ports barred
Cannery workers, guides,
Business Torts BP Gulf Oil Spill


In re Testabank , 750 F. 2d 1019 (5th

Plaintiffs urge that the decisions in
Petition of Kinsman Transit Co., (2d
Cir. 1968) (Kinsman II), and Union Oil
Co. v. Oppen, (9th Cir. 1974), support
their arguments that the Robins Dry
Dock principle should be abandoned.
We disagree.
Business Torts BP Gulf Oil Spill
Spring 2012


In re Testabank

The policy considerations on which
both those decisions are bottomed
confirm our opinion that pragmatic
limitations on the doctrine of
foreseeability are both desirable and
Business Torts BP Gulf Oil Spill
Spring 2012


Wisdom dissenting In re Testabank

Robins was a tort case grounded
on a contract. Whatever the
justification for the original
holding, this Court's requirement
of physical injury as a condition
to recovery is an unwarranted
step backwards in torts

Business Torts BP Gulf Oil Spill
Spring 2012


Wisdom dissenting In re Testabank

The resulting bar for claims of
economic loss unaccompanied by
any physical damage conflicts
with conventional tort principles
of foreseeability and proximate
I would analyze the plaintifs'
claims under these principles,
using the "particular damage"
requirement of public nuisance
law as an additional means of
limiting claims.
Business Torts BP Gulf Oil Spill
Spring 2012


Wisdom – would allow claims of all who
“make use of the sea” in business

(1) commercial fishermen, crabbers,
oystermen, and shrimpers who
routinely operated in and around the
closed area;
(2) fishermen, crabbers, oystermen,
and shrimpers who engaged in these
practices only for recreation;
(3) operators of marinas and boat
rentals, and marine suppliers;
(4) tackle and bait shops;
Business Torts BP Gulf Oil Spill
Spring 2012


Limit of liability under OPA. 33 U.S.C.
§ 2704(a)-(b) - $75 Million – except for
gross negligence

“BP has chosen to waive the
statutory limitation on liability under
OPA…[but] BP and its affiliates are
not admitting anything about their
conduct and, indeed, specifically
deny that they have engaged in any
gross negligence in connection with
the Deepwater Horizon incident and
the resulting oil spill”
BP Proving Damages part 1


Gross negligence

"Gross negligence means a failure to
use even slight care, or conduct that is
so careless as to show complete
disregard for the rights and safety of

(PJI 2:10A [1988 Supp.]

BP Proving Damages part 1


Types of claims BP faces under statutes,
common law, and Oil Pollution Liability Act
 Compensatory damages for:
 - personal injury
 - property damage
 - natural resource users
 Cleanup costs – state, federal, and
 Punitive damages
 Civil fines & penalties
[Clean Water Act, 33 U.S.C. § 1321(b)(7)]
[$3,0000/gallon subject to $50m cap
Business Torts BP Gulf Oil Spill


Jurisdiction and Choice of Law

Const. Art. III, S. 2 – “The judicial
power shall extend…to all cases of
admiralty and maritime jurisdiction”
All claims arise from an event in
federal waters beyond territory of
any state so federal law applies
Maritime law preempts all state law
OPA claims arise directly under the
BP Proving Damages part 1


Maritime law governs

All Personal injury, wrongful
death and property damage
Product liability claims
Punitive damages
No maritime claims absent PD or
B1 Order 8/26/2011 – Judge Barbier,
BP Proving Damages part 1


OPA liability is extensive
 The House Report noted that
 “[t]he claimant need not be the
owner of the damaged property or
resources to recover for lost profits or

BP Proving Damages part 1


OPA liability is extensive
 Clearly, one major remedial purpose
of OPA was to allow a broader class
of claimants to recover for economic
losses than allowed under general
maritime law.
 Congress was apparently moved by
the experience of the Alaskan
claimants whose actual losses were
not recoverable under existing law.

BP Proving Damages part 1


Proximate cause?

“OPA does not expressly require
"proximate cause," but rather only
that the loss is "due to" or "resulting
from" the oil spill. While the Court
need not define the precise contours
of OPA causation at this time, it is
worth noting that during oral
argument both counsel for BP and
the PSC conceded that OPA causation
may lie somewhere between
traditional "proximate cause" and
simple "but for" causation. “
BP Proving Damages part 1


Maritime law adopts Robins subject to
OPA exception - B1 Order

6. General maritime law claims that
do not allege physical damage to a
proprietary interest are dismissed
under the Robins Dry Dock rule,
unless the claim falls into the
commercial fishermen exception.
OPA claims for economic loss need
not allege physical damage to a
proprietary interest.
In re Oil Spill, 2011 U.S. Dist. LEXIS 96091 (E.D. La. 8/6/2011)
BP Proving Damages part 1


OPA – Scope of Liability

OPA is a comprehensive statute
that "builds upon section 311 of
the Clean Water Act to create a
single Federal law providing
cleanup authority, penalties, and
liability for oil pollution.”

