It’s Open Season on BP: Court Rejects Appeal Over Gulf Spill Losses

Source: Thinkstock

Source: Thinkstock

At this point in its life, the British oil and gas company BP (NYSE:BP) is probably best known for the 2010 Deepwater Horizon disaster, a massive oil spill that was triggered by an explosion at an ultra-deepwater offshore oil drilling rig in the Gulf of Mexico. The blast killed 11 people and catalyzed the largest offshore oil spill in U.S. history.

The spill had an enormous environmental and economic impact in the Gulf region, and the company has been held financially accountable for much of the damage. BP initially set aside $42.5 billion to cover damages, claims, and legal fees associated with the disaster, even though it first estimated a payout of only $3.5 billion (in addition to some $25 billion spent on cleanup). However, come the submission of more than a quarter of a million claims against BP in a class-action settlement, the company revised its estimate up, first to $7.6 billion and then to $9.2 billion. Of that estimated $9.2 billion settlement payout, BP has paid approximately $3.81 billion, according to court-appointed settlement fund administrator Patrick Juneau.

Unsurprisingly, the legal proceedings regarding victim compensation have been anything but straightforward. One of the largest challenges has been a disagreement over exactly who can claim participation in the settlement. According to an agreement between the company and claimants, businesses claiming participation in the suit don’t actually need to demonstrate that they suffered economic loss from the Deepwater Horizon disaster. This has opened the door to fraudulent behavior, allowing claimants to seek compensation even though they were unaffected by BP’s conduct.

The problem — at least for BP — is that it has already agreed to the terms of the settlement, and the court of appeals in New Orleans is upholding the agreement. A three-panel judge has twice upheld the ruling, putting BP on the hook for possibly fictitious losses.

In many ways, BP dug its own grave. Early on in the legal proceedings, BP attempted to cooperate with the mountain of litigation that government agencies, private individuals, and businesses dumped on its docket. But after taking an initially conciliatory approach toward the court on the matter of victim compensation, BP changed tactics last year in an effort to take control of its spill bill. Now, BP claims that the company’s efforts to compromise were met with overreaching and outright fraud by the plaintiff’s lawyers.