(Bloomberg) – BP Plc acted with gross negligence insetting off the biggest offshore oil spill in U.S. history, afederal judge ruled, handing down a long-awaited decision that mayforce the energy company to pay billions of dollars more for the2010 Gulf of Mexico disaster.

U.S. District Judge Carl Barbier held a trial without a juryover who was at fault for the catastrophe, which killed 11 peopleand spewed oil for almost three months into waters that touch theshores of five states.

“BP has long maintained that it was merely negligent,” saidDavid Uhlmann, former head of the Justice Department'senvironmental crimes division. He said Barbier “soundly rejected”BP's arguments that others were equally responsible, holding “thatits employees took risks that led to the largest environmentaldisaster in U.S. history.”

The case also included Transocean Ltd. and Halliburton Co.,though the judge didn't find them as responsible for the spillas BP. Barbier wrote in his decision today in New Orleansfederal court that BPwas “reckless,” while Transocean andHalliburton were negligent. He apportioned fault at 67 percentforBP, 30 percent for Transocean and 3 percent for Halliburton.

U.K.-based BP, which may face fines of as much as $18billion, closed down 5.9% to 455 pence in London trading.

“The court's findings will ensure that the company is held fullyaccountable for its recklessness,” U.S. Attorney General EricHolder said. “This decision will serve as a strong deterrentto anyone tempted to sacrifice safety and the environment in thepursuit of profit.”

Turning Point

The ruling marks a turning point in the legal morass surroundingthe causes and impact of the disaster. Four years of debate andlegal testimony have centered on who was at fault and how muchblame each company should carry.

BP Exploration & Production Inc. is “subject toenhanced penalties under the Clean Water Act” because the dischargeof oil was the result of its gross negligence and willfulmisconduct, Barbier held.BP said it “strongly disagrees” withthe decision and will challenge it before the U.S. Court of Appealsin New Orleans.

“BP believes that the finding that it was grossly negligentwith respect to the accident and that its activities at the Macondowell amounted to willful misconduct is not supported by theevidence at trial,” the company said in an e- mailedstatement. “The law is clear that proving gross negligence isa very high bar that was not met in this case.”

Coalition

The coalition of plaintiffs lined upagainst BP included the federal government, five Gulf ofMexico states, banks, restaurants, fishermen and a host of otherswho have pursued redress for their losses. While today's rulingprovides a partial answer, appeals may mean it will be years beforefinal penalties are tallied.

BP has set aside $3.5 billion to cover pollution fines. Thecompany had taken a $43 billion charge to cover all the costsrelated to the spill, according to a July 29 earnings statement.The ultimate cost is “subject to significantuncertainty,” BP said.

“BP said it was above the law; Judge Barbier said the lawapplies to everyone, even multinational giants,” David Yarnold,Audubon Society president, said in a statement. Barbier has yet torule on how much oil was spilled, a key factor in determining theextent of BP's fines.

The decision nevertheless may expose BP to unspecifiedpunitive damages for claimants who weren't part of the $9.2 billionsettlement it reached with most non-government plaintiffs in2012.

The judge left that unclear in his ruling.

Unclear

“Although BP's conduct warrants the imposition of punitivedamages under general maritime law, BPcannot be held liablefor such damages under Fifth Circuit precedent,” he wrote,referring to the appellate jurisdiction that includesLouisiana.

In a footnote, however, Barbier said BP might beliable for punitive damages for other claims.

With only a ruling of negligence, Transocean escapes any suchliability. Barbier had already determined Transocean was shieldedfrom compensatory damages through the drilling contract.Halliburton, which also won an earlier indemnity ruling, removedthe threat of punitive damages by agreeing to a $1.1 billionsettlement with most plaintiffs Sept. 2.

Penalty Merited

“During the penalty proceedings, BP will seek to showthat its conduct merits a penalty that is less than the applicablemaximum,” BP said in its statement. Halliburton said “thelack of a gross negligence finding against Halliburton shouldresolve all remaining punitive damages claims against thecompany.”

Transocean said in a statement that while the decision issubject to appeal, it effectively eliminates the company'sfinancial risk arising from the below-surface discharge of oil atMacondo. Transocean's remaining financial risk is for above-surface discharge of pollutants, if any, occurring during theinitial two days of the spill, according to the statement.

“Transocean believes any such pollution either caused nosignificant harm or is covered by BP's indemnity,” the companysaid.

