Transocean Liability Cap Request `Unconscionable,' Justice Department Says

Transocean Ltd.’s request that its liability in connection with what may be the largest oil spill in U.S. history be limited to $26.7 million is “simply unconscionable,” the Justice Department said.

U.S. Assistant Attorney General Tony West, in a May 24 letter to Transocean attorney Frank Piccolo, questioned the company’s legal argument that the 150-year-old Limitation of Liability Act caps its damages. The owners of the RMS Titanic, a passenger ocean liner that sank in 1912 after hitting an iceberg, also tried to use the law to avoid making payments to the ship’s survivors and the estates of those who died.

“It is simply unconscionable, in the circumstances of this case, that Transocean is attempting to use the same shield of liability, potentially leaving thousands of people who have been damaged by your clients’ actions with no remedy,” West wrote in his letter, which the Justice Department released under a Freedom of Information Act request.

The April 20 explosion of Transocean’s Deepwater Horizon oil drilling rig, which BP Plc leased, killed 11 men and ruptured a well that began spewing as much as 19,000 barrels a day into the Gulf of Mexico, according to U.S. estimates. BP, which has pledged to pay all legitimate claims tied to the spill, said it will work through the weekend to plug the leak.

Transocean, in a statement yesterday, said it never asserted that the Limitation act insulates the company from legal claims showing its property contributed to the oil contamination. “We have clarified that” to the Justice Department, the company said.

Responsibility

The U.S. Coast Guard designated Transocean a “responsible party” for the spill and the company has accepted that for any contamination caused by the rig, Rachel Clingman, Transocean’s acting co-general counsel, told lawmakers May 27.

“There has been no indication thus far of any contamination from the rig itself,” she said in testimony before the House Judiciary Committee. “We stand ready to meet any legal obligation that arise from that status.”

Geneva-based Transocean, the world’s largest deep-water driller, filed its request for limited liability on May 13 in federal court in Houston. The company’s petition, written by Piccolo, denied responsibility for the explosion and spill.

“Any and all injury, loss, destruction and damage arising out of or related to the above described casualty event was not caused or contributed to by any fault, negligence or lack of due care on the part of the petitioners or unseaworthiness or fault of the MODU Deepwater Horizon or any person in charge of her,” the filing said.

Deepwater Horizon

Transocean said Deepwater Horizon had no present value and had accrued $26.7 million in unpaid rental fees.

West, in his letter, said Congress in 1990 repealed the ability for businesses to cite the Limitation act in oil-spill cases. He asked Transocean to modify its request on legal liability and tell the Justice Department within 10 days what course of action the company plans to take.

“We also ask that, should you decline our offer of a prompt and amicable resolution of these concerns, you provide in your letter whatever case law and arguments, if any, you believe might support your position,” West wrote.

Executives of BP, Transocean and Halliburton Co., the contractor involved in cementing the well, have pointed at each other in testimony before Congress in assigning blame for the explosion.

BP said in a statement May 28 that responding to the spill, trying to contain it and related payments to the government have already cost the London-based company $930 million.

BP, the largest producer of oil and gas from the Gulf of Mexico, said yesterday it will switch to a new strategy to cap the well because a three-day effort to stop the flow with a blast of pressurized fluids was unsuccessful.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

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