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Environmental Law: An Oil Spill Could Cost Your Business - March 2016

March 14, 2016

X1by James T. Lang

The owner of each vessel, each shipyard, each port, and each waterfront facility that handles oil is faced with the risk of an oil spill into water. Ignoring the risk is foolhardy. It puts the business in jeopardy, along with the assets and even the personal freedom of the owner. Acknowledging the risk, and managing it, is an important business judgment that weighs the economic cost of the available prevention measures, the extent to which those measures, if adopted, will reduce the risk of a spill occurring, and the economic cost of dealing with a spill after-the-fact.

My last column described a relatively small oil spill (1,000 gallons) from the 75 foot TUGBOAT SUSAN ANN in local waters of Norfolk, Virginia, on March 1, 2010, after it overturned while moored at a shipyard in the Elizabeth River. This spill triggered a relatively small economic cost of $50,000.00 (estimated).

Civil & Criminal Liability

This cost would have grown if the authorities had taken full account of the shipyard owner’s record of previous civil and criminal prosecutions for environmental violations at the facility when arriving at the amount of the civil penalty. In contrast to the $7,361.00 civil penalty actually imposed, a $100,000.00 civil penalty was authorized by the Virginia Discharge of Oil into Waters Law (up to $100 X2per gallon of oil spilled, Va. Code §62.1-44.34:20(C)(3)). A criminal prosecution, which was also available under the Virginia Discharge of Oil into Waters Law, could have been brought against the shipyard owner for his disregard of good maritime practice – he moored the tug in shallow water such that the vessel hit bottom at low tide, listed, and overturned, and he neglected to provide the stability of a pier, mooring dolphins, or any other type of mooring facility to safeguard the vessel. Virginia Code §62.1-44.34:20(E)(1) authorizes a 12 month jail sentence and $50,000.00 fine for “negligently” discharging oil. The shipyard owner’s failure to report the spill is a factor that could, in some jurisdictions, have weighed in favor of criminal prosecution when considered in the totality of the circumstances of this spill. It should also be noted that the federal Clean Water Act, at 33 U.S.C. §1321, provides an alternative set of civil and criminal penalties which could have been applied to the shipyard owner in lieu of enforcement by state authorities under the Virginia Discharge of Oil into Waters Law.    

Cleanup Costs

The cost of this spill likewise could have grown rapidly for any number of other factors mentioned in my prior column (if "removal costs" were assessed, if "natural resource damages" were assessed, if damage to the real or personal property of the others had been assessed, or if profits lost due to injury to natural resources, real property or personal property had been assessed).

Spill clean-up requires people and equipment. For point of comparison, a nominal package consisting of 15 responders, a boat, 1,000 feet of boom, a small skimmer, and two vacuum trucks – probably enough to contain and clean up a small spill at a vessel docked pierside – requires a budget of $35,000.00 to $40,000.00 per day. In the late 1990’s personnel costs were $1,200 to $1,500 per day per person. Industry sources now estimate this cost at $1,800 to $2,000 per day per person. Quantity of oil spilled is one driver of cost. However, Ms. Etkin’s paper "Estimating Cleanup Costs for Oil Spills," presented at the 1999 International Oil Spill Conference confirms that location of the spill and the type of oil spilled are more influential in driving cost, as compared to quantity of oil spilled. A more recent cost estimating model was furnished in 2013 by Montewka, Weckstrom and Kujala at Aalto University, Espoo, Finland.X3

The published studies and conventional wisdom among industry sources are that the responsible party saves money by incurring the cost necessary to field a vigorous response in the early hours – some say it is wise to “over” respond in the early hours – to contain the spill, to keep the oil away from the shoreline or sensitive resources, recognizing that the effort can be scaled back later. Providing this vigorous early response may require personnel and equipment in quantities scaled up from the nominal package of personnel and equipment available at $35,000 to $40,000 per day, as described immediately above. CleanupOil.com publishes an industry-leading directory with contact information on more than 1,000 oil spill clean-up contractors, in over 50 countries, in its "Little Black Book of Oil Spill Contractors."

The April 10, 2010 blowout on the Deepwater Horizon oil rig led to an unprecedented oil spill in the Gulf of Mexico. The explosion that accompanied the spill killed eleven people. 186 million gallons of oil gushed into the Gulf for months until the federal government officially deemed the oil well “dead” on September 19, 2010. Economic cost to the spiller is in excess of $53 billion.

X4Vulnerability to Class Action Lawsuits

What of the cost of compensating persons for bodily injury caused by exposure to chemicals released in the spill and/or exposure to chemical substances released as part of the spill clean-up?

As was confirmed in the Deepwater Horizon spill, exposure to oil and/or the dispersants applied to the spill as part of the clean-up can cause an array of acute and chronic health conditions affecting eyes, skin, the upper airway and respiratory system, and the nerves and nervous system. Tens of thousands of persons brought litigation against the owner of the Deepwater Horizon oil rig for such personal injuries; the litigation was in the form of a class action. The case settled prior to trial with the class members receiving financial compensation for their bodily injuries, medical monitoring for the next 21 years, and the ability to file suit later against the owner of the oil rig for after-developed medical conditions not present at the time of the settlement. See, In re Oil Spill, 295 F.R.D. 112 (E.D. La. 2013). Two weeks ago, the same court held that these injured persons may not recover from persons working to clean up the spill. In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, case 2:10-md-02179 (E.D. La. Feb. 16, 2016) (document no. 15,853 in the court docket).

X5Small Spills Still Incur Big Costs

Even a relatively small spill, like the 1,000 gallon spill from the overturned tug in Norfolk, can easily cost a few hundred thousand dollars; the shipyard owner in that case was fortunate to have paid far less. The cost for a larger spill, or a spill in a sensitive location such as a fishing grounds, a wildlife refuge, or at a beach in an area with a tourism based economy (Virginia Beach or Sandbridge, to name a few), can reach or exceed many millions of dollars.

 

jimlang

 Jim Lang, a Pender & Coward shareholder, focuses his practice on oil spills and other matters relating to water and environmental law. Contact him with questions by calling (757) 502-7326 or by sending an email to jlang@pendercoward.com.

 

(*Images provided via NOAA's Office of Response and Restoration)