BP Proving Damages part 1


OPA – Scope of Liability

“OPA broadened the scope of private
persons who are allowed to recover
for economic losses resulting from an
oil spill. OPA allows recovery for
economic losses "resulting from" or
"due to" the oil spill, regardless of
whether the claimant sustained
physical damage to a proprietary
interest. 33 U.S.C. § 2702(b)(2)(E)”

BP Proving Damages part 1


33 U.S.C. § 2702. Elements of liability

“(a) In general
...each responsible party for a vessel
or a facility from which oil is
discharged.... into or upon the
navigable waters or adjoining
shorelines liable for the removal
costs and damages ...that result from
such incident.”
What, if any limits does this imply?
Business Torts BP Gulf Oil Spill


OPA – defenses, 33 U.S.C. 2703


3) Act of a third party – except
- 3rd party is employee, agent, or one
in “any contractual relationship” with
the “responsible party” and
Spill is “caused solely” by the 3rd
party and
The responsible party exercised ‘due
care” with respect to the oil and
“foreseeable acts of third parties and
their foreseeable consequences”

Business Torts BP Gulf Oil Spill


Oil Pollution Act 33 USC 2702 (1990)
 (2) Damages
 (A) Natural resources
 (B) Real or personal property
 (c) Subsistence use of natural
 (D) Revenues
 (E) Profits and earning capacity
 (F) Public services

BP Proving Damages part 1


2) Damages

(C) Subsistence use
Damages for loss of subsistence use
of natural resources, which shall be
recoverable by any claimant who so
uses natural resources which have
been injured, destroyed, or lost,
without regard to the ownership or
management of the resources.
Business Torts BP Gulf Oil Spill


2) Damages

(E) Profits and earning capacity
Damages equal to the loss of profits
or impairment of earning capacity
due to the injury, destruction, or loss
of real property, personal property,
or natural resources, which shall be
recoverable by any claimant.
Does “due to” add anything to “result
Business Torts BP Gulf Oil Spill


Goldberg Illustration –
commercial fisherman

C is a commercial fisherman who
relies for his business on fisheries in
the Gulf of
Mexico. C claims that oil from a spill
for which Oil Co. is responsible has
the waters in which he fishes, and
that he has been and will be unable
to fish for a
period of time, resulting in lost
Business Torts BP Gulf Oil Spill


H – shoreside hotel

Oil from the Oil Co. spill has not
reached the beach front that is
owned by H and reserved for use by
guests at H's hotel.
But oil has been found in the
immediate vicinity of H's hotel,
including in waters that H's guests
frequently use, and neighboring
beaches that H's guests routinely
Business Torts BP Gulf Oil Spill


Evaluation issues

Collateral source offsets
Prejudgment interest
Projections of future earnings (losses)
Discounting future losses

Business Torts BP Gulf Oil Spill


E - shoreside hotel worker

E is an employee at H's hotel.
Because the hotel has lost business,
its managers have
reduced staff hours by 25%, as a
result of which E has suffered and
will suffer a 25%
reduction in his wages for a certain
Suppose that E was laid off for 3
Business Torts BP Gulf Oil Spill


B - a barge owner

Oil spill leads to Coast Guard closure
of the waterway for 3 weeks.

B loses business because he can’t
deliver goods south of the exclusion

Business Torts BP Gulf Oil Spill


R – operates a dockside

The docks are empty – the boats are
either away doing cleanup or caught
on the wrong side of the exclusion
zone seaward of the restaurant

Business Torts BP Gulf Oil Spill


W – woodworker

Tourist business-reliant woodworker
sells furniture near shoreside towns
where beaches have been polluted.
Tourist trade drops drastically – as do

Business Torts BP Gulf Oil Spill


Multi District Litigation
A font of equitable power

BP Proving Damages part 1


Multi-District Litigation 28 U.S.C. 1407

"(a) When civil actions involving one
or more common questions of fact
are pending in different districts,
such actions may be transferred to
any district for coordinated or
consolidated pretrial proceedings.
Such transfers shall be made… for
the convenience of parties and
witnesses and will promote the just
and efficient conduct of
such actions."
BP Proving Damages part 1


