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Who Should Pay Compensatory Damages to the Victims of the Gulf Oil Spill?

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The Deepwater Horizon oil spill, a catastrophe that occurred in the Gulf of Mexico in 2010, has led to extensive litigation intended to determine whom to blame and how much blame each party should shoulder, including whom should be obligated to pay compensatory damages to the tens of thousands of victims.

“Cases involving extensive damages and multiple parties are complex,” explained California personal injury lawyer James Ballidis, “especially when indemnification contracts factor into determining liability.”

By May of 2010, more than 130 lawsuits arising from the BP Oil Spill had been filed. These suits were brought against numerous parties with potential responsibility, including contractors such as Weatherford, which provided devices intended to help seal the well. The potential defendants expected to bear the biggest brunt of the costs, however, were the three major players involved in the tragedy: BP, Halliburton, and Transocean.

An investigation into the spill by the U.S. Coast Guard and the Federal Bureau of Energy Management, Regulation and Enforcement leaves little question that the companies are responsible, making it unlikely that plaintiffs will struggle to prove negligence. What is more complex, however, is the question of who should be paying the tab for the huge compensatory damages resulting from the spill.

Since the spill occurred, both Halliburton and Transocean have tried to point the finger at BP, claiming that the entire disaster was the fault of the oil company. BP is responsible, allegedly, because they ignored Halliburton’s advise on centralizers; opted for risky well casing because it was inexpensive; failed to test the well for problems by circulating mud throughout; and did not make use of a lockdown sleeve to secure against well blowouts.

Although BP has, of course, tried to pass the blame and shift responsibility both onto contractors and onto Transocean and Halliburton, BP is at a significant disadvantage in one important respect: they have indemnification contracts in place with Halliburton and Transocean. These contracts could leave BP responsible for the bulk of the compensatory damages, even if Halliburton or Transocean were grossly negligent in a manner that led to the spill. Such contracts protect parties from financial loss should events resulting in damages occur, explains a California personal injury lawyer. In late January 2012, a judge ruled that BP would be held to its contractual obligations with the companies. Given how contentious the case has been up to this point, BP will likely contest the decision.

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