Against Backdrop of Gulf Oil Spill, State Senate Looks to Boost Liability to $1 Billion

First increase in 34 years would affect some 300 companies working with petroleum products

Worried about the effects of a major oil spill like the one in the Gulf of Mexico, lawmakers are seeking to raise the liability for such events for the first time in 34 years, boosting damages accountability from $50 million to $1 billion.

The legislation (S-2108) has been approved by the Senate Environment and Energy Committee. It’s not expected to move until lawmakers agree on a set of amendments that would establish different liabilities for spills that occur on land and those that occur in coastal waters.

Watching the Gulf

The bill is being pushed at a time when New Jersey environmental officials have been regularly monitoring the Gulf of Mexico oil spill and the likelihood it will damage the state’s beaches and coastal waters. It also reflects concern about efforts to open portions of the eastern seaboard to offshore oil drilling, including areas not far from Cape May.

Sen. Robert Smith (D-Middlesex), the sponsor of the law, argued the state needs to raise the liability limits given what has happened in the Gulf and other spills in New Jersey waters since liability was first established at $50 million.

“Right now, we could have a $300 million oil spill and the taxpayers of New Jersey would be on the hook for $250 million,’’ Smith said.

There have been big oil spills in the state’s waters. The most recent occured in November 2004 when a submerged anchor tore a hole the hull of Athos 1, a tanker flying under the flag of Cyprus, spilling 260,000 gallons of crude oil in the Delaware River, killing waterfowl and threatening one of the largest heron nesting grounds north of Florida.

After witnessing the disaster in the Gulf, Smith said he thought it was time to raise the liability, noting some members of the New Jersey congressional delegation are trying to eliminate any cap with federal legislation. Minimum estimates for liability in the Gulf begin at $20 billion, Smith noted.

Bad for Business?

Industry representatives argued the $1 billion cap could make it hard for refineries and other manufacturers using petroleum products to continue doing business in New Jersey by making it impossible to obtain the necessary liability insurance.

Hal Bozarth, executive director of the Chemistry Council of New Jersey, estimated the increased liability provision might end up affecting more than 300 companies in the state, which regularly handle petroleum products. Those companies typically pay between 8 percent and 15 percent of the total value of the liability coverage as a premium, Bozarth said.

“Is this insurance going to be available?’’ asked Bozarth. “Will they be able to write policies after the tragedy in the Gulf? Not yet, I would guess.’’

Different Liabilities

Jim Benton, executive director of the New Jersey Petroleum Council, noted the state has adopted a strict law in the wake of other spills in the state requiring refineries and others handling petroleum products to have elaborate spill containment plans in place in the event of an accident. He also argued there should be different liability thresholds for spills occurring on land and those in the ocean.

Smith said he understood the economics of the issue, but added he was more worried about environmental problems. He also argued, if enacted, it might make the prospect of offshore oil drilling near New Jersey coastal waters more onerous.

“This bill will go a long way to make sure that never happens,’’ he predicted. Still, Smith agreed with critics of the bill that it should establish different liability standards for those occurring in coastal waters and those occurring on land. He suggested business lobbyists and others submit proposed standards, which would be adopted in amendments on the floor of the Senate before it acts on the bill.

“If we don’t raise the liability cap, then instead of polluters paying, taxpayers will pay,’’ said Jeff Tittel, executive director of the New Jersey Sierra Club. “If companies know they will pay for damages, they may do things in a safer way.’’