Thursday, June 10, 2010

“Legitimate” Claims

By now we’ve all seen the $50 million media blitz by BP in which Tony Hayward articulates that all “legitimate” claims will be honored, as well the recent news story that it will pay these claims for "as long as it takes." There is a world of meaning in the word “legitimate” and in a first step to define it before BP’s legal army begins to mobilize, BP announced it would appoint an “Independent Mediator to review and assist in the claims process,” that person apparently yet to be appointed (again, by BP, not an independent authority). This “Independent Mediator” will make advisory decisions” on claims, with those decisions subject to the following:

* If the claimant feels the advisory decision is unreasonable, he or she retains all rights under OPA either to seek reimbursement from the Oil Spill Liability Trust Fund or to file a claim in court.
* If BP feels the advisory decision is unreasonable, the company may choose not to accept it, but the claimant then may use the Independent Mediator's decision in claiming against the Oil Spill Liability Trust Fund or in a subsequent court action

Note the reference to the Oil Spill Liability Trust Fund as the first line of defense for BP. Congress created this Fund in 1986 to pay the claims of “any person or organization that has incurred removal costs or suffered damages due to an oil spill may submit a claim.” Supposedly it is funded at $2.7 billion. However, the Fund site says: “British Petroleum is now accepting claims for the Gulf Coast oil spill. Please call them at 1-800-440-0858.” So, back to you BP!

According to BP, “90 percent of the damages or income loss claims paid out so far had gone to individuals -- primarily fishermen, shrimpers, oyster fishermen and crabbers. The rest had gone to smaller businesses, and the company was also moving to respond to claims by medium- and large-sized businesses.”

No mention is made of the elephant in the room: state and local governments along the Gulf that depend on their revenue from property tax and sales tax. These are under stress to begin with and, now, with tourism disappearing, and properties along the Gulf going unsold (anyone want to buy a home near a beach with tar balls for an unknown period of time?), home valuations are plummeting, along with the associated property tax. Florida, which has no state income tax, is dependent sales tax revenue, a large portion of which comes from tourism with its beaches and water being the major attraction. And, with the Gulf Stream, no part of Florida is immune to the threat of oil contamination.

The ripple effects of lost revenue to small to large businesses, increased unemployment, plummeting home values and increased foreclosures, and finally to tax revenue, are large and long lasting. So, BP, what about the “legitimacy” of claims of state and local governments for the lost tax revenue, this year and perhaps years to come? Thus far BP’s track record, on promptly paying claims, truthfully reporting the scope of the spillage, going all out to save the precious wildlife and shorelines of the Gulf, is poor. This does not bode well for how BP’s legal team will finally attempt to define “legitimate.”