The MDL consists of

Hundreds of consolidated cases, with
(over 100,000) claimants
Arising from the April 20, 2010
explosion, fire, and sinking of the
offshore drilling unit ("MODU"), and
the subsequent discharge of millions
of gallons of oil into the Gulf of
Mexico before it was finally capped
approximately three months later.
BP Proving Damages part 1


The MDL consists of

The consolidated cases include
claims for the deaths of eleven
individuals, numerous claims for
personal injury, and various
claims for environmental and

economic damages.
Judge Carl Barbier 11/14/2011
BP Proving Damages part 1


Louisiana and Alabama state claims

Past, present, and future damage to
Natural resources and property
Economic losses (including lost
revenues, such as taxes)
Costs of responding to the oil spill
and performing removal actions,
increased or additional public
Long-term reputation damage or
"stigma" associated with the oil spill.
BP Proving Damages part 1


Damages Issues in the
BP Oil Spill
-Among those within the
scope of liability

BP Proving Damages part 1


§ 2705. partial payment of claims

(a) General rule…. The responsible
party shall establish a procedure for
the payment or settlement of claims
for interim, short-term damages.
Payment or settlement of a claim for
interim, short-term damages
representing less than the full amount
of damages to which the claimant
ultimately may be entitled shall not
preclude recovery by the claimant for
damages not reflected in the paid or
settled partial claim.
BP Proving Damages part 1


Presentment under OPA a
mandatory condition precedent

OPA § 2713
All claims for removal costs or
damages shall be presented first to
the responsible party designated
under section 2714
If “all liability” is denied or the claim
is “not settled by payment within 90
days” after presentment…”the
claimant may elect to commence an
BP Proving Damages part 1


Claims paid by industry 2/10/12
Claims paid by industry

Food, Beverage and Lodging

Multiple Industry / Business Types

No Industry Designation

Rental Property(ies)

Retail, Sales and Service

Seafood Processing and

Tourism and Recreation

BP Proving Damages part 1


Claims options by BP/GCCF

Emergency payments

Interim claims

Quick final payments

Final payments
Any Final payment requires a general
release of BP and all of its

BP Proving Damages part 1


Types of claimants
 - employees of fishing and
covered coastal enterprises
 - sole proprietors
 Businesses
 - shrimp and oyster

BP Proving Damages part 1


Types of claimants
Coastal businesses
- chandlers and suppliers to
the fishing industry
- shoreline hotels and touristbased industries
- boat builders

BP Proving Damages part 1


Types of loss
lost catch
 equipment or other property
 past loss of earnings
 past lost profits
 future losses

BP Proving Damages part 1


Valuation issues

Mitigation efforts
Collateral source offsets
Prejudgment interest
Projections of future lost
Discounting future losses
BP Proving Damages part 1


Difficulties in estimation of

Adequate documentation of past
profits or earnings

Past volatility in fish and
shellfish harvesting

Estimation of future health of
the fish and shellfish stocks
BP Proving Damages part 1


Reductions of damages

* costs saved
* benefits received
* mitigation by other
* failure to mitigate losses
* ofsets for taxes
* prejudgment interest
* discounting future losses
BP Proving Damages part 1


Deductions - GCCF

Any prior payments to you by BP, the
GCCF, or the Coast Guard
Amounts received from
unemployment compensation,
severance pay
any other employment benefit… will
be counted as income to you
On any Lost Income claim from an
Individual Claimant or a Business any
insurance or other income
replacement benefit
BP Proving Damages part 1


Deductions - GCCF

Insurance payments: for the
losses on injuries for which you
make claim

Any legally authorized liens,
garnishments or other
attachments against a claimant

and known to GCCF
Amounts received from charities will
not be deducted from your Interim
BP Proving Damages part 1


Cleanup costs

Federal cleanup

Vessels of opportunity

State cleanup eforts

BP Proving Damages part 1


Claim expenses

Counsel fees
Costs of administration/GCCF
Regulatory response compliance

BP Proving Damages part 1


Indemnification of co-venturers

Contractual indemnification for
losses sufered by 3rd parties

Lost vessel

Personal injury

Economic harm

BP Proving Damages part 1


Shipowner's Limitation of Liability Act

“Limitation” proceeding - all persons
with maritime or state law claims
resulting from an oil spill must bring
their claims against it in one
proceeding – at election of ship

BP Proving Damages part 1


A regulatory structure for interim claims
under the OPA?

