BP Doesn't Deserve a Liability Cap | Richard A. Epstein | Cato Institute: Commentary

BP Doesn't Deserve a Liability Cap | Richard A. Epstein | Cato Institute: Commentary: "Tort remedies are essential to protect people (and their property) who do not have contractual relations with defendants from harms such as air and water pollution."

"The first element in the mix is a no-nonsense liability system that fastens full responsibility on the parties who run dangerous operations, no excuses allowed. Accordingly, we have to be especially wary of statutory caps on tort damages, including the current law, under which, in the case of the oil industry, the 'total of liability ... with respect to each incident shall not exceed for an offshore facility except a deepwater port, the total of all removal costs plus $75,000,000.' That $75 million is chicken feed. Fortunately, the law removes that cap if the incident was caused by 'the gross negligence or willful misconduct' of any party, or its failure to comply with any 'applicable Federal safety, construction, or operating regulation.'"

"A tough liability system does more than provide compensation for serious harms after the fact. It also sorts out the wheat from the chaff — so that in this case companies with weak safety profiles don't get within a mile of an oil derrick. Solid insurance underwriting is likely to do a better job in pricing risk than any program of direct government oversight. Only strong players, highly incentivized and fully bonded, need apply for a permit to operate. This logic also suggests that the Price Anderson Act's $375 million cap on damages for each responsible party to cover incidents at a nuclear power facilities should be rethought."

"Its second misstep was to insist that BP pay for the lost wages of the workers on these wells that its own ill-advised ban would lay off. (BP does face, properly, potentially huge exposure to make good on the income of other workers laid off because of damage caused by the leaking oil.) But don't worry, taxpayers, for the U.S. government has complete statutory immunity from tort liability when acting in its 'discretionary' capacity."