UPDATE 3-Congress can stick BP with bigger liability cap

* Interior Dept calls for higher criminal penalties

* BP has said it is not bound by existing cap

* Some fear chilling effect on oil search from higher caps

* Justice Dept silent over whether negligence in spill
(Adds senators’ quotes, vote on bill, Justice Department
comment)

By Tom Doggett

WASHINGTON, May 25 (BestGrowthStock) – The U.S. Justice Department
said on Tuesday that Congress could retroactively impose a
higher liability cap on BP (BP.L: ) to pay for the damage from
its growing oil spill, and the company would likely lose if it
challenged the higher cap in court.

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

“Our view is that there is a strong chance to defeat any
(legal challenge) if Congress were to lift the caps,” U.S.
Associate Attorney General Thomas Perrelli told a Senate Energy
and Natural Resources Committee hearing on the oil spill.

“I believe that we have a system in dire need of repair,”
Jeff Bingaman, the panel’s Democratic chairman, said about the
current oil spill liability law.

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

Perrelli told the committee the government had strong
arguments to defeat anyone challenging any retroactively
imposed cap.

Some lawmakers are worried that raising liability levels
would boost insurance costs, if policies were even offered,
making it more expensive for smaller companies to search for
offshore oil.

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

RAISING LIABILITY LIMITS

Senator Lisa Murkowski, the top Republican on the Senate
energy committee, said she supported raising the liability
limits in a sensible manner.

“We must and we will hold BP fully accountable for this
tragedy,” she said. “We also must consider the cumulative
effect of the different levels of liability, which could be
economically devastating.

“Thousands of jobs, particularly along the Gulf coast,
could be lost, our nation’s energy security could be weakened,
without providing any additional protection,” she said.

Senate Democrats failed on Tuesday afternoon to ram through
legislation that would eliminate the cap altogether on the
costs oil companies would have to pay in major oil spills.

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.

The department said later in the day it was considering a
request from lawmakers to open a criminal inquiry into whether
BP made false and misleading comments to the government
regarding its ability to respond to oil spills in the Gulf of
Mexico. However, the department would not confirm or deny
whether an investigation was already underway.

Stock Market Money

(Reporting by Tom Doggett; Edited by Sofina Mirza-Reid and
David Storey)

UPDATE 3-Congress can stick BP with bigger liability cap