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Transocean Petitioning Court to Limit Liability in Gulf Rig Blast

Source: WSJ

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Posted on 13 May 2010

The owner and operator of the Deepwater Horizon drilling rig that burned and sank last month unleashing a massive oil leak into the Gulf of Mexico, Transocean Ltd., will file in federal court Thursday a petition to limit its liability to just under $27 million, according to a person familiar with the company's plans and a copy of the filing reviewed by Dow Jones Newswires.

The world's biggest offshore driller is filing the request in the U.S. District Court in Houston under a century-and-a-half-old law originally aimed at helping U.S. ship owners compete with foreign-flagged vessels. While the company may not succeed in limiting its financial liability, the filing could give Transocean an edge in what could be a lengthy, multi-pronged legal battle against claims for damages from the accident that killed 11 workers.

Dozens of lawsuits have already been filed against the drilling contractor in state and federal courts. BP PLC was leasing the rig from Transocean and is responsible for the costs of cleaning up the massive oil leak sprung by the accident that is threatening the environment and economy of the Gulf shore, according to government officials. Representatives from BP, Transocean and Halliburton Co., which supplied components used in the drilling process, came under fire from lawmakers in Congressional hearings this week, during which representatives from each company attempted to stave off blame for the disaster. It is unclear what the ultimate cost of the spill will be for each of these companies.

Steven Newman, president and chief executive of Transocean. The company is filing a petition to limit its liability in the Gulf oil spill to just under $27 million.

The accident and subsequent oil spill "were not caused or contributed to, done, occasioned and/or incurred by any fault, negligence, unseaworthiness, or lack of due care on the part of the petitioners, or anyone for whom petitioners are or at any material time were responsible," Transocean's filing says.

Under the Limitation of Liability Act of 1851, a vessel owner is liable only for the post-accident value of the vessel and cargo, so long as the owner can show he or she had no knowledge of negligence in the accident, maritime lawyers say. The law was created in the days before modern insurance and communications technology, to help U.S. shipping businesses compete against foreign ship owners who were protected against claims. Drilling rigs count as vessels under U.S. maritime law, and since "the remains of the…Deepwater Horizon now lay sunken" about a mile deep in the federal waters of the Gulf of Mexico, the value of the rig and its cargo comes to no more than $26,764,083, Transocean claims in the filing. Before the accident, the rig was worth around $650 million.

Maritime lawyers said the Act very rarely helps companies limit liability. It can, however, allow a defendant to gain some control over the legal process, since a judge could place a stay on all pending litigation, which would then have to be refiled in the federal court where the limitation of liability was sought. Vessel owners routinely seek protection under the act following accidents at sea, lawyers said.

They get to fix the venue and they get to slow everything down," said Kurt Arnold, of Houston-based law firm Arnold & Itkin, who is representing several survivors of the accident. Mr. Arnold added that the measure forces the large number of plaintiff lawyers to coordinate among themselves in order to obtain depositions from the defendants, making the process more cumbersome.

Zug, Switzerland-based Transocean also said it contests any liability arising from claims filed under the Oil Pollution Act of 1990, enacted after 1989's Exxon Valdez spill in Alaska, for damages from the oil emanating from the sea floor. Under the Oil Pollution Act and the British company's contract with Transocean, oil-field owner BP is responsible for paying clean-up costs, and executives of the London-based company have said they will foot the bill and honor legitimate damage claims.

"We expect that BP will honor that contract," Transocean Chief Executive Steven Newman said last week during a conference call on the company's earnings.

Limitation of Liability proceedings not only give the petitioners first say in a venue for litigation, but they also keep the case in front of a judge and away from a jury, said David Robertson, a maritime law professor at the University of Texas in Austin. Juries "tend to favor injured human beings over corporate defendants, and it's presumed federal district judges have no such inclinations," Mr. Robertson said.

Transocean's move comes after BP filed a motion last week seeking to have the many lawsuits piling up against it consolidated before a judge in the U.S. District Court in Houston, and after plaintiffs' lawyers also requested that the U.S. Judicial Panel on Multidistrict Litigation consolidate all of the suits seeking class-action status.


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