Help on the Way? BP Reaches $7.8 Billion Settlement with Thousands of Private Plaintiffs


Although the start of the “trial of the century” has been further delayed, relief for individuals and businesses damaged by the BP oil spill may be delivered in relatively short order. According to a statement issued by New Orleans District Court Judge Carl Barbier late Friday night, BP and attorneys representing spill victims “reached an agreement on the terms of a proposed class settlement.” The federal judge also announced that the massive oil spill trial, originally slated to kickoff Feb. 27, is “adjourned” indefinitely while the next steps are worked out.

This latest development is certainly cause for, at least, measured celebration nearly two years after the Gulf Coast and its residents were rocked by the worst environmental disaster in U.S. history. The eleventh-hour agreement signals that help could be on the way for more than a hundred thousand individuals – including struggling commercial fishermen and sick cleanup workers – and businesses that were harmed by the 205-million-gallon spill that began in April 2010 when the Deepwater Horizon rig exploded and sank to the seafloor.

From a March 3 New York Times report by John Schwartz:

BP issued a statement from the company’s chief executive, Robert Dudley, saying, “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.” The company estimated that paying the claims would cost $7.8 billion – but it did not state that the estimate represented an upper limit on what it would pay. It said it had already paid out more than $8 billion to claimants, and had spent some $14 billion in responding to the spill.

The two lawyers who led the plaintiffs’ steering committee, Stephen J. Herman and James P. Roy, said, “This settlement will provide a full measure of compensation to hundreds of thousands – in a transparent and expeditious manner under rigorous judicial oversight.”

The plaintiffs’ group that reached the agreement with the company represents businesses and individuals affected by the spill.

As a point of clarification, I should note that the $7.8 billion is only a partial settlement and does not resolve Clean Water Act fines that will eventually be collected by our federal government. Those pollution violations could add nearly $20 billion to BP’s tab. Neither does the partial settlement include claims from state and local governments along the coast, which have also sued the oil giant for damages.

The partial settlement does, however, represent a clear first step in getting relief to tens of thousands of spill victims who are still reeling from the devastation of the 2010 disaster – among them commercial fishermen faced with severely depleted catches and sick cleanup workers faced with ballooning medical bills. But there is a sticking point: Many plaintiffs, including many of my clients, want their cases handled on an individual basis rather than competing with other victims for their fair share of a pre-determined pool of compensation funds.

In many ways, the $7.8 settlement agreement is playing out as a profoundly unpleasant deja vu for many spill victims. They must once again weigh fair compensation against quick compensation – just as they did when they were faced with the choice of either suing BP for damages or filing a claim through the $20 billion compensation fund setup by BP and administered by D.C.-based power attorney Ken Feinberg.

The claims option promised much quicker compensation, but the process was riddled with problems. As you may recall, Mr. Feinberg and his Gulf Coast Claims Facility were criticized for a process that lacked transparency and independence (from BP), was slow to deliver payments and offered unfair compensation, in many cases, amounting to only pennies on the dollar of the total claim.

The one difference between the new process and the old will be that Mr. Feinberg, thankfully, will not be the one making the decisions. Perhaps as a way to signal a renewed commitment to fairness and efficiency, BP has replaced Mr. Feinberg. From a March 4 Times-Picayune report:

After reaching a deal Friday night to settle health and economic damage claims by individuals and businesses who were harmed by the Gulf of Mexico oil spill, BP and plaintiff attorneys leading the litigation say the court-supervised claims process will begin immediately.

Ken Feinberg, the administrator of the Gulf Coast Claims Facility, which has been paying claims on behalf of BP using money from a $20 billion fund, will step aside sometime this week.

Lynn Greer, a principal in the Richmond, Va., firm BrownGreer PLC, which has been assisting Feinberg, will take over as the temporary claims facilitator. Then, in six to eight weeks, assuming U.S. District Judge Carl Barbier gives preliminary approval to the deal, Patrick Juneau, a special master from Lafayette, will begin overseeing the payment of claims under the terms outlined by the settlement.

A bit of unsolicited advice to Ms. Greer: Transparency is imperative. The opaque nature of Mr. Feinberg’s process led to widespread confusion, frustration, distrust and outright ire from public officials, watchdog groups and hundreds of thousands of claimants. Only time will tell if this new structure will work more fairly and more expeditiously. As they say, the devil is in the details, which will emerge in the coming weeks. More from the Times-Picayune report:

The deal is divided into two class actions, one covering economic loss claims and the other covering medical claims.

Anyone who fits the descriptions in the class actions – even those who had never filed with Feinberg or filed in court – will automatically be included. If they don’t want to participate, they will need to opt out. That process will occur quickly, giving people probably 60 days to opt out.

Structuring the settlement as class actions gives BP greater certainty that the deal will resolve its problems. For the plaintiffs, it adds another year to the clock, moving the ultimate deadline for making claims from April 2013 to April 2014. It also enables the settlements to handle not only individual losses but create things for collective interests, such as the $105 million set aside for improving the capacity for health care delivery on the Gulf Coast and other money reserved for tourism and seafood marketing.

Plaintiffs that do not want to be included in either of the two classes will have 60 days to opt out. As I mentioned, there are indeed plaintiffs, including many of my clients, that want their cases handled individually rather than as part of a class. We will see over the next two months how many victims opt in to the established classes and how many opt out. A key determining factor will be the formulas BP uses to determine compensation payouts from the $7.8 billion pool. The good news is those “damage formulas” must be approved by the court.

With a settlement structure this complex and unwieldy, the next few weeks will be critical in establishing trust and acceptance from plaintiffs. I’d argue that reaching a settlement was the easy part. The hard part will be establishing a process that fairly and quickly compensates victims – a result that the Gulf Coast Claims Facility failed to deliver.

We will stay all over this process and bring you updates as they become available.

Read the New York Times report by legal guru John Schwartz here:

Read the Rebecca Mowbray’s report for the Times-Picayune here:

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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