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GAO: Liability Caps Needed a Raise Even Before BP’s Gulf Disaster

Though some may see efforts to raise the liability cap for oil spill damages as a knee-jerk response to BP's disaster in the Gulf, a report released on Wednesday by a government watchdog points out that the idea is hardly a new one.

For years, the Government Accountability Office has suggested that liability limits are too low, particularly for oil spills from certain vessels, like tank barges. (Liability limits, such as the $75 million cap on BP's liability in the Gulf disaster, depend on the type of vessel the spill comes from.)

After the party responsible for an oil spill reaches its liability limit (or its ability to pay), up to $1 billion may be drawn from an Oil Spill Liability Trust Fund, which is funded by taxes on both imported and domestically produced oil. Oil spills with costs that go beyond these liability caps, therefore, put a strain on the government's fund, which is why the GAO has pointed out over the years that liability limits are too low. Here's what the GAO said in a December 2007 report:

The liability limits for certain vessel types may be disproportionately low compared with their historic spill cost.

And here's what it said in a report released Wednesday:

The liability limits for certain vessel types may be disproportionately low compared with their historic spill cost.

That's word for word, two and a half years later. The 2007 report was released after a spill in the San Francisco Bay. And the 2010 report, released two months after BP's disaster began, noted that the inadequacy of current limits is something the Coast Guard, too, has been aware of over the years. From a 2009 Coast Guard report to Congress:

The historical data clearly demonstrates the financial impact vessel discharges with costs that exceed liability limits had on the fund and show the impact has grown in recent years.

BP, for its part, has said that it will not invoke its $75 million liability cap for the Gulf disaster, promising to cover damages for "all legitimate claims."

"We've said that we will ignore that cap, and that cap is irrelevant for this particular matter," Lamar McKay, the president of BP America, told a House Energy panel on Tuesday.

At the urging of lawmakers and President Barack Obama, the company has agreed to set aside $20 billion in an escrow account for damage payouts. Experts are still divided on whether this is enough, given that this environmental disaster, the worst in this nation's history, could soon become the costliest.