BP Faces Billions in Spill Payments as Court Upholds Deal

(Source: Bloomberg News)  BP Plc (BP/) faces billions of dollars in additional payments after failing again to convince an appeals court that the company is being forced to pay claims that aren’t directly related to the 2010 Gulf of Mexico oil spill.

The decision leaves BP with two options — pay claims the company has called “fictitious,” or appeal further to the U.S. Supreme Court. Paying these claims will cost additional billions of dollars, BP has said in court filings. Payments for disputed business economic losses have been on hold while BP appealed.

A three-judge panel of the U.S. Court of Appeals in New Orleans earlier rejected BP’s view that the claims administrator for the company’s $9.2 billion settlement had misinterpreted the agreement and was paying for economic losses that weren’t caused by the spill. BP yesterday lost its bid for reconsideration by the full appeals court.

BP contends a flawed interpretation by Patrick Juneau, the claims administrator, has raised the accord’s price tag “substantially higher” than that projected cost, according to the company’s April 29 earnings statement.

BP has taken a cumulative pretax charge of $42.7 billion to cover all out-of-pocket and some anticipated spill-related costs, including government penalties, according to the statement. BP has said it couldn’t predict how much money Juneau’s interpretation of the agreement will add to the ultimate cost of the settlement.

A divided panel of the appeals court ruled in March that BP had to live with the terms of the deal as interpreted by Juneau.

Eight of 13 judges yesterday chose to deny a rehearing.

Spill Losses

The settlement agreement “is not fundamentally flawed,” said U.S. Circuit Judge Leslie Southwick. BP agreed that claimants wouldn’t have to prove losses were caused by the spill if their losses matched mathematical formulas, the judge said.

U.S. Circuit Judge Edith Brown Clement, one of the five dissenters, said in her opinion that accepting this interpretation of claims would permit payment “without regard” to whether an injury was caused by the oil spill and violates requirements for approving class-action lawsuits.

The settlement approval would “impermissibly extend the judicial power of the United States into administering a private handout program,” she said.

BP is considering whether to further appeal, Geoff Morrell, a spokesman for London-based BP, said in an e-mailed statement.

Further Appeal

“BP is disappointed that the full Fifth Circuit will not be considering the divided panel decisions related to the compensation of claims for losses that have no apparent connection to the spill,” Morrell said, referring to the appeals court in New Orleans.

Lawyers for plaintiffs have said BP had “buyers’ remorse” over the settlement.

Jim Roy and Steve Herman, lead attorneys for the plaintiffs, said yesterday they were “pleased that the court of appeals agreed that BP must honor its contract.”

The blowout of BP’s deep-water Macondo well off the coast of Louisiana in April 2010 killed 11 people and sent more than 4 million barrels of oil spewing into the Gulf of Mexico. The accident sparked thousands of lawsuits against BP, Transocean Ltd. (RIG), owner of the Deepwater Horizon drilling rig that burned and sank, and Halliburton Co. (HAL), which provided cement services for the well.

Cost Rise

BP reached a settlement with most private-party plaintiffs in 2012, initially estimating the cost at about $7.8 billion. The company raised the figure as the claims administrator approved payments BP considered improper.

BP last year asked U.S. District Judge Carl Barbier to rein in Juneau, contending that he was misinterpreting the terms of the settlement and paying claimants who couldn’t connect business losses to the spill. Questionable payments included $21 million to a rice mill 40 miles from the coast whose revenue rose the year of the spill, BP has said.

Lawyers for the plaintiffs responded that, under the agreement, businesses didn’t have to prove a direct impact or link to the spill. Claims payments were based on a formula, primarily depending on distance from the spill, using sample periods before and after the event. Businesses in the areas covered by the settlement were assumed to have suffered because of the spill’s regional economic effects, according to court filings.

False Positives

Barbier rejected BP’s interpretation. BP was aware that the terms of the settlement agreement could produce “false positives,” Barbier said in an April 2013 ruling, citing a letter from a company lawyer to Juneau.

The appeals court upheld Barbier’s decision in March.

As of March 31, BP’s claims administrator had paid $3.85 billion to resolve 64,871 damage claims and offered $1.1 billion to settle 7,231 more claims, according to court papers. Almost 85,000 claims hadn’t yet been reviewed by the end of the first quarter, and tens of thousands in additional claims remained in various stages of evaluation, according to the claims administration’s May 2 report.

BP’s settlement doesn’t cover claims by financial services institutions, casinos, businesses in some parts of Texas and Florida or companies claiming losses from the deep-water drilling moratorium imposed by the Obama administration following the spill.

The appeal is in Re Deepwater Horizon, 13-30095, 13-30315, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The lower court case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at [email protected]; Laurel Calkins in Houston at [email protected]

To contact the editors responsible for this story: Michael Hytha at [email protected]

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