Those injured by an oil spill may risk losing their maximum recovery if their lawyers don’t correctly analyze future liability. Oil spill claims are unique: Damages are large and difficult to discern, and they occur over a long period of time. Regardless of the methods used to recover incurred damages, an injured party’s lawyer quickly should develop a strategy to protect against future damages—both first-party damages and liability to third parties and government entities.
The Oil Pollution Act of 1990 (OPA) generally regulates oil spills. Under 33 U.S.C. §2702(a), OPA provides for the recovery of removal costs and other damages from a responsible party. First, we’ll consider how to preserve claims under OPA for future first-party liability. Second, we’ll examine preservation of claims for future third-party liability.
1. Preserving claims for future first-party liability: All damages must be ascertainable and supported by competent evidence. To the extent that they are, they should be recoverable under a liberal interpretation of OPA. Accordingly, the lawyer for an injured party often should make a claim for future damages and seek immediate payment.
However, that’s not always the best course of action. The injured party’s counsel instead may want to use its bargaining position to negotiate both a reservation of rights and a tolling agreement to preserve future damages. In other words, instead of seeking immediate payment for anticipated but not-yet-incurred damages, it may be wiser to forego some payment now in exchange for the responsible party’s agreement to permit the injured party to make claims for the full amount of future damages when the injured party incurs those damages.
In effect, an injured party’s lawyer could negotiate with the responsible party for a reservation of rights for unknown future first-party damages (along with a tolling agreement for those claims) in exchange for seeking immediate payment from the responsible party only for actual incurred damages to date.
This arrangement has a downside. It risks leaving money on the table if the injured party incurs less actual damages than the provable expected damages. Of course, the reverse also is true: An injured party who tries to obtain present and future damages immediately may come up short if the future damages actually incurred exceed the expected damages.
This situation requires a lawyer, in essence, to work through a decision tree. The lawyer must weigh multiple steps of probability that his client could sustain a maximum or minimum amount of future damages, then determine a weighted damage amount, and finally compare the weighted damage amount against the total future estimated damages the responsible party is willing pay.
In essence, if the weighted damage amount is greater than the total future estimated damages the responsible party is willing to pay, the injured party should reserve its rights and obtain a tolling provision. If the opposite is true, then the injured party should take the money and run.
The legal bases for such a reservation of rights and tolling agreement for OPA claims is simple and enforceable under a U.S. District Court for the Eastern District of Louisiana decision in United States v. Bodenger (2003) and under In re: The Exxon Valdez, U.S. Court of Appeals for the Ninth Circuit (2001). Valdez held that parties involved in an oil spill may enforce a release and reservation of rights within the normal confines of applicable law, and Bodenger specifically permitted tolling provisions that the responsible party will not assert laches or limitations defenses in response to any relevant future claims.
2. Preserving claims for future third-party liability: OPA does not contain any indemnity provisions. To surmount this, an injured party should develop a method of quantifying such amounts, then include them in the possible first-party future damage claim. The injured party then could attempt to negotiate an amount of compensation directly with the responsible party to cover that contingency.
The lawyer then will compare the weighted damage amount with the total estimated future damage the responsible party is willing to pay. If the responsible party is willing to pay the weighted damage amount, the injured party should take the money, foregoing the reservation of rights and indemnity agreement. If the responsible party won’t pay the weighted damage amount, then the injured party’s lawyer should negotiate a sufficient reservation of rights, tolling provision, and/or indemnity agreement—or file suit.
Environmental Wild Card
By their nature, future third-party liability claims for environmental damage are difficult to quantify. For example, with potential Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) exposure, an injured party could bear open-ended liability for cleanup costs even though it technically wasn’t responsible for any of the underlying pollution.
CERCLA is a strict liability statute that imposes joint and several liability on parties responsible for contaminating a site. But courts define responsibility broadly, requiring little causal connection between the spill and the responsible party. Developments such as the U.S. Supreme Court’s 2009 holding in Burlington Northern & Santa Fe Railway Co. v. United States may provide a defense on issues of harm causation and apportionment of responsibility, but those developments will not shield an injured party from litigation’s costs and disruption.
To protect itself, an injured party should try to exclude indemnity and contribution claims from any release. A majority of courts permit only narrowly drafted indemnity clauses pertaining to CERCLA claims. So, it’s important that the indemnity clause state specifically that it covers CERCLA liability from the spill and that the parties are including it as part of the injured party’s settlement of claims for damages.
Oil spills provide a unique framework to deal with damages issues. If a claimant’s lawyer is not cautious, his client likely will leave money on the table. To avoid doing so, the injured party’s lawyer should consider the above analysis for both first- and third-party claims to determine whether to take a money offer today or to preserve the client’s claims for the future.
James Rogers is a senior associate and Brandan Montminy is an associate with Beirne, Maynard & Parsons in Houston. Rogers represents clients in civil litigation, arbitrations, administrative hearings and price redetermination proceedings. Montminy’s areas of practice include commercial litigation, energy litigation and real estate litigation.