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BP must cover actual losses

Aug. 10, 2013 7:27 AM   |  

Recent news reports and court filings have raised some troubling questions about who is benefiting from the BP Deepwater Horizon settlement, whether claimants are being treated equally and what that might mean for the economic victims of future industrial accidents.

After the accident occurred in April 2010, rather than bunkering down and defending itself with litigation, BP waived its statutory limits of liability and agreed to pay all legitimate claims.

After first paying about $6.7 billion to claimants directly or through the Gulf Coast Claims Facility, BP agreed in April 2012 to continue paying claims for “loss of profits, income and/or earnings” related to the accident through a settlement originally estimated to cost another $7.8 billion.

Under the settlement, a business can make a claim using a well-established accounting method called the business economic loss rule. This rule requires calculating variable profit – defined as monthly revenue less corresponding expenses – and then comparing that amount with the variable profit for a comparable period before the accident.

Claimants do not have to show any link between the accident and their profit loss in order to get paid. They simply have to be in one of the economic loss zones and demonstrate a variable profit loss using comparable snapshots of time that the claimant gets to select.

But on Jan. 15, the claims administrator issued a statement that dramatically re-interpreted the settlement. According to this new policy, a business’s revenues do not need to be matched with expenses for a comparable period – any decrease in revenue, even if it’s just a function of timing between recording cash receipts and disbursements, qualifies as a loss.

For example, say a contractor completed identical jobs in 2009 and 2010. In 2009 they were paid in August but in 2010 they were paid in September.

Because the contractor can choose which months to compare in their claim, they can show a revenue decrease for August 2010, even though they were paid in September and did not actually lose any money. Under the business economic loss rule, there is no profit loss but under the new interpretation, the contractor lost money in August 2010.

BP is now challenging the administrator’s interpretation of this settlement.

BP points out that “(m)ore than two-thirds of large (business economic loss) claims … appear to be based on fortuitously timed cash inflows and outflows … rather than actual lost profits.”

Some of the claimants might surprise you, too. In addition to soliciting people to file claims for damages unrelated to the accident, some lawyers are filing claims for their own supposed losses. The claims administrator even acknowledged that under the new interpretation, awards to lawyers for their own claims “appear disproportionate when compared to award amounts for claimants in other industries.”

Common sense dictates that an actual loss, not accounting sleight-of-hand, should be a bottom-line element of recovery.

If the BP claims process spins out of control, as it appears may be happening, future settlements that speed up and maximize payments to victims may be harder to reach. Simply put, if a settlement agreement can be changed so drastically that the results bear little resemblance to the expected impact, then defendants will be less inclined to settle cases and more inclined to litigate every point available in the hopes of ultimately delaying and reducing their total payout.

The Florida Justice Reform Institute’s mission is to fight wasteful civil litigation and promote fair and equitable legal practices. The BP Deepwater Horizon settlement, as written, fits that public policy. The court administrator’s interpretation does not.

Written by 

William Large, President of the Florida Justice Reform Institute 

 Pensacola News Journal

http://www.pnj.com/article/20130811/OPINION/308110013/BP-must-cover-actual-losses