Who Decides if a BP Spill Claim Is Legitimate?

By Bryan Walsh, TIME, June 11, 2010

Legitimate. It's the word that could come to define the extremely expensive, extremely litigious aftermath of the Gulf of Mexico oil spill. Almost from the beginning, BP has promised to pay what it calls all "legitimate" claims by people and businesses affected by the spill. But legitimate, when it's contained in a print ad as part of BP's new multimillion-dollar campaign or poshly pronounced by CEO Tony Hayward in one of the accompanying TV commercials, sounds very different from the way it sounds coming out of the mouth of a bayou shrimper in Venice, La. What constitutes legitimate is still an open question.

At the very least though, it looks like BP won't be the only one who gets to decide. A day after demanding that the company turn over data about its financial-claim payment process, the Coast Guard reported that BP had pledged to expedite payment to affected businesses in the Gulf. "BP recognized that its previous approach of waiting until after the books have closed for each month to calculate losses will not work," Tracy Wareing of the Federal Emergency Management Agency said at a news conference Thursday. "It won't get dollars quickly enough to the businesses that are struggling on the ground." (See pictures of people protesting against BP.)

And reports are filtering back from Louisiana that BP's lost oil seems to be flowing a lot faster than its cash. David Camardelle, the mayor of Grand Isle in southeastern Louisiana, told a hearing of a subcommittee of the Senate Homeland Security and Government Affairs Committee that he knew of 37 applications from his community still waiting for their $5,000 claims check from BP. "Every day, I have a mom that comes in front of me and asks me, 'Mr. David, how am I going to get food for my kids,'" Camardelle said. "Please, please send us some help." (See photos of victims of the BP oil spill.)

BP has said that it has already paid over $80 million in claims to more than 10,000 individuals in Louisiana, Florida, Alabama and Mississippi, with more coming soon. The company also says that it has opened scores of claims centers around the affected coastline, and that it is trying to process claims in a few days at most. "We'll do this until it's finished," said Darryl Willis, vice president of resources for BP America, in a teleconference with reporters over the weekend.

To aid the company in speeding the payment process, Alabama is considering assigning National Guard troops to work at claims centers — a uniquely effective lever only the government can use. But the very nature of how many people work on the Gulf Coast is going to trump the number that will be answering phones and processing documents. And the very nature of the fishing industry won't help either. Fishing can bring in a lot of money in a very short period of time during the right season, but fishermen might be hard-pressed to provide evidence — bank statements, pay stubs — that can back that up. The same goes for many other businesses: if receipts are dwindling at a restaurant, or guests are cancelling at a resort, how is it possible to prove that the spill alone is responsible? "We're stuck in the middle," says Chris Camardelle, whose seafood restaurant in Grand Isle has been badly hurt by the oil spill. "So it's a tricky situation." (See a brief history of BP.)

The government has insisted repeatedly that BP will pay all the costs of the cleanup and all damages as well — and Washington seems willing to push the oil company as far as it can. But there will surely be limits. President Obama has said that he will push BP to compensate rig workers who have been laid off because of the six-month moratorium on deepwater drilling he instituted to fix the industry's safety standards, but there's skepticism that claim could hold. As BP comes under greater pressure politically in Washington, a backlash is beginning to build in Britain, especially over the question of whether BP will be able to make billions in expected dividend payments to shareholders even as the spill is continuing. "I do think it starts to become a matter of national concern if a great British company is being continually beaten up on international airwaves," London Mayor Boris Johnson told the BBC Thursday.

As the spill worsens, though, the pressure will only increase — and a new scientific estimate of the leak rate shows that Gulf catastrophe could be even worse than we ever imagined. After reviewing better video from the underwater leak, the government's Flow Rate Technical Group estimated on Thursday that the oil was escaping at a rate between 20,000 bbl. and 40,000 bbl. a day, and that was before robots severed the broken riser at the wellhead a week ago, which may have increased the flow by as much as another 20%. That's up from an earlier estimate of between 12,000 bbl. and 19,000 bbl., and an initial number of about 5,000 bbl. a day, though some independent scientists were arguing weeks ago that the flow was far higher than that. And it's still not certain. "Our scientific analysis is still a work in progress," said U.S. geological-survey director Marcia McNutt, the head of the flow-rate team. "In coming days we'll be refining our estimates further. (Read a Q&A on who's liable for the Gulf oil spill.)

The total amount of oil spilled into the Gulf will have an impact on the kind of damages claims the government — and private individuals — can bring against BP. But while it's important to get a fix on the leak, it won't be the final determination of the damage. "Even if we can't be precise about the amount of oil spilled, we can make conservative estimates of the losses suffered here, and they'll be huge," says David Uhlmann, the director of the environmental law and policy program at the University of Michigan Law School and a former prosecutor for the EPA. "But the easy part is going to involve the financial penalties and the civil penalties — the hard part will be restoring the region and making the victims whole."

