Raising Liability Cap on BP Is Legal: Justice Dept.

The U.S. Justice Department said Tuesday that Congress could retroactively impose a higher liability cap on BP to pay for the damage from its growing oil spill, and the company would likely lose if it challenged the higher cap in court.

"Our view is that there is a strong chance to defeat any constitutional plaintiff if Congress were to lift the caps," U.S. Associate Attorney General Thomas Perrelli told a Senate committee hearing on the oil spill.

Current law imposes a $75 million liability cap on economic damage. Since the BP spill in late April, legislation has been introduced in Congress to raise the cap to $10 billion.

Some lawmakers and legal experts have questioned whether Congress could make the higher liability cap apply to the BP accident. BP has also said it would pay all legitimate claims and was not bound by the existing cap.

Perrelli told the Senate Energy and Natural Resources Committee "we believe that we have strong arguments to defeat any retroactivity argument."

Some lawmakers are worried that raising fines would boost insurance costs so high that smaller companies could not afford to search for offshore oil.

That would lead to the United States relying on more foreign oil and creating fewer high-paying offshore drilling jobs for U.S. workers.

Meanwhile, the U.S. Interior Department told the Senate panel that Congress should increase fines and prison sentences for individuals and energy companies that violate the federal law covering offshore oil development.

Since the law was enacted in 1978, the criminal penalty has remained unchanged with fines of no more than $100,000 per day or imprisonment of up to 10 years. The current maximum daily civil fine is $35,000.

"We believe it is appropriate to consider thoughtful increases in the amount of both civil and criminal penalties," U.S. Deputy Interior Secretary David Hayes told the committee.

Perrelli refused to tell the committee whether the Justice Department had found any negligence yet by BP or others involved in the oil spill.

President Barack Obama will visit the U.S. Gulf Coast region on Friday to inspect efforts to combat the massive oil spill, an administration official said.

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