James P. Roy and Stephen J. Herman, lead lawyers for theplaintiffs, said in a statement that “the court has now laid barethe full extent of the level of BP's misconduct.”

The blowout and explosion aboard the Deepwater Horizon drillingrig on April 20, 2010, caused the deaths of 11 workers and spilledmillions of barrels of crude oil into the Gulf, harming wildlifeand fouling hundreds of miles of beaches and coastal wetlands.

Equipment Failures

Equipment failures and questions about lapses in oversight ledto an overhaul of federal regulations governing offshore safety inthe following years. The agencies overseeing deep- water drillingwere reorganized, with new rules put in place to strengthenrequirements for equipment, inspections and accident response.

The disaster sparked thousands of lawsuits against BP;Vernier, Switzerland-based Transocean, the owner of the drillingrig; and Houston-based Halliburton, which provided cement for thewell.

The spill's fallout entered the courts on two tracks — criminaland civil. In 2012, BP pleaded guilty to 14 federalcounts, including manslaughter for the 11 deaths in the explosionof the Deepwater Horizon rig, and obstructing Congress as it probedthe size of the spill.

U.S. Senator Edward Markey of Massachusetts, who helped directthat Congressional inquiry, hailed today's ruling.

'Compromised Safety'

“In the course of my investigation of BP, it was clear thatthe company compromised safety for speed, and today's ruling onceagain confirms that assessment,” Markey said in astatement. “BP should be fully held to account, andshould not be allowed to lowball the size of its spill or takeother actions that could reduce their financial liabilities forthis disaster. The people of the Gulf of Mexico deserve justice,delivered in full.”

The London-based energy company previously agreed to pay $4billion to end the criminal case. Transocean last year pleadedguilty to a U.S. charge tied to the Clean Water Act, and agreed topay $1.4 billion. A Halliburton unit last year pleaded guilty toone count of destroying evidence for failing to preserve computermodels examining its cement job on the well after the explosion.Halliburton paid a $200,000 fine.

BP also agreed to pay $525 million to settle U.S.Securities and Exchange Commission claims that it misrepresentedthe size of the spill, misleading shareholders as to its potentialliability.

Primary Litigation

But the primary litigation remaining is the pending court actionby the U.S. government, Gulf states and thousands of individualsand businesses claiming economic and environmental losses. WhileHalliburton wasn't sued by the U.S., the states and otherplaintiffs included the company in their claims.

BP settled the claims brought by most business owners andGulf residents hurt by the spill in March 2012, just before trialwas to begin. The deal postponed the start of its first phase toFebruary 2013.

That phase, which lasted two months, addressed who was at faultand whether gross negligence played a role in the 2010 explosion.The term is defined as intentionally failing to perform a clearduty, in reckless disregard of the consequences to lives andproperty.

The second phase, completed in October, focused on the size ofthe spill, and efforts to contain it. A third phase is set forJanuary to determine how much some of the defendants should pay inpollution fines.

One Man

Since shortly after the spill, the resolution of litigation overthe disaster has largely been in the hands of one man, who hasspent much of his life on the Gulf coast.

Barbier, 70, was appointed to the federal court in New Orleansin 1998 by President Bill Clinton, a Democrat. A former maritimelawyer who began his career representing sailors in personal-injurycases, the judge has been overseeing BP spill litigationsince August 2010.

Barbier grew up in the West Bank, a cluster of suburbs, smallcities and unincorporated towns straddling the border of theOrleans and Jefferson parishes, across the Mississippi River fromthe city of New Orleans. He went to high school in Harvey, aresidential neighborhood of single-family homes that sprung uparound the oilfield services industry and the Harvey IndustrialCanal. Barbier eventually won a football scholarship toSoutheastern Louisiana University, where he played on bothoffensive and defensive lines.

After earning a business degree in 1966, Barbier worked as ahigh school teacher and accountant, including stints at Boeing Co.and Shell Oil Co., while attending law school, according totestimony at his confirmation hearings in 1998.

Blowout Causes

Lawyers for the U.S. government and oil-spill victims toldBarbier during the first phase that BP was over-budgetand behind schedule, prompting it to cut corners and ignore safetytests showing the Macondo well was unstable.

BP was $60 million in the red and 54 days late on the wellby April 9, 2010, just 11 days before the blowout, the plaintiffs'lawyers said in court papers last year.

