Firms in Gulf Drilling are Working to Limit Liability in Spill

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The Washington Post

Firms in Gulf Drilling are Working to Limit Liability in Spill

by
David S. Hilzenrath and Kimberly Kindy

Volunteers clean an adult American white pelican at the Fort Jackson International Bird Rescue Research Center in Buras, La. True to form, the numerous corporations involved in the Deepwater Horizon disaster are positioning themselves to withstand liability claims against them. (Daniel Beltra-Greenpeace via Reuters)

As BP opens its checkbook to pay damages related to the Gulf of Mexico oil spill, it is beginning to do battle
over a high-stakes question: Who else bears liability?

Some of the companies involved in the drilling operation are laying the
groundwork to argue: not us.

In recent regulatory filings and other statements, they deflect
responsibility, setting the stage for what is likely to be a years-long
legal battle over corporate liability for a disaster whose financial
toll is already estimated in the billions.

Halliburton, a project contractor, says it followed
instructions from the well owner, a group led by BP. Transocean, which
leased the rig to BP, says it was liable only for surface spills -- not
those emanating from the sea bottom. Anadarko Petroleum, a venture partner, implies that it
may be off the hook because BP likely engaged in "gross negligence or
willful misconduct." Schlumberger, another contractor, says it is
figuring out if it is contractually insulated from liability.

"The responsibility for this event will be debated for some time, and
there is a lot of confusion around where liabilities begin and end,"
said Bart Nash, a spokesman for the London-based Lloyd's marketplace,
whose insurance syndicates face hundreds of millions of dollars of
losses from the catastrophe.

As the daily specter of gushing oil, fouled coastline, dying wildlife and struggling families illustrates, the corporations
connected to the Macondo well have powerful reasons to man the legal
barricades. If they are found liable, the cost of compensating victims
and cleaning up the mess -- if that is ever possible -- could inflict a
heavy blow.

Those in line for payment include workers who made a harrowing escape
when the Deepwater Horizon rig burned April 20 -- and survivors of the 11 crew members who perished.

* * *

Disclosures from several firms sued alongside BP indicate that their
insurance coverage pales beside the potential costs.

Robert P. Hartwig, president of the Insurance Information Institute,
said companies involved in the project had "limited insurance in place"
and estimated total coverage between $1.5 billion and $3.5 billion. BP
was essentially uninsured for disasters such as the gulf blowout,
relying on its formidable profits and cash reserves.

Early maneuvers are underway in federal courts to sort out liability,
and lawyers seeking damages on behalf of spill victims say they will
look beyond BP for compensation.

"There are dozens of companies that played a role in this disaster and
hundreds of people who may be liable," said Florida lawyer Mike
Papantonio, who represents fishermen, beach rental owners and other
affected businesses.

Although BP has vowed to clean up the mess and has set up a $20 billion victim compensation fund, it also has
signaled that it isn't letting others off the hook. "Other parties
besides BP may be responsible for cost and liabilities arising from the
oil spill, and we expect those parties to live up to their obligations,"
BP said in a statement Friday.

An early legal test involves Transocean, the Swiss company that owned
the Deepwater Horizon rig and helped run it. BP sent correspondence in
May staking claims to Transocean's insurance, court papers show. But the
insurers have asked a federal court in Houston to declare that they are
beyond BP's reach.

Citing BP's drilling contract with Transocean, the insurers said that
Transocean's responsibility for pollution involves leaks "originating
above the surface of the land or water."

"Because liabilities BP faces for pollution emanating from BP's well are
from below the surface and from BP's well, those liabilities are not
within the scope" of the coverage, insurers argued in parallel court
filings.

Transocean took a similar position after the Coast Guard served notice
on April 28 that, under a federal anti-pollution law, one of its
subsidiaries was a "responsible party." Transocean responded that it has
no such responsibility because discharges "are occurring nearly a mile
below the surface of the water," according to a securities filing.

The insurers contesting BP's claims in the Houston court, including
syndicates doing business through Lloyd's, have written policies for
Transocean totaling $750 million. The company has about $1 billion of
liability insurance.

* * *

Given the spill's magnitude, several companies linked to the operation
have disclosed their connection in investor reports, describing to
varying degrees their potential defenses, insurance coverage and loss
exposure.

Halliburton, an oil services company, said in a filing with the
Securities and Exchange Commission that its work on the project was "in
accordance with the well owner's instructions."

Halliburton, which carries about $600 million in liability insurance,
said its contracts indemnify it against "all potential claims and
expenses" -- except those for its own employees and property. In a
recent investor briefing, a Halliburton executive qualified that
explanation, saying the company faces damages if proven grossly
negligent.

Congressional investigators have alleged that BP cut corners to save
money. Halliburton predicted that one of those steps could lead to
trouble, e-mails between Halliburton and BP officials show.

In a report for BP dated April 18, two days before the explosion,
Halliburton said its computer analysis revealed a "SEVERE gas flow
problem" could result if BP used only seven centralizers -- devices to
keep the pipe centered -- instead of the 21 Halliburton recommended. BP
used six.

Papantonio, the plaintiffs' lawyer, said Halliburton's warning does not
shield the company because it also "had a responsibility to call
regulators."

Cameron, manufacturer of the blowout preventer intended to serve as the
last line of defense against a gusher, reported that it has insurance
totaling about $500 million. Cameron said in an SEC filing that it was
too early to measure potential liability.

BP's partners in the venture were Anadarko, with a 25 percent stake, and
a subsidiary of Mitsui, with a 10 percent stake.

Mitsui said in a regulatory filing that is too soon to gauge the spill's
impact on the company.

Anadarko fired a rhetorical shot at BP last week, saying the tragedy was
preventable and resulted from BP's recklessness.

BP's contract with Anadarko says the companies bear responsibility for
damages in proportion to their stake. But it adds that each party bears
sole responsibility for damages resulting from its own "gross negligence
or willful misconduct."

Anadarko said BP's actions likely met that test, but BP countered that
partners agreed to share the cost of cleaning up "any spill."

Anadarko chairman and chief executive James T. Hackett acknowledged in a
statement "that ultimately we have obligations under federal law," but
he said Anadarko "will look to BP to continue to pay all legitimate
claims."

Contractual disputes between partners are settled through arbitration,
said Anadarko spokesman John Christiansen.

The Moody's debt rating agency has downgraded Anadarko, citing the company's "relatively
small liability coverage of $178 million." Anadarko's ultimate liability
"rests on its yet-untested ability to prove that BP was negligent, and
that Anadarko should be held blameless," Moody's wrote.

Weatherford International, which helped place piping in
the well, has been named as a defendant in lawsuits and as a
"party-in-interest" in an investigation by the Coast Guard and the
Minerals Management Service. It has made no explicit reference to the
disaster in recent SEC filings, and a Weatherford communications
coordinator said the company declined to comment.

As companies argue over responsibility, they could be providing
ammunition for lawyers pursuing a plethora of suits on behalf of spill
victims. Sidney Jackson, an Alabama lawyer who has sued BP, Transocean,
Halliburton Energy Services and Cameron, said recent congressional
testimony by company executives will become a part of lawsuits.

"I don't think they were thinking about how their finger-pointing could
play out," Jackson said. "They were under oath and that is admissive
evidence."

Research editor Alice Crites contributed to this report.

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