According to the American Insurance Association (AIA), Senate Majority Leader Harry Reid, D-Nev., said he expects a vote on the bill in the Senate floor in July.

In his testimony before the House panel, Mr. Hartwig said he will testify that the contemplated increase, combined with severe increases in regulation and oversight of offshore drilling, could raise the overhead for offshore drilling in U.S. waters to prohibitive levels, and drive this activity to other areas.

"Collectively, the impact could be less drilling if it becomes noneconomic to continue the operation at the higher cost levels," he said. "These rigs could be relocated to some other part of the world where operating costs are lower."

The hearings are focusing on the liability and financial responsibility for oil spills under the Oil Pollution Act of 1990 and related statutes, which are being reconsidered in the wake of the Deepwater Horizon Oil Rig spill in the Gulf of Mexico.

The American Association for Justice (AAJ), which represents trial lawyers, is pushing for the liability limit increase.

The AAJ said the current cap on BP's liability at $75 million for economic damages inflicted on area residents and businesses "would barely scratch the surface of the catastrophic damage the spill has caused or even begin to hold accountable BP, which made almost that much per day – $62 million – in the first quarter of 2010."

The trial lawyers contend that the "cap is an example on a grand scale of why arbitrary liability caps are just not reasonable: you cannot decide the expense of a disaster before it happens.

"Liability caps allow companies like BP to avoid bearing the responsibility for the full cost of the damage they inflict," the AAJ argued.

But Mr. Hartwig contended that there is simply not enough capacity to raise the limits to $10 billion.

He said that "raising the limit to $10 billion will significantly increase the demand for such coverage, and increase exponentially the risk and uncertainty associated with underwriting such coverage."

The reason, Mr. Hartwig said, is that "very low probability but extreme severity events are notoriously difficult for insurers to underwrite."

The implication, he said, is that such limits could push more firms to self-insure.

Currently, Mr. Hartwig said, smaller offshore insurers maintain coverage of about $1 billion, and reinsure the rest. Multinational oil firms usually reinsure themselves through captive insurers, he said, because they have the capacity through high operating earnings to deal with a large accident.

But such high limits could reduce offshore drilling, not just because of the higher cost of insurance, but also due to new, stricter rules, as well as higher insurance rates and other higher operating costs that could greatly increase the overhead for offshore drilling, Mr. Hartwig said.

The Senate Environment and Public Works Committee will also hold a hearing on Wednesday to discuss the bill.