The plaintiffs also alleged that Halliburton's cement job wasdefective, and that Transocean employees made a series of misstepson the rig, including failing to properly maintain it, disablingsafety systems and not providing adequate training for itscrew.

Blame Game

The companies, meanwhile, blamed each other. BP saidat trial that Transocean failed to maintain the drilling rig andHalliburton provided faulty cementing services. Transocean andHalliburton pointed their fingers back at BP.

BP denied it was grossly negligent while accepting blamefor errors that caused the spill.

The Deepwater Horizon “blowout resulted from a series ofindependent acts and omissions by independent individuals that,when combined, had the effect of overcoming state-of-the-art safetysystems,” BP told the judge last year.

In the second phase of the trial, the U.S. contended BP's wellspewed 4.2 million barrels of oil into the Gulf of Mexico before itwas capped, almost three months later. BP estimated theflow at 2.45 million barrels. Both agreed their numbers would havebeen higher if 810,000 barrels hadn't been captured by a siphoningdevice placed at the wellhead.

Second Phase

Lawyers for Transocean, Halliburton and plaintiffs claimed inthe second phase that BP delayed the capping of the wellby misrepresenting the size of the spill, as well as prospects forcontaining it. The spill victims also allegedthat BP wasn't prepared for a deep-water blowout.

BP initially valued its economic-loss settlement at $7.8billion. It now puts the cost at $9.2 billion, with the final price“likely to be significantly higher,” according to the July 29regulatory filing.

Halliburton reached a separate $1.1 billion settlement with mostspill plaintiffs earlier this week. The company has taken a $1.3billion reserve for costs related to the spill.

BP has reserved $3.5 billion for civil penalties under theClean Water Act, using its own estimates on oil spilled and basedon its “conclusion, among other things, that it did not act withgross negligence or engage in willful misconduct,” the company saidin its 2013 annual report.

BP hasn't increased the reserve, the company said in itsmost recent quarterly filing.

Oil Spilled

“The amount and timing of the amount to be paid ultimately issubject to significant uncertainty since it will depend on what isdetermined” by the court on multiple issues, including grossnegligence and the amount of oil spilled, BP said in thefiling.

The amount will also depend on how Barbier applies penaltyfactors set in the Clean Water Act, BPsaid.

The company had set aside $43 billion to cover all the costs ofthe spill, and so far has paid out more than $28 billion forresponse, cleanup and claims.

Once he decides on the size of the spill, Barbier will considereight criteria in setting the fine, including the seriousness ofthe violation, the degree of culpability, any history of priorviolations, any other penalties for the same incident, andwhat BP has done to minimize or mitigate the effects ofthe spill.

Under the law, Barbier also has to consider the possibleeconomic impact of any penalty on the company.

Earlier Accord

BP's earlier accord resolved economic-loss claims for fishingboat owners and multiple classes of businesses and property ownersin Louisiana, Alabama and Mississippi and in parts of Texas andFlorida.

It excluded claims of financial institutions, casinos, someprivate plaintiffs in Florida and Texas, and residents andbusinesses claiming harm from the Obama Administration's resultingmoratorium on deep-water drilling.

It also didn't cover claims by governments.

Barbier gave final approval to the settlement in December 2012.An appeal by objectors to the settlement was rejected by the U.S.Court of Appeals in New Orleans.

BP lost a separate appeal on its claim that theadministrator of the settlement was paying for unjustified claims.The company asked the U.S. Supreme Court on Aug. 1 to review thedecisions.

BP Exploration & Production Inc.and BP American Production Co. are direct or indirectwholly-owned subsidiaries of BP Plc, Barbier wrote in hisruling.

In BP's annual report, BP Exploration & Productionis described as “the BP group company that conductsexploration and production operations in the Gulf of Mexico.” Thereport states that “BP Plc is the parent company ofthe BP group of companies.”

BP said in court papers filed in March that the explorationunit is “an indirect subsidiary with five intermediate parentcompanies.”

Louisiana Attorney General James Caldwell, whose state sufferedthe brunt of the explosion's fallout, praised the decision“finding BP reckless for their outrageous conduct indestroying our precious coastal resources.”

“I will continue fighting for the recoveries Louisiana isentitled to for the damages we have sustained,” he said in astatement.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon inthe Gulf of Mexico on April 20, 2010, MDL-2179, U.S. DistrictCourt, Eastern District of Louisiana (New Orleans).

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