BP Means to Finally Stop Windfall Oil Spill Compensation

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“If you or your business were harmed by the Deepwater Horizon Oil Spill, you may be able to get payments and other benefits from two separate legal settlements,” reads a headline on the court-authorized website for the settlement program BP (NYSE:BP) set up as part of an agreement to end a class action brought against the company for the 2010 oil spill in the Gulf of Mexico. The problem with that invitation is that many businesses have accepted and filed claims for damages unrelated to the Gulf disaster, or so BP claims in recently-submitted court documents.

According to a filing made with the U.S. District Court in New Orleans late last week, the oil producer gave examples the “fictitious” losses that court-appointed fund administrator Patrick Juneau has compensated: a clinic where the main doctor had his license revoked, a mobile phone shop closed because of fire damage, and a car dealership that sold a discontinued automobile model. Citing those incidents were a key part of BP’s latest attempt to curtail the amount of money the company must spend on restitution payments.

In May 2012, BP and the lawyers for the individuals and businesses harmed by the Deepwater Horizon oil spill reached an accord to settled the class action lawsuit. Instead of the $20 billion fund created by BP, the agreement called for the court to administer the compensation payments to those Gulf Coast residents who endured the months-long oil leak that befouled beaches, killed wildlife, and disrupted the economies of their states.

At that time, the company — which had already paid more than $6 billion from the original fund to about 200,000 individuals and businesses — estimated that payouts related to plaintiffs’ claims would cost just $7.8 billion. But by July of this year, the company’s estimate rose to $9.6 billion. When the restitution payments started to overshoot its original estimate, BP began to contest the manner in which they were awarded, arguing that Juneau has compensated “fictitious and inflated losses,” especially regarding claims made by businesses.

BP’s Gulf of Mexico disaster was the worst offshore spill in U.S. history. It began on April 20, 2010 when an undersea well exploded 50 miles off the Louisiana coast, killing 11 workers and spewing millions of barrels of crude oil into the ocean. Marshes, fisheries, and beaches stretching from Louisiana to Florida were polluted, harming local tourism and fishing. The oil producer has acknowledge responsibility for the oil spill, spending more than $25 billion on cleaning up the marshes, fisheries, and beaches along the coast and compensating victims. Furthermore, that spending is just the tip of the company’s spill-bill iceberg; $42.4 billion has been spent or earmarked for spending on clean-up, compensation, fines, and other costs. BP has even sold assets that generated $5 billion of cash flow a year to pay those expenses.

The biggest driver of skyrocketing spill costs is victim compensation. The sideshow of BP’s civil trial in the district court in New Orleans has been the company’s efforts to convince District Court Judge Carl Barbier to tighten the standards by which Juneau evaluated compensation claims made by the individuals and business harmed by the 2010 Gulf of Mexico oil spill. For months, the company petitioned the court to freeze payouts while the administrator’s payout formula was reexamined, but Barbier denied that request.

However, at the beginning of October, the 5th U.S. Circuit Court of Appeals in New Orleans directed the judge, who had approved of Juneau’s evaluation methods back in March, to halt payments on claims that do not meet stricter standards, and issued an injunction, preventing further compensation from being paid until the terms of the settlement were tightened.

In particular, Circuit Judge Edith Brown Clement wrote in her opinion that the “district court had no authority to approve the settlement of a class that included members that had not sustained losses at all, or had sustained losses unrelated to the oil spill, as BP alleges.” Furthermore, “if the administrator is interpreting the settlement to include such claimants, the settlement is unlawful,” she added.

Now BP’s main point of contention is no longer the method used to calculate the size of the loss, but rather the issue of causation, meaning why particular business received compensation in the first place. In the recent filing, seen by the Financial Times, BP said the company’s lawyers had found the settlement fund had compensated claims where it was “clear” that the losses were not caused by the oil spill that totaled $76 million. Plus, at least $546 million worth of payments compensated claims where any “reasonable observer” would conclude that the losses were not related to the disaster.

Ever since the company began to dispute the manner in which compensation was made, lawyers for the claimants have responded with accusations of their own. A consortium of plaintiffs’ lawyers answered the company’s allegations with this one-liner: “buyer’s remorse does not alter the deal that was struck.” The lawyers maintained that BP had already agreed to a two-step process for determining compensation awards.

First, eligibility is assessed by examining whether businesses suffered losses related to the spill based on their location, their industry, and occasionally the condition of their revenues after the spill. Then, if the business passed that stage, a formula was used to calculate the size of the payment. Still, the company said that the process allowed companies to be compensated even if their losses were unrelated to the spill, such as a mobile home park that was was foreclosed by its creditors two weeks before the disaster.

Follow Meghan on Twitter @MFoley_WSCS

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