Indeed, although BP's ubiquitous ads have said repeatedly that the company will "make things right," given the scale of the damages, that might prove impossible. And like with legitimate, the definition of the word right will be up for grabs. It will be defined, ultimately, by the courts; there have already been countless suits filed against BP by private individuals and businesses, and the government is pursuing an investigation of the spill too. "It's gearing up to be the most heavily fought legal battle in history," says Jody Freeman, founding director of the environmental law and policy program at Harvard Law School. So we know that one group will end up better off than when the spill started: the lawyers.

Congress Fights to Make Sure BP Pays for Oil Spill

Several Democrats have put forward a bill to get rid of the liability cap
By Kent Garber, U.S. News & World Report, June 15, 2010

BP says that it's already spent $1.5 billion on its response effort to the Gulf of Mexico spill, and it's repeatedly promised to pay "all legitimate claims" related to the disaster. But that promise has done little to calm fears that it will try to fight tooth and nail, much as Exxon did after the terrible Valdez tanker spill, to limit how much it has to pay out in the future.. [See which members of Congress get the most from the oil industry.]

Those fears have prompted a burst of activity on Capitol Hill, much of it focused on raising—or eliminating—what's known as the "liability cap." According to the Oil Pollution Act of 1990, if a spill occurs, the responsible company has to pay for all cleanup costs, no exceptions. But, in most cases, a company's liability is limited to $75 million for the long-term damage to the local economy, natural resources, and people's livelihoods. The cost of the Gulf spill will vastly exceed that number. [See photos of the Gulf oil spill.]

Last week, the White House voiced support for chucking the cap, saying it wants to make sure BP pays to help states rebuild their coasts and to allow fishermen and businesses to recover. Several Democratic senators agree and have put forward a bill that would get rid of the cap. Over in the House, Speaker Nancy Pelosi says she also favors the cap's removal and wants her chamber to produce legislation by July 4. On a separate track, the White House is now pushing BP to create an escrow account that would cover environmental and economic damages.

But striking the cap, it turns out, isn't going to be a slam-dunk, even amid the populist anger against BP. Several Republicans have argued that removing the cap altogether—which is to say, making oil companies fully liable for the entire cost of a spill—would make it close to impossible for all but the biggest oil companies to drill offshore because the potential financial risks from an accident would be too great. "It would appear to me that if we were to take the cap off altogether, it would institute a de facto ban on offshore drilling," Sen. Jim Inhofe, the Oklahoma Republican, said recently.

Democrats say their goal is not to stop offshore drilling but to make it safer. As Minnesota Democratic Sen. Amy Klobuchar noted, a $75 million cap seems pretty minor compared to the billions in profits oil companies make each year. "How is that an incentive to take safety measures?" she asked in a recent hearing.

In the current situation, these arguments may matter only so much. According to the 1990 law, the $75 million cap doesn't apply if the company is found guilty of "gross negligence or willful misconduct" or of violating "federal safety, construction, or operating regulations." No formal charges of wrongdoing have been leveled against BP yet, but the Justice Department has launched both civil and criminal investigations. With the Exxon Valdez incident, says Lloyd Miller, a lead plaintiffs' attorney in that case, the criminal charges hinged on being able to show that upper management was aware that the skipper of the vessel had a history of drinking on the job. "Once you have the upper management aware," Miller says, the court "can hold the company responsible."

BP, for its part, says that it's acting as if the cap isn't there. Testifying before a House committee this morning, BP America CEO Lamar McKay noted that BP expects to far exceed--and in fact already has exceeded--the cap. But that's providing little reassurance. Exxon has fought the penalties against it for much of the past two decades, and BP may do the same. The Obama administration is clearly hoping otherwise and is having the Coast Guard pressure BP to process claims from fishermen and affected businesses more quickly. That might bring some temporary relief. But the question of how much BP is going to have to pay surely is going to be around for years, if not decades, to come.

* See photos of the Gulf oil spill disaster.
* Check out our editorial cartoons on the Gulf oil spill.
* See who gets the most from the oil industry.

Coast Guard rejects BP oil leak plan as too little, too late

By Mark Seibel, McClatchy Newspapers, June 12, 2010

WASHINGTON — The Coast Guard has told oil giant BP that its proposed plan for containing the runaway Deepwater Horizon well does not take into account new higher estimates of how much oil is gushing into the Gulf of Mexico and demanded that the company provide a more aggressive plan within 48 hours.

In a letter dated Friday and released Saturday, Coast Guard Rear Adm. James A. Watson also said that BP was taking too much time to ready ships to capture oil spewing from the well.

"You indicate that some of the systems you have planned to deploy may take a month or more to bring online," Watson, who is the federal on-scene coordinator for the Deepwater Horizon disaster, wrote Doug Suttles, BP's chief operating officer. "Every effort must be expended to speed up the process."

The 48-hour deadline is the second the Coast Guard has given BP in the past week and indicates a growing recognition on the part of the Coast Guard that both BP and the Obama administration underestimated for weeks the amount of oil pouring from the well, which began leaking when an April 20 explosion shattered the Deepwater Horizon drilling rig, killing 11 workers. The rig sank two days later, taking a mile of well pipeline with it.

