On May 13, Transocean, owner of the Deepwater Horizon rig that sank and caused the ongoing Gulf oil spill, has filed for limitation of liability under federal maritime law in a Houston court, seeking to limit its liability and stay all pending lawsuits against the company.
Many of the news reports to date have referred to limitation of liability as a "legal loophole" and suggested that it is some obscure, little-used and out-of-date rule. Although I am horrified by this disaster like most people, I think we should be wary of condemning the limitation of liability rule so simplistically. Limitation has a long history and a valuable function. It should not be abandoned or curtailed on the basis of one case, no matter how disastrous.
More to the point, limitation may well not apply. Many of the media reports do not mention that Transocean will only be able to limit its liability if it can show that the incident occurred without the "privity or knowledge" of the company. This will be an uphill climb for Transocean, and limitation is far from certain.
While I certainly hope that the victims of this terrible disaster (including the U.S. taxpayer) are able to obtain fair damages from all responsible parties, we should be careful not to "throw the baby out with the bathwater" in our zeal to see wrongdoing punished and harm compensated.
A longer article about this case can be found at our website.