A Designated Responsible Party
Promptly report to the
Commerce Department a plan
for timely and sufficient
compensation of those harmed
due to an oil spill, which plan
shall include:
BP Proving Damages part 1


A regulatory structure for interim claims
under the OPA?

State the legal standards it will
apply regarding:
Scope of liability for damages
due to the spill
Proof of economic losses
Methodology for estimation of
future economic losses due to
the spill
Who will make the scope
determination? Appealable?
BP Proving Damages part 1


A regulatory structure for interim claims
under the OPA?

State the financial capacity of
the company and to satisfy its
obligations for damages,
cleanup, and removal
Report expenses and payments
Submit to periodic audit by
public authority
BP Proving Damages part 1


Counsel fees
Common benefit reserve

BP Proving Damages part 1


Common benefit reserve established

6% hold back from all settlements
paid by GCCf to private claimants in
the MDL action or in state court
actions represented by counsel who
“have participated in or had access
to the discovery conducted in this
4% hold back from settlements paid
to states of Louisiana and Alabama
BP Proving Damages part 1


Plaintiffs Steering Committee
Status Report



Common benefit

All work on contingent fee basis

BP Proving Damages part 1


PSC role

Initiate, coordinate, and conduct
all pretrial discovery, motions,
hearings and trial on behalf of
plaintifs in all actions which are
consolidated in the multi district
litigation, in cooperation with
other counsel.
BP Proving Damages part 1


PSC organization
Principal Work Groups
 Administrative Work Groups
 Legal Research & Writing Work
 Written Discovery
 Science, Environmental and
Damages Work Groups
 Jurisdiction
BP Proving Damages part 1


PSC organization

Deposition and Trial Prep Teams
Punitive Damages

BP Proving Damages part 1



240 depositions

5,000 exhibits

50 expert liability deps

BP Proving Damages part 1



340 lawyers from ninety law
firms have invested over 230,000
Depository – 15.7 million docs to
date/ 70 lawyer staf

BP Proving Damages part 1


Costs incurred by common benefit

Contributed over $11.54 million in
out-of-pocket held and shared
expenses for the common benefit of
claimants and litigants
$1.5 million in unpaid current
PSC and other Common Benefit
Attorneys have contributed an
additional $1.8 million to a joint
account for payment of further
shared expenses, as incurred.
BP Proving Damages part 1


Successful advocacy for GCCF
claimants (including non-clients)

Successful efforts for monitoring and
supervision of GCCF and
Feinberg/Feinberg Rozen
Advocacy for Vietnamese and nonEnglish-speaking claimants
Advocacy for full and transparent
audit of GCCF
Argued for application of general
maritime law and possible punitive
BP Proving Damages part 1


The Deepwater Horizon
Is BP at risk of punitive damages?

BP Proving Damages part 1


Louisiana Civil Jury Insturction

La.Civil Code article 2315.4 provides
that in addition to the compensatory
damage award, if you decide to make
such an award, you may award the
plaintiff exemplary damages if he
BP Proving Damages part 1


Louisiana Civil Jury Instruction 18.02

… that the injuries on which the
action is based were caused by a
wanton and reckless disregard for
the rights and safety of others by a
defendant … which was a cause in
fact of the resulting injuries.

BP Proving Damages part 1


2004 U.S. Minerals
Management Service study

Only 3 of 74 rigs studied had blowout
preventers strong enough to pinch
and cut the riser pipes through which
oil could flow
“this grim snapshot illustrates the
lack of preparedness in the industry
to shear and seal – the last line of
blowout defense”
BP Proving Damages part 1


From the report of the National

The well blew out because a number
of separate risk factors, oversights,
and outright mistakes combined to
overwhelm the safeguards meant to
prevent just such an event from
But most of the mistakes and
oversights at Macondo can be traced
back to a single overarching failure—
a failure of management.
BP Proving Damages part 1


From the National Commission Report

BP’s management process did not
adequately identify or address risks
created by late changes to well
design and procedures.
BP did not have adequate controls in
place to ensure that key decisions in
the months leading up to the blowout
were safe or sound from an
engineering perspective.

BP Proving Damages part 1


From the National Commission Report

While initial well design decisions
undergo a serious peer review
process and changes to well design
are subsequently subject to a
management of change (MOC)
process, changes to drilling
procedures in the weeks and days
before implementation are typically
BP Proving Damages part 1


From the National Commission Report

At Macondo, such decisions appear
to have been made by the BP
Macondo team in ad hoc fashion
without any formal risk analysis or
internal expert review.

This appears to have been a key
causal factor of the blowout.
BP Proving Damages part 1


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