The man in charge of BP's ill-fated Deepwater Horizon rig warned his boss that staff were operating in "chaos, paranoia and insanity" just days before a fatal blowout killed 11 men and caused the worst oil spill in US history, a New Orleans court heard on Monday.

In opening arguments Michael Underhill, the lawyer representing the US Department of Justice, said BP knew it was drilling a "well from hell" but that its managers refused to deviate from a "course of corporate recklessness" that ultimately led to the fatal blowout at the Gulf of Mexico well.

In a difficult day for BP, Underhill was followed by statements from BP's partners in the fatal rig, Transocean and Halliburton, who also slammed BP. The dead rig workers "put too much trust in BP and paid for that trust with their lives," said Transocean attorney Brad Brian.

The company was guilty of "willful misconduct," said Underhill. It had calculated it needed $7bn (£4.6bn) to pay shareholders their dividend and put immense pressure on staff to save money and drill faster in order to reach that target, he said. "A safety corner cut a day saved was a $1m saved for BP," said Underhill.

BP set out its defense in the afternoon. Attorney Mike Brock defended BP and its choice of partners. He said drilling was a "team sport" and that BP had chosen the best partners. He argued that the evidence showed BP was not "grossly negligent". Mistakes had been made and the rig's operators were collectivily responsible.

Brock said detractors were taking emails out of context and BP would present a fuller picture at trial. He pointed one email where John Guide, BP's manager of the Macondo well, said his team was "flying by the seat of their pants".

Far from being evidence of a breakdown in culture, Brock said the snippet was out of context. "This is a well site leader expressing frustration about logistical issues. It's not a well site safety issue," said Brock.

The civil trial began on Monday in courtroom 268 of the US district court in New Orleans after the apparent collapse of settlement talks over the weekend. This case is the first of two and will decide how this tragedy happened and who caused it to happen. A second will determine exactly how much oil was spilled. BP faces a potential fine of $17.6bn. The case will be decided by judge Carl Barbier.

Eleven teams of lawyers were in court Monday; three overspill rooms were set aside for them and another for the press and general public. Barbier set out a three-month timetable for the trial, although legal experts in court said settlement talks are continuing.

"The tragedy of this case," said Underhill, is that it was caused by failures that "didn't even amount to pocket change". He said that BP knew it was in difficulties and that tragedy could have been averted with "as little as a 10-second phone call" or "a 30-second walk down to the tool pusher".

Underhill cited an email that will be put into evidence later this week from BP's well team leader John Guy to David Sims, drilling and completions operations manager, in Houston just days before the 20 April 2010, disaster.

Underhill said the "extraordinary document … explains why 11 men needlessly lost their lives". On 17 April, Guy told Sims that BP's well site leaders "were at wits' end" and there was a "huge level of paranoia that was riding chaos". The well was proving impossible and they were "trying to make sense of all the insanity". "The operation is not going to succeed if we continue in this manner," he warned.

Sims responded that he was about to leave for dance practice. "I'll be back soon and we can talk. I'm dancing to the Village People," he wrote.

Underhill said BP would try to blame others including Halliburton, which made the cement meant to be used to seal the well as well as a precisely specified mud used for drilling. But BP bears the greatest responsibility, he said.

The fatal blowout came after a "negative pressure test" that – had it been performed correctly – would have saved lives and prevented millions of barrels of oil being poured into the Gulf, said Underhill. BP's explanation of what went wrong with the test was greeted with a reply from Pat O'Bryan, BP's vice-president responsible for drilling and well completions, consisting of 560 question marks. Brock said: "It was a mistake made by several men from two different companies".

Jim Roy, representing the bulk of businesses and individuals affected by the disaster, also tore into BP, Transocean, the rig's owner, and contractors Halliburton and Cameron in his statement.

The evidence will show BP had "a culture of cost cutting, profits over safety and taking high risks with conscious disregard for dire potential risks," said Roy.

BP had "actual knowledge it [Deepwater Horizon] should have been heading into a shipyard for repairs," he said.

"The evidence will prove that the Deepwater Horizon was unseaworthy as of April 20 2010 and had been for many month before and that BP and Transocean knew it."

He said evidence would show a systematic failure by Transocean's management to adequately train its crew and a catalogue of unheeded warnings. He said the company had a "'run it until it breaks' philosophy".

He said the evidence would show alarms were inhibited "in order to stop waking people up at night." Witnesses said that after the explosion there was "chaos and mayhem" on the bridge captain Curt Kuchta had a "deer-in-the-headlights looks," said Roy.

This disaster happened because of a "gross and extreme departure from the standard's of good oilfield practice" and "willful failure" of Transocean to give its crew adequate training, he said.

"The evidence will show the ultimate responsibility of this rests with the management of Transocean," said Roy. He said the evidence would show that Transocean's safety culture was broken and the company put saving money over safety.

Outside the court Steve Cochran, acting director of the Environmental Defense Fund, said: "We just hope that the trial ends with sufficient resources to restore the coast and a clear signal to every operator in the gulf that you can't cut corners and if you do, you'll pay a huge price."

Daniel Jacobs, professor at American University's Kogod School of Business, said: "I think it was very damning. This is a very grim story and if the plaintiffs produce the evidence that they say they are going to present, I think they have a strong case for gross negligence."

Jacobs, who was at the trial, has been following the case for years. He said the case would come down to proving "reckless indifference and greed". "BP must have concluded it has a better chance of getting a better deal from the judge than the Justice Department," he said.

Live tweets from Dominic Rushe at the trial



