From a small northwestern observatory…

Finance and economics generally focused on real estate

Gulf Coast Oil Spill Update

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Separating fact from rumor can be challenging, particularly when there are complex competing issues that cloud the media.  Even the Court’s own website disclaims any final details, and notes that further information will be available as the settlement progresses.

First, a few confirmed “facts” as we know them.  On March 8, the Federal Court in New Orleans overseeing the mass tort issued an Order affirming that the Plaintiffs’ counsel and BP had reached a broad agreement on the terms of a proposed class settlement for remaining claimants.  Notably, this does not affect all claimants against BP, but apparently creates a mechanism to settle the remaining private claims.

For those who haven’t been following the saga, about four months after the Gulf Coast Oil Spill, BP set up a fund (the “Gulf Coast Claims Facility”, or GCCF for short) to be administered by Washington, DC, attorney Ken Feinberg.  BP agreed to provide up to $20 Billion, although only about $6.1 Billion has been distributed to date.  Many claimants applied to the fund, were turned down, and pursued legal action.  Other claimants elected to pursue legal action without applying to the fund at all.

Under the terms of the new settlement, the Court has appointed a new claims administrator, Patrick Juneau, an attorney from Lafayette, LA.  A new claims center will soon replace the Gulf Coast Claims Facility.  During the transition period, the GCCF will continue to pay out claims, and in fact has paid out about $26 million so far in March.

The new facility will settle with about 100,000 lawsuits which have been filed.  The rough estimate is that a total of about $7.8 Billion will be paid on all of these claims.  Two separate settlement processes will be followed — an economic damages fund and a medical fund.  Currently pending claimants can get a “quick payment” of 60% of their claim without signing a release (less legal fees of about 6%).  They may then wait for final adjucation to receive either the remaining 40% or, potentially, a higher figure in a later “settlement class”.

If that sounds complicated, note that the final terms of the settlement are still up in the air, but essentially, it’s recognized that there may be further appeals or claims to be adjudicated.  This settlement covers property damages, economic losses, and medical claims, and also provides for BP funding $100 million in enhanced health care throughout the region.  Included within the estimated $7.8 Billion is a $2.3 Billion “seafood fund”.  Other than the seafood fund, the actual maximum settlement isn’t capped, so $7.8 Billion is simply a best-estimate going forward.

Of course, BP still has various state and Federal claims to face.  The U.S. Government has yet to start proceedings under the Clean Water Act or the Migratory Bird Act, and some estimates put BP’s exposure under that alone at potentially $20 Billion.  BP also faces exposure on state and local government claims, which could prove significant.

Attorneys for both sides are expected to propose final terms to the Court on April 16.  One interesting squabble which has emerged is over fees.  As noted, many claimants filed suit while others filed with the GCCF.  Of the latter group, many were represented by counsel and many others weren’t.  The current settlement plan calls for a 6% set-aside to reimburse plaintiff attorneys who have funded and managed the litigation.  Since 6% of $7.8 Billion is nearly a half billion dollars in legal fees, there is naturally some push-back from attorneys who were not part of the litigation group but have been representing claimants through the fund.  This promises to be an interesting fireworks show as Spring turns into Summer in New Orleans.

Written by johnkilpatrick

March 27, 2012 at 2:54 pm

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