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Far-flung claimants complicate BP oil spill fund

Far-flung claimants complicate BP oil spill fund

Worries are mounting that the volume of claims from the Deepwater Horizon oil spill, some of which allege damages hundreds of miles from the Gulf Coast beaches where oil washed ashore, will bog down the facility created to administer payments on behalf of BP P.L.C.

The Gulf Coast Claims Facility will have enough money to pay legitimate losses, but there is a danger that the volume of claims could create logjams that will slow payments, according to Kenneth Feinberg, the facility's administrator.

“There is great concern that there will be so many claims that it will be difficult to efficiently process the claims,” Mr. Feinberg said. “But BP has made it clear that there will be adequate funding to pay claims.”

Meanwhile, while the fund has limited the insurance claims stemming from the spill, insurers may see claims if some are rejected by the GCCF, experts said. Whether rejected claimants will be able to recover losses from insurers will depend on circumstances around their losses and the type of coverage they have in place, sources said.

The GCCF was created in August to take over claims administration after BP had paid around $399 million on 127,000 claims. As of Nov. 5, the BP-funded facility had paid $3.42 billion on an unstated number of claims.

BP said this month that its latest estimate was around $40 billion for the cost of cleanup and claims payments related to the spill.

A Nov. 23 deadline is looming for claimants to file for emergency advance payments from the fund. Beyond that date, claims will be handled under a new protocol that is expected to be released soon.

The GCCF is charged not only with sorting out legitimate claims from the tens of thousands that are filed from Gulf Coast residents and businesses that were directly impacted by the spill, but also those that are lodged by claimants who are far from the beaches where oil washed ashore after the April 20 explosion on the Deepwater Horizon rig.

The facility has received, for example, claims from restaurants and fishing equipment companies located hundreds of miles from the coastal area where the oil washed up. Such claimants are saying they suffered losses because of the impact of the spill on their businesses, regardless of the distance of those operations from the region where the accident occurred.

Those claims have to be held to a high standard of proof so there is no danger that they could deplete the funds available for “unquestionable” claims, said Patrick A. Juneau, an attorney with the Lafayette, La., law firm of Juneau David A.P.L.C. Mr. Juneau serves as the liaison between the state of Louisiana and the GCCF on matters related to processing Louisiana claims.

“In Louisiana, we believe proximity should be a factor,” Mr. Juneau said, and claims that come from distant claimants, while they should not be automatically denied, should have to show “without question that there is a causal connection with the accident.”

Sources say insurance coverage could come into play if the GCCF decides not to pay some claims.

Policyholders with pollution insurance that have suffered property damage as a result of the spill will have “the potential for coverage,” depending on the nature of coverage and circumstances around the claim, said Chris Smy, Atlanta-based global environmental practice leader with Marsh Inc. “There is the potential for business interruption as well, but it would have to be the result of pollution damage,” under such coverage, he said.

An attorney with experience in business interruption claims said there could be the potential for recovery from insurers for those losses if the facility rejects such claims.

The GCCF protocol will spell out what sorts of claims will be accepted, the attorney pointed out. If, for whatever reason, it decides some claims will be rejected, rejected claimants might well be able to turn to their insurers, he said.

“I'm sure they have put their insurers on notice,” he said of commercial operations waiting to see how their claims will be handled by the GCCF.

Mr. Smy said he is aware of some pollution claims having been filed with insurers, but the volume of such claims is not expected to be substantial.

Claimants in Louisiana and other parts of the coast where the oil directly affected businesses do not have a lot of difficulty in proving their losses to the GCCF, Mr. Juneau said. “The proof is in the pudding” for claimants along the shores where oil washed up, he said.

Mr. Juneau added, though, that faraway claimants should have to “come forward with a true connection; it has to be a very indisputable, provable claim.”

Gulf Coast claimants “don't have any difficulty with that test,” he said. “Our concern is that we don't deplete the funds that are used for unquestionable claims.”

Mr. Feinberg said claims filed by distant claimants will be considered by the facility and will get close scrutiny. “It's one thing to say a claimant far from the beach is able to file,” he said, but that doesn't mean the legitimacy of such claims won't be carefully considered before payments are granted.

The burden of proof for claims outside the region is too much trouble for some attorneys.

“I have thousands of clients, and I don't take anything that's more than 2,000 feet from the beach,” said Daniel E. Becnel Jr., a plaintiffs attorney with The Law Offices of Daniel E. Becnel Jr. in Reserve, La. “I'm not saying that those claims aren't viable,” he said. “It's just that they're harder to prove.”

Mr. Becnel said he has found the GCCF to be cooperative in handling emergency advance payments. The facility paid a $4 million claim he filed on behalf of a Florida resort. “I don't find them being unreasonable,” he said of the GCCF.

Ervin Gonzalez, an attorney with Colson, Hicks, Eidson in Coral Gables, Fla., said it's clear that some claims filed by businesses outside the Gulf Coast region are entitled to damages from the GCCF.

A fishing equipment manufacturer client of his has filed a claim for losses because the manufacturer can't sell his goods to buyers who previously purchased them, Mr. Gonzalez said. “If a manufacturer of fishing equipment used in the Gulf is not selling to his customers” who can't fish in those waters because of the spill, “that's a legitimate claim,” he said.

The spill provides an interesting lesson as to how policyholders might consider protecting themselves from such losses in the future, said Mr. Smy.

“Most don't buy pollution cover,” Mr. Smy said. The spill “may cause them to rethink that strategy,” he said.