by Glynn Wilson
British Petroleum company has reached a tentative settlement agreement with a large number of people along the Gulf of Mexico coast who are suing for damages from the largest and most devastating environmental disaster in U.S. history. If the plaintiffs agree to the final settlement and it is approved by the court and the government, it will prevent a prolonged court trial and members of the public who suffered damages may receive compensation much sooner, although the amount they receive would be reduced.
According to the Associated Press, BP expects to pay out $7.8 billion to 100,000 victims. The settlement calls for ending the separate claims fund run by Ken Feinberg, who was hired by the Obama administration to handle paying out $20 billion the administration seized from BP.
Questions remain, however, about whether all of those damaged by the spill will agree to the settlement. Those waiting for money from Feinberg’s Gulf Coast Claims Facility can take what the settlement vehicles offer or opt out and make a claim directly to a BP-run entity. Or they can file separate lawsuits and hold out for more, but that could take many years to work its way through the courts and then there is no guarantee the amounts won’t be thrown out of court by conservative judges in the South.
According to a press release put out by BP Saturday morning, the company has reached a settlement with the Plaintiffs’ Steering Committee (PSC), subject to final written agreement, to resolve the substantial majority of legitimate economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill. The PSC acts on behalf of individual and business plaintiffs in the Multi-District Litigation proceedings pending in New Orleans.
“From the beginning, BP stepped up to meet our obligations to the communities in the Gulf Coast region, and we’ve worked hard to deliver on that commitment for nearly two years,” Bob Dudley, BP Group CEO, said in the press release. “The proposed settlement represents significant progress toward resolving issues from the Deepwater Horizon accident and contributing further to economic and environmental restoration efforts along the Gulf Coast.”
BP estimates that the cost of the proposed settlement, expected to be paid from the $20 billion Trust, would be approximately $7.8 billion. This includes a BP commitment of $2.3 billion to help resolve economic loss claims related to the Gulf seafood industry.
Prior to the proposed settlement, BP had spent more than $22 billion toward meeting its commitments in the Gulf. BP has paid out more than $8.1 billion to individuals, businesses and government entities. In addition, BP has spent approximately $14 billion on operational response.
This proposed settlement is not expected to result in any increase in the $37.2 billion charge (which included the $20 billion charge taken in respect of the Trust) previously recorded in BP’s financial statements. BP’s current expectation is that the provision for litigation and claims, which includes the claims covered by this proposed settlement, will increase by approximately $2.1 billion with no net impact to either the income or cash flow statements, because this is a settlement that is expected to be payable from the Trust.
The amount that can be further provided with no net impact to the income statement therefore is expected to be reduced from approximately $5.5 billion to approximately $3.4 billion. While BP has sought to reliably estimate the cost of this proposed settlement, it is possible that the actual cost could be higher or lower than this estimate depending on the outcomes of the court-supervised claims processes. In accordance with its normal procedures, BP will re-evaluate the assumptions underlying this estimate on a quarterly basis as more information, including the outcomes of the court-supervised claims processes, becomes available.
The Trust was established to satisfy not only legitimate individual and business claims but also a number of other costs related to the accident and oil spill. Other costs to be paid from the Trust include state and local government claims, state and local response costs, natural resource damages and related claims and final judgments and settlements.
“It is not possible at this time to determine whether the $20 billion Trust will be sufficient to satisfy all of these claims as well as those under the proposed settlement,” the company says. “Should the Trust not be sufficient, payments under the proposed settlement would be made by BP directly.”
The proposed settlement does not include claims against BP made by the United States Department of Justice or other federal agencies (including under the Clean Water Act and for Natural Resource Damages under the Oil Pollution Act) or by the states and local governments. The proposed settlement also excludes certain other claims against BP, such as securities and shareholder claims pending in MDL 2185, and claims based solely on the deepwater drilling moratorium and/or the related permitting process.
The proposed settlement is comprised of two separate agreements, one to resolve economic loss claims and another to resolve medical claims. Each proposed agreement provides that class members would be compensated for their claims on a claims-made basis, according to agreed compensation protocols in separate court-supervised claims processes. The proposed agreement to resolve economic loss claims includes the financial commitment for the Gulf seafood industry and a fund to support continued advertising that promotes Gulf Coast tourism.
The proposed agreement to resolve medical claims involves payments based on a matrix for certain currently manifested physical conditions, as well as a 21-year medical consultation program for qualifying class members. It also provides that class members claiming later-manifested physical conditions may pursue their claims through a mediation/litigation process.
Consistent with its commitment to the Gulf, BP would also provide $105 million to improve the availability, scope and quality of healthcare in Gulf communities. This healthcare outreach program would be available to all individuals in those communities, regardless of whether they are class members. It would include expanding capacity to address community health needs, including primary care, mental health services and access to environmental health specialists, as well as enhanced training and education related to Gulf Coast health issues.
“Under the proposed settlement, class members would release and dismiss their claims against BP,” the company says. “The proposed settlement is not an admission of liability by BP.”
The proposed settlement also provides that, to the extent permitted by law, BP will assign to the PSC certain of its claims, rights and recoveries against Transocean and Halliburton for damages not recoverable from BP.
The proposed settlement is subject to reaching definitive and fully-documented agreements within 45 days, and if those agreements are not reached, either party has the right to terminate the proposed settlement. Once there are definitive and fully-documented agreements, BP and the PSC would then seek the court’s preliminary approval of the settlement.
Under federal law, there is an established procedure for determining the fairness, reasonableness and adequacy of class action settlements. Pursuant to this procedure, and subject to the court granting preliminary approval of both agreements, there would be extensive outreach to the public, including through advertisements and direct mail, to explain the settlement agreements, class members’ rights, including the right to “opt out” of the classes, and the processes for making claims.
The court would then conduct fairness hearings at which class members and various other parties would have an opportunity to be heard and present evidence and decide whether or not to approve each proposed settlement agreement.
The proposed economic loss settlement provides for a transition from the Gulf Coast Claims Facility (GCCF) administered by Kenneth Feinberg.
“Ken Feinberg has overseen the GCCF since it began operating in August 2010, and we thank him and his team for their dedication and professionalism,” Dudley said. “During Mr. Feinberg’s tenure, BP has paid approximately $6.1 billion to resolve more than 220,000 claims from individuals and businesses through the GCCF.”
A court-supervised transitional claims process for economic loss claims will be in operation while the infrastructure for the new settlement claims process is put in place. During this transitional period, the processing of claims that have been submitted to the GCCF will continue, and new claimants may submit their claims.
Payments in class action settlements typically are not made until after final approval of a settlement, but BP has agreed not to wait for final approval of the economic loss settlement before claims are paid. The economic loss claims process will continue under court supervision before final approval of the settlement, first under the transitional claims process, and then through the settlement claims process established by the proposed economic loss agreement.
“This settlement reflects our commitment not only to the Gulf region, but also to the United States as a whole,” Dudley said. “BP has operated in America for more than 100 years, employs nearly 23,000 people in the U.S., and invests more in the U.S. than in any other country.”
The parties will seek guidance from the court as to the schedule for future proceedings. Full details of the proposed settlement are available on BP’s website.
© 2012, Glynn Wilson. All rights reserved.