In a landmark case, a San Francisco jury has found that gasoline with the additive MTBE is a defective product and that two major oil companies were aware of the chemical's dangers but withheld the information when they put it on the market.
The Superior Court jury made its finding in a product liability case brought by the South Tahoe Public Utility District over contamination of the district's groundwater. The district sued in 1998 after MTBE pollution forced it to close a third of its drinking water wells.
In its verdict Monday, the jury said Shell Oil Co., Lyondell Chemical Co. (formerly Atlantic Richfield Chemical Co.) and Tosco Corp. (now part of Phillips Petroleum) had placed a defective product on the market when they began selling gasoline with methyl tertiary butyl ether (MTBE).
The jury also found that Shell and Lyondell acted with malice when they withheld information about the chemical. Lawyers for the South Lake Tahoe district had presented evidence that the companies promoted MTBE even though they knew it could contaminate water supplies.
The verdict, the first of its kind, came after seven weeks of deliberation in a five-month trial. Dozens of such cases are pending against the nation's largest oil companies that could expose the industry to billions of dollars in cleanup costs and punitive damages.
An oil industry trade group, Western States Petroleum Association, declined to comment. Generally, the industry has maintained that it followed state and federal laws and that MTBE was deemed appropriate by the U.S. Environmental Protection Agency.
The federal Clean Air Act requires that regions that don't meet air quality standards must use an additive -- either MTBE or ethanol -- to reduce vehicle pollution. In California, the refiners chose MTBE, which they can make from petroleum instead of buying ethanol from the Midwest.
However, MTBE has proved to be a major environmental headache nationwide. Spilling from leaky underground storage tanks, it travels faster in the groundwater than gas and takes longer to break down. The state has set a maximum limit for drinking water because MTBE is a suspected carcinogen.
According to state records, there are 1,189 underground tank sites leaking MTBE within 1,000 feet of public supply wells or on vulnerable drinking water aquifers. An additional 1,729 leaking tank sites farther away from drinking water wells also pose a concern.
Gov. Gray Davis recently delayed the statewide phaseout of MTBE in gasoline until January 2004.
South Lake Tahoe, with a population of 28,000 that swells to 50,000 in the summer, is one of the communities hardest hit by MTBE pollution. The city closed 12 of its 34 drinking water wells because of the MTBE contamination.
The South Lake Tahoe utility estimates that it has spent more than $9 million, which doesn't include the cost of treating the tainted water. The cost to remove MTBE from the water supply is estimated at $45 million.
In 1998, South Tahoe sued 31 companies, alleging that their defective product spoiled drinking water. Shell and Tosco were named because they owned the gas stations along Highway 50 where underground tanks leaked MTBE. Arco Chemical manufacturers MTBE. Twenty-six companies already settled for $33 million last year.
Nationwide, the punitive damages for MTBE contamination could reach billions of dollars from suits filed by cities, water districts, private well owners and perhaps consumers of tainted water, said Richard Drury, a lawyer with Communities for a Better Environment.