For weeks, the Obama administration and BP said the spill was leaking 5,000 barrels a day — about 210,000 gallons. On May 27, a government task force of scientists revised that estimate to a minimum of 12,000 to 25,000 barrels a day, and possibly much more. Then on Thursday, the government doubled those estimates to between 20,000 and 50,000 barrels a day, saying those, too, may understate the size of the leak because a decision to shear off the well's riser pipe to add a "top hat" containment device may have unleashed more oil.

The intervention by the Coast Guard comes as the oil continues to spread across the Gulf. Alabama advised residents not to swim in areas near the Florida border and in the Mississippi Sound. An access route to the Inter-Coastal Waterway, the Pensacola Pass, was closed Saturday evening during flood tide until further notice to keep oil from entering the bay. And tar-ball fields detected in the Gulf appear to be headed toward the Florida Straits.

Watson said the new estimates were the reason for the new deadline, saying the plan Suttles outlined was only "consistent with previous flow rate estimates."

"Because those estimates have now been revised . . . it is clear that additional capacity is urgently needed," he said.

BP said it would respond to Watson's letter "as soon as possible."

The White House was asked Saturday what action it would take if BP doesn’t speed up its effort to containment.

”This isn’t open for discussion,” a senior administration official said. “BP must do better to plan a more aggressive response. In the same way we pushed for second relief well, additional redundancy, more transparency, paying for the berms, etc…we will push them to find better answers to contain the oil.”

The official, who asked not be named as a matter of policy, said the letter to BP was “a unanimous Obama team decision.”

BP and Coast Guard representatives have been meeting throughout the week, Coast Guard officials have said, to refine the plan, which Suttles outlined in a letter to Watson dated Wednesday — before the new flow rate estimates were released. In his letter, Suttles said the plan had been outlined on Tuesday to Interior Secretary Ken Salazar and Energy Secretary Steven Chu. "No objections were raised," he wrote.

Under that proposal, BP outlined two phases — a temporary one involving three recovery ships and a jerry-rigged system combining the "top hat" containment device with hoses already in place from the "top kill" procedure that failed to stanch the well last month, and a more permanent one that involves construction of two new risers from the well that would be serviced by two large recovery ships that are en route to the site now.

BP said that the temporary phase would bring the amount of oil captured to 20,000 to 28,000 barrels a day by the end of next week. Most of that oil would be recovered by the Discoverer Enterprise drilling ship, which has been collecting around its stated 15,000-barrels-per-day capacity through the "top hat" but that Coast Guard officials believe can be pushed to 18,000 barrels a day. The remaining 5,000 to 10,000 barrels per day would be taken up by a second vessel, the Q4000 drilling platform, which would burn the oil in a rarely used, if not unprecedented, procedure. BP vice president Kent Wells said Friday that burning could begin as soon as Monday.

The burning idea has provoked some experts to raise questions about the health and environmental effects of the process.

Containment capacity would be pushed further during the temporary phase by the addition of a third vessel, the drill ship Discoverer Clear Leader, which would take on an additional 5,000 to 10,000 barrels a day when it is operational in mid July, Suttle wrote.

In the second, more permanent phase, Suttles said BP was building two permanent floating risers to provide oil to the Taisa Pisces and the Helix Producer recovery ships. Each riser takes about a month to complete, Suttles said. One is expected to be finished next week. Work on the second began Monday, June 7. Once operational, the new risers and ships would have capacity to receive between 40,000 and 50,000 barrels per day, BP said.

The plan foresees both the Q4000 and the Discoverer Clear Leader discontinuing operations once the new floating risers are operational, but says the Discoverer Enterprise would remain on site and could provide additional capacity, if needed.

In offering an estimate of the total capacity of the temporary phase, BP's plan is more cautious than numbers Coast Guard Adm. Thad Allen used in press briefings with reporters. On Friday, Allen said capacity would reach 38,000 barrels a day once the Discoverer Clear Leader is operational.

BP's numbers may be more realistic, however. While Allen has said that the Discoverer Enterprise could be pushed to receive 18,000 barrels per day, the actual amount it's recovered has declined by a few hundred barrels since it peaked at 15,800 barrels on Wednesday. On Thursday, the ship recovered 15,400 barrels and on Friday, it recovered 15,500 barrels, BP reported Saturday.

How much oil will flow to the Q4000 and the Discoverer Clear Leader is also uncertain. Neither vessel will be "pumping" the oil up from the sea, but instead will rely on the oil's natural pressure to push it up through hoses that were originally used to push drilling mud into the well's dysfunctional blowout preventer during the "top kill" effort. Based on the size of the hoses, the maximum amount likely to flow through to those ships would be 10,000 barrels per day, but could be less, depending on the oil reservoir's pressure.

Both Suttles and Wells warned that there could be additional delays in the plans because of adverse weather and conditions at the drill site, which officials describe as crowded with dozens of ships.

It was also unclear how soon additional equipment could be made available. The Q4000 was under contract to another oil company and only began working the Deepwater Horizon spill after that company agreed to release it. A tanker that will work with the Taisa Pisces to shuttle the captured oil ashore, the Loch Rannoch, is available only because BP has shut down for maintenance the North Sea well it was working, oil industry publications said. BP has yet to identify a second tanker needed to work with the Helix Producer.