Risk-Benefit Decisions and Financial Provisions

I‘ve no idea if BP acted properly or not in the case referred to here at Tort Deform, relating to the massive March 2005 explosion that killed 15 employees in the company’s Texas City plant.  The Tort Deform post doesn’t currently link to the article it quotes, but here’s a Washington Post story that certainly suggests that BP’s conduct was at least negligent and possibly reprehensible.  Indeed, BP has conceded responsibility for the accident in question and has settled many of the claims brought.  So we can start off with the sound assumption that the company acted negligently.  Good so far.

But the Tort Deform posts suggests that BP “put aside money to pay the foreseeable legal claims from the accident it knew would only happen in a matter of time.”  Wrong.  BP has set aside $1.6 billion to pay claims, but that’s obviously a provision for financial reporting purposes for existing liabilities, not something that was done in advance, as the Tort Deform post suggests. 

Put another way, BP did not, back in the ’90s, say, “Gosh, we could fix this or we could set aside $1.6 billion to pay for the lawsuits to come.”  Rather, in 2006, BP told investors, “We think $1.6 billion will resolve all of these issues.” It’s different, and in an important way.

As with my prior reference to Tort Deform (with the incorrect representation of the Ford Pinto memo), I agree with what I take to be the post’s main point: Corporate defendants sometimes act badly (as do individual defendants, and plaintiffs, for that matter) and many liability modifications proposed have the potential to reduce deterrence.   It’s worth noting, though, that the post does not identify which modifications would let BP go “unpunished” (by which I assume the poster means “would make it so the victims would go uncompensated”).  I expect it’s a reference to caps on noneconomic damages and on punitive damages.

But to imply that BP set aside billions of dollars instead of engaging in proper safety is both incorrect and exceedingly unlikely — I don’t know much about what it would have taken to make the tragedy not occur, but I’ll bet it was a lot less than $1.6 billion. 

It’s really a similar error to that made in the prior post, too, contending that a company made a decision in advance to pay tort liabilities rather than make a facility or product safer.  No doubt that happens (and rationally must happen), but that’s not what this story is about.  And, again as with the Pinto post, it detracts from the value of the point.