BP showed us how liability caps work – poorly

This morning, the Arkansas Democrat Gazette reported on the Arkansas Congressional delegation's involvement in hearings about the Deepwater Horizon oil spill. Congress passed a law in 1990 capping oil companies' liability for oil spills at $75 million. Now, current leadership is considering a repeal of that law. Congressman Boozman supports repeal because he doesn't "want the taxpayer to be stuck with the liability."

This discussion illustrates two things. First, liability caps remove an incentive for companies ensure that they place public safety first. The Deepwater Horizon spill will wind up costing far, far more than $75 million. But, with liability for the spill limited to a fraction of the profits generated by the well and by BP generally, BP had no incentive to place the safety and reliability of its well over profits.

Second, when liability caps are in place, the taxpayer winds up footing the bill for harm caused by the wrongdoer. Whether its BP avoiding liability for environmental damage or a careless motorist avoiding liability for hurting another driver, someone else winds up footing the bill. All too often it is the government, whether it's the Environmental Protection Agency cleaning up oil or Medicare paying for medical treatment that should rightfully be charged to a negligent motorist.

It's strange to me that Congressman Boozman recognizes that we don't want to shift private liability onto the taxpayers, yet he still supports tort reform. Tort reform, at its core, is about shifting financial responsibility for harm caused by a private party to someone else, which all too often is the government payroll.