Tag Archives: Liability

New revelations about the BP oil spill

In my earlier posts, I wrote about the perils of cut-and-paste emergency response plan and the feelings that BP workers were cutting corners before the accident happened. Facts have since proven me right.

Watch this video from a Congressional hearing where it was discovered that the regional emergency response plans for many major oil companies (Exxon, Chevron and BP) look eerily similar and they all have identified walruses as an animal that would be affected by an oil spill in their Gulf of Mexico Plans. So there was a lot of cutting and pasting going on among the companies.

In another hearing, emails from BP engineers obtained by Congressional staff show there was evidence that they were cutting corners because the production well was behind schedule and the delay was costing the company thousands of dollars a day. The big irony is that the delay cost turned out to be a chum change in comparison to BP’s eventual financial liability.

Here is a video of a BP employee’s sworn testimony before Congress on what happened before the explosion.

[Youtube=http://www.youtube.com/watch?v=dRgJj3RNg7o]

What are the lessons we learn from this: Don’t cut-and-past your emergency plans. Don’t cut corners to buy time and “save” money and don’t write emails if you don’t want the world to read them.

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What is BP’s potential liability?

Under Section 1002 of the Oil Pollution Act – which was passed as result of the Exxon Valdez oil spill – any responsible party is “liable for the removal costs and damages”. The removal costs are just that. However, the damages include the following:

  1. Damages for injury to, destruction of, loss of, or loss of use of, natural resources;
  2. Damages for injury to, or economic losses resulting from destruction of, real or personal property;
  3. Damages for loss of subsistence use of natural resources;
  4. Damages equal to the net loss of taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property,personal property or natural resources;
  5. Damages equal to the loss of profit or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, on natural resources.

There is a cap of  $75 million over and above the total removal costs. But this cap will not apply if there is gross negligence or willful misconduct involved.

The real big liability comes under the Clean Water act. Under Section 311 of the Act, BP would incur much higher civil penalties. The Clean Water Act calls for a civil penalty of $1100 per barrel of spilled oil. The amount of oil spilled has been estimated to be as high as 40,000 barrels a day. As of June 11, BP will have spilled 2.08 million barrels of oil into the Gulf of Mexico. This translates to a civil liability of $2.28 billion as of June 11. If the government can demonstrate gross negligence on the part of the discharger, the Clean Water Act calls for a penalty of $4300 per barrel. This would increase the civil penalty to $8.9 billion as of June 11.

Now you understand why the estimated amount of oil spill has varied over a large range depending on who’s doing the estimating. We are talking big bucks here.

BP Oil’s share price has been cut in half since the spill began 7 weeks ago. The company is now valued at $105 billion on Wall Street. Perhaps that’s the real penalty.

Why you should do an environmental audit before leasing a place

If your company is thinkingof leasing a facility, you should always do a baseline environmental audit of the place. What you want to do is to identify any pre-existing environmental contamination at the site before you occupy it. There are many consultants who are qualified to do Phase I and Phase II environmental assessment.  Once you have identified any pre-existing contamination, you include the findings in your lease so that when you return the site to the landlord, you will only need to return it at the baseline condition.

This is the best (and possibly) only defense you have against a landlord who falsely claims that the property (previously contaminated by the tenant before you) you have been occupying for the past ten years was pristine when you moved in.

That’s what happened to a large corporation in California. It moved into a facility without doing a baseline environmental assessment. The manager there was trying to save $20,000. When it completed its lease ten years later, the landlord claimed that the company had contaminated his pristine property and demanded that it be cleaned iStock_000002586110XSmallup. As it turned, it was a previous tenant that had dumped toxic solvents into an underground tank that subsequently leaked. Without the defense of a baseline assessment, the company had to remove the leaking underground storage tank and clean up the soil contamination. It also had to remove some asbestos containing material from the site. The total cleanup cost to the company was close to $600,000. 

All of this could have been avoided if the company had spent $20,000 ten years earlier.

That was one happy landlord. He saved $600,000!

How to set up an Early Warning System for your own protection

If you are the person who is responsible for your company’s environmental management program, you carry certain personal liability. For example, if EPA were to find out or suspect that someone within your organization has falsified your Discharge Monitoring Report (DMR) under the Clean Water Act, who do you think will be the first person the agency wants to interview? What will be your response to the enquiry? What will you say to the FBI agents?  To minimize your own personal liability, it is important for you to understand all the requirements and the enforcement process. Try to look at enforcement from the agency’s viewpoint. In other words, understand how the agencies select their targets. And remember that your response to the agencies will often determine their responses to you. This is particularly true in the case of agency inspection. Always cooperate with the agencies while protecting your rights. A good place to start is to have a set of clearly defined environmental procedures sop that your employees know how to behave before, during and after an agency inspection. They also need to understand how to manage their records.

Understand that as an environmental manager, you do have certain specific responsibilities and the agencies expect you to carry them out lawfully.  If you are negligent in your duties and something bad happens, you may be held personally accountable. Let’s say you have personal knowledge that an aboveground storage tank storing some very hazardous chemical has some structural instability problems. The base of the tank is showing signs of severe corrosion. When that tank collapses a few weeks later and fatalities or sever environmental damage occur, the agency will want to know why you fail to take action. The agency will want to know if anyone within your organization directed you not to take action or perhaps you have decided upon yourself to keep this known defect secret. You may be held liable as a result of the investigation. If someone has falsified your DMR, the agency will want to know how that happened under your watch since you are the person responsible for the company’s environmental program. They will want to know if you played a role – directly or indirectly – in the illegal act. 

Early Warning System 

What you need to have is an Early Warning System to protect you.    The Early Warning System is very simple: As the environmental manager within your organization, you want to pay special attention to what your employees say and do when it comes to compliance issues. If someone within your organization – especially someone at a more senior level than you are – makes some suggestions to you that you know to be in violation of some environmental regulations, it is your responsibility to voice your objections forcefully and immediately. Let those around you know that you will not be party to any kind of “conspiracy” to commit an environmental crime. Let your supervisor know immediately. If your supervisor is the person suggesting such illegal activities, work your way up the organization until you find someone who will listen to you and will take action. Alert your organization’s legal counsel and make sure you have documented proof (with date and time) that you have raised such objections.  Remember this: your silence can often be taken to mean acquiescence. Pay close attention to emails and memo that come across your desk. If you see any evidence of diversion from compliance, you need to stop the illegal thinking process immediately and steer the ship back to the right course.  Ignore those people within your organization who tell you that you are “rocking the boat” or not being a “good team player” by being vigilant. These people are wrong and they do not have your best interests at heart.  One final piece of advice: When it comes to environmental compliance in the corporate setting, NEVER go along to get along. That is a recipe for disaster.  Here is an example from EPA’s website: “A plant manager at a metal finishing company directs employees to bypass the facility’s wastewater treatment unit in order to avoid having to purchase the chemicals that are needed to run the wastewater treatment unit. In so doing, the company sends untreated wastewater directly to the sewer system in violation of the permit issued by the municipal sewer authority. The plant manager is guilty of a criminal violation of the Clean Water Act.” If you are the environmental manager and you go along with this plant manager’s decision, you will very likely be prosecuted as well.