oilpumpIf the government mandates that oil companies use a certain chemical in their gasoline — say, to curb smog — can the companies still be held liable when that chemical seeps into the ground and contaminates water tables across the country?

That was the argument several oil manufacturers — including BP, Chevron and Shell — tried to make recently, but apparently it didn’t work. Today, according to the WSJ, about a dozen oil companies agreed to pay $423 million to settle litigation with 153 water providers in 17 states over leakage of the gasoline additive MTBE, or for you patent lawyers with dual degrees, methyl tertiary butyl ether, an oil-refining byproduct.

The terms of the settlement, which include an agreement by the companies to pay cleanup costs that arise in the next 30 years, were submitted for approval yesterday to an SDNY. Baron & Budd andWeitz & Luxenberg negotiated on behalf of the plaintiffs. Skadden Arps negotiated on behalf of several defendants. Several defendants named in the suit, including ExxonMobil, did not agree to the settlement. (Click here for another report from the NYT).

According to reports, the settlement is the largest to date in a case involving MTBE. The Environmental Protection Agency calls MTBE a “known animal carcinogen” and a “possible human carcinogen.” It has been detected in at least 36 states and has been banned in 23, including California and New York, which accounted for 40% of total MTBE consumption in the U.S. The settlement doesn’t shield defendants from liability in the event MTBE is shown in the future to carry human health risks.

The local water providers will be compensated according to a formula based on MTBE levels and the size of wells, reports the WSJ. If MTBE is found to surpass the specified threshold at a given site during the next 30 years, defendants will pay 70% of the water-treatment cost for 10 years from the point of detection. Payments will end if the affected area is deemed MTBE-free for one year. At the end of the 10-year period, payments can be extended five more years if the water source still shows a certain level of contamination.

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