Archive for the ‘corporate veil’ Category

NY’s oil spill fund: limited liability means owners of polluting firms can walk away, leaving citizens and states holding the bag for risks & clean-up costs

February 24th, 2009 No comments

There’s an interesting article in the Feb. 22 Times Union on the ineffectiveness of the New York oil spill fund:

Oil polluters pass on spill costs to public

The New York Environmental Protection and Spill Compensation Fund pays to clean up oil spills if polluters won’t handle it themselves. While the state is supposed to get that money back, it is owed millions by companies that won’t settle up. In more than 1,100 cases — some dating back to the early 1980s — the state has recouped just 17 cents on every dollar it spent.

As I’ve noted previously on several occasions, the limited liability that states grant to owners of corporations means that owners of polluting firms can walk away, leaving citizens and states holding the bag for risks and clean-up costs; this is true not only for the New York emergency oil spill clean-up fund, but for ordinary pollution damages where individuals are seeking compensation.  This problem is manifest in, and has been compounded in, New York, where the gas tax-funded clean-up fund system is clearly not working; not only has the fund been bailed out by general taxes, but the gas tax being used to fund it has been increased eight-fold since 1978, and the fund argues that it lacks sufficient enforcement tools.  At least part of the problem may be that the fund administrators find it easier simply to clean up and increase taxes than to try to pursue polluters.

As New York ponders reforms, the New York legislature ought to consider explicitly “piercing the corporate veil” by providing that the owners and executives of polluting firms – including shareholders of public companies – have direct personal liability for clean-up costs.

That may do wonders in incentivizing them to make sure that the firm that they own and/or manage (or an insurer on its/their behalf) promptly reimburses the fund for clean-up costs.  One suspects it might even cut down on the number of oil spills!