Cyrus Dugger

BP & The Profits Over Safety Business Model

This incident is another sobering example of the “profits over safety business model” that I have discussed previously on Tort Deform in connection with the governmental response to the Ground Zero environmental fallout. Injuries to human life and limb can never be fully compensated by any amount of money. I think it's clear that any of these victims, given a choice, would rather have their life or health than a check.

In this case, a company knew of a danger and decided not to fix it. Instead they may have simply put aside money to pay the foreseeable legal claims from the accident it knew would only happen in a matter of time.

BP chided in report on fatal Texas fire Internal papers show oil company aware of hazards before 2005 explosion at refinery. October 30 2006: 9:31 PM EST NEW YORK (CNN) -- Internal BP documents reveal the oil company's knowledge of "significant safety problems at the Texas City refinery," months or years before the March 2005 explosion that killed 15 workers and injured more than 170 others, according to preliminary findings released Monday by the U.S. Chemical Safety Board. BP (Charts) has accepted full responsibility for the disaster at its plant and has settled more than 1,000 lawsuits related to claims made by those injured on site, by family members of those who died, and by people who suffered shock. More than $1.6 billion was set aside by BP to resolve those claims, a BP spokesman told CNN. The CSB report says the company was warned of potentially hazardous conditions at the plant, and while it improved working conditions, "unsafe and antiquated equipment designs were left in place, and unacceptable deficiencies in preventative maintenance were tolerated," CSB Chairman Carolyn Merritt said. ( link to article)
The company has reported it designated $1.6 billion to compensate those killed and injured.

Wouldn’t this money have been better spent fixing the actual problem instead of compensating the dead and injured, and then still having to spend more money to actually fix the problem?

When businesses advocate for tort “reform” to make it harder for them to be held to account in court for instances of misconduct, ask them if companies like this one should be allowed to go unpunished.

Their answer may be very telling about the actual goals and values of the tort “reform” movement and its supporters.

A lot of conservatives are promoting family values, moral integrity, and personal responsibility.

I’d like to see them apply these same values which they trumpet to others to the way they run their businesses, as well as toward their vision of a fair and just society.

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Posted at 12:16 PM, Oct 31, 2006 in
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Prediction: Tort reformers will use the BP lawsuits to claim that trial lawyers are responsible for high gas prices.

Posted by: Justinian Lane | October 31, 2006 1:37 PM

As Bill Childs points out in his blog, this post is yet another example of a stunning lack of reading comprehension: how can Dugger read the article and possibly think that BP set aside $1.6 billion before the accident took place in anticipation of an explosion? Even aside from this jaw-dropping illiteracy, the post is yet absolutely substance-free attack on reform, since it doesn't identify a single relevant reform that would somehow prevent legitimate compensation from taking place. Instead, Dugger and Lane invent hypothetical reformers who propose hypothetical reforms and make hypothetical arguments and then take glee in bashing the strawman. Heaven forfend they actually address real arguments by real reformers.

"Injuries to human life and limb can never be fully compensated by any amount of money."

That's a pretty good argument for non-economic damages caps there. Or perhaps Dugger thinks I should be able to sue Senator Dayton for his entire fortune, since the scar on my finger from the knife I bought at his Target store cannot ever be fully compensated by any amount of money.

Posted by: Ted | October 31, 2006 3:03 PM

Please explain how this is a strawman: BP is planning on paying out $1.6 billion or so in lawsuits. A central argument to tort reform is that the cost of lawsuits are passed onto consumers in the form of higher prices.

Are you saying the costs of lawsuits aren't passed onto consumers? Or are you saying that trial lawyers don't raise gas prices?

Posted by: Justinian Lane | October 31, 2006 4:10 PM

Justinian, ever the sophist, confuses (either through ignorance or dishonesty or sloppiness) "The costs of lawsuits are passed on to consumers" with "Trial lawyers are responsible for high gas prices."

The first statement is absolutely true: lawsuits do raise the price of gas. (For example, one of the plaintiff's lawyers is harassing BP by attempting to force its CEO to sit for a deposition, even though the CEO has no information about the case, and the relevant executives have already testified. For another example, BP has been perfectly willing to settle and provide reasonable compensation to those injured by the accident, but trial lawyers have persuaded others to attempt to seek jackpot verdicts divorced from any reasonable assessment.)

The second statement implies that trial lawyers are the only reason that the price of gas is high (as opposed to higher), and that liability reform would make the price of gas low, and no one has claimed that other than Justinian's strawman.

Posted by: Ted | October 31, 2006 5:58 PM

Ted "Formal Fallacy" Frank called me a sophist. Awesome!

Is there a word for a fake strawman? Would it be a false strawman? Or a double strawman? Or strawman squared?
I ask because you accused me of creating a strawman that argues liability reform would lower gas prices. I made no such claim. Honestly, I wasn't trying to create a strawman at all. I was merely using sarcasm to point out that no matter what the problem is, someone will claim trial lawyers are responsible for it.

So you agree that liability reform wouldn't lower gas prices?

Posted by: Justinian Lane | October 31, 2006 8:43 PM


I think the word for "fake strawman" is "redundant". But, I could be wrong.


Seeing as how it's 9PM on Halloween and I'm (sadly) still sitting here reading blogs, I'll take a moment to ask a lengthy quesiton. Accepting that "the costs of lawsuits are passed on to consumers" - which certainly fits within my simple understanding of market economics - what is a reasonable prediction of the impact of lawsuits against BP on the price of gasoline? (By reasonable I mean let's set aside the outliers that will be worked up by IPAA et al. as well as the opposing groups of your choice.)

BP set aside $1.6b to compensate. I would expect a large majority of potential plaintiffs to accept the offered compensation. Political rhetoric aside, let's assume that there will be a number of individuals who choose to "seek jackpot verdicts divorced from any reasonable assessment." Statistically, a majority of those will lose. If the costs of defending these cases are less than the cost of settling, BP comes out ahead (so far).

Now, let's assume a plaintiff (or group of plaintiffs) receives a large verdict (combining economic, non-economic, and punitive damages). How much would that verdict have to be in order to increase the price of gas above and beyond the increase that would have occurred due to the costs legitimately incurred by BP (legal costs and compensation for legitimate cases, necessary investment in repair to infrastructure, decreases in supply due to the disaster, hiring and training new employees, etc.)? Furthermore, how big an impact would you expect that to be?

I ask out of honest curiosity. That legal costs - including those resulting from suits of no merit - affect markets I don't know that there's much question. My question, then, is whether or not the impact of meritless suits is substantial enough to warrant corrective action on the scale of those supported by yourself, ILR, etc., or whether or not the impact occurs only at the margin.

One could, of course, argue that any impact is unacceptable, and, to be clear, I don't know anyone who supports meritless lawsuits (I, for one, believe they hurt consumers more than anyone else). But, as George Will rightly noted recently, "the pursuit of the perfect is the enemy of the good".

Posted by: Seth | October 31, 2006 9:00 PM

Just so that we're clear about the content of the above post.

A close and careful reading of this post makes clear that I use the word "may" in describing whether or not money was put aside. I use the word "may" instead of "did" to express a lack of definitiveness about the assertion.

I then seperately say "the company has reported it designated $1.6 billion to compensate those killed and injured"

These are two different statements in two different sentences.

Thus, I assert that they "may" have put aside money beforehand, and then seperately that they "did" eventually designate 1.6 billion.

Otherwise, the post speaks for itself.

Posted by: Cyrus Dugger | November 1, 2006 4:19 AM

Dugger's response acknowledges that he was baselessly speculating in a manner demonstrating his ignorance of how business functions.

My jaw drops at Justinian's 8:43 PM response, and its utter dishonesty in every respect given how I pointed out the material difference between "higher" and "high" in the 5:58 PM post before. Either he didn't read my rebuttal, is intellectually incapable of responding to my rebuttal, or just is fundamentally dishonest. But, for whatever reason, he continues to confuse the two fundamentally different concepts, and I don't feel like wasting additional time playing whatever game he's playing.

Seth, you and I agree on most particulars of the fundamental description of the problem; there's a numerator and a denominator to the problem you pose, and if one calculates those numbers, one has the answer—though there are additional difficult-to-measure confounding factors such as the effect on gas prices from refineries not opened because expected litigation costs make a socially useful investment unprofitable. So all I can give you is a range from about 0.5 cents a gallon for the scenario where the excess costs of litigation are limited to $1 billion/year (and there's some elasticity in demand, which I think is true; if gasoline demand were inelastic, a $1 billion/year pass-through would cost consumers about 0.85 cents a gallon) to 40-140 cents a gallon in the scenario where a material portion of refinery production is interrupted by a hurricane or some other disaster and litigation fears are responsible for the failure to create slack in refining capacity. There's also effect on gas prices from the adverse effect on innovation caused by liability fears, which prevent the creation of better economizing vehicles and technologies. The experience of the Ford Pinto taught manufacturers that one doesn't dare sell the sort of inexpensive gas-efficient small cars in the United States that are commonplace in Europe and Asia; even today, trial lawyers file (and win) complaints that even gas-guzzling SUVs are defectively designed because they are not heavier. This certainly has an impact on gasoline demand (and thus gasoline prices) as well, as well as on carbon emissions. A simple and reasonable liability reform such as NHTSA preemption would have more effect on average gas mileage than CAFE proposals do.

Keep in mind the $1.6 billion set-aside reflects BP's best estimate of their current liability, including legal expenses. I caution against limiting the issue to just that of one incident: gas prices also reflect other litigation expenses, not just those from In re Texas City Refinery Explosion, and those litigation expenses include the substantial cost of discovery obligations and the tens of millions that will need to be spent to ensure that BP doesn't get steamrolled and hit with a multi-billion-dollar judgment, which South Texas juries have shown themselves capable of. One cannot look at this case in isolation.

Seth, I encourage you to raise these issues on Overlawyered. Justinian and Cyrus really make intelligent discussion difficult here (DMI seems to believe left-wing propaganda that thinktanks are just noise machines) and it's a bad habit of mine that I still read this site at all.



Posted by: Ted | November 1, 2006 11:58 AM

I made your jaw drop by pointing out you mistook sarcasm for a strawman?

"This certainly has an impact on gasoline demand (and thus gasoline prices) as well, as well as on carbon emissions. A simple and reasonable liability reform such as NHTSA preemption would have more effect on average gas mileage than CAFE proposals do."

This is sarcasm, btw: Great, so now trial lawyers are responsible for bad gas mileage, destroying the environment AND high gas prices!

I assume you mean the sort of NHTSA preemption that would virtually eliminate product liability lawsuits against auto manufacturers?

And didn't the Ford Pinto lawsuit teach manufacturers not to design cars with rear axles with bolts that tear open gas tanks, and doors that jam shut? Certainly none of the Asian and European competitors of the Pinto were so poorly designed.

Posted by: Justinian Lane | November 1, 2006 5:14 PM

Certainly none of the Asian and European competitors of the Pinto were so poorly designed.

Well, if you were to look at the facts, rather than just parroting ATLA talking points and urban legends, you'd see that the Ford Pinto's safety record was comparable to other subcompact cars, and substantially safer than the Datsun 1210 and the VW Beetle, which had fatality rates 20-30% higher than the Pinto's. Ford wasn't allowed to introduce this evidence in the Grimshaw case.

Posted by: Ted | November 1, 2006 10:57 PM