BP Will Not be Reimbursed for Overpayment of Claims, Federal Judge Rules

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Summary: BP argued in federal court that it has overpaid claims to businesses that reported damages after BP’s 2010 oil spill. A federal judge ruled that the deal will not be retroactively altered.

ABC News reports that a federal judge has ruled BP must honor an agreement it entered into with companies in exchange for damages the companies suffered due to a 2010 oil spill in the Gulf.

  

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BP argued that it is entitled to have some of that money back because a “flawed funding formula” provided for 800 businesses to overestimate the damages they suffered due to the spill.

For example, BP argues that a construction company located a few hundred miles from the coast received $13.2 million from BP, but in actuality it should have been compensated a maximum of $4.8 million. Another company involved in sales of “animals and animal skins” was overpaid $14 million. BP asserts that about 50 companies should have never received money from BP in the first place.

Kevin Downey, attorney for BP, stated that $185 million should be reimbursed to BP from roughly 150 claimants. Additional overpayments have not yet been calculated.

However, U.S. District Judge Carl Barbier was unconvinced that BP was owed any funds from the businesses. BP is currently facing up to $50 billion in liability costs for the spill.

Judge Barbier had previously agreed to change the compensation formula for future payments to businesses.  On Wednesday, the judge ruled that any excessive payments made before the methodology change need not be refunded to BP. Those deals had provided that claimants would be unable to sue BP for damages, and BP agreed that payments would not be changed under future court action.

Geoff Morrell, BP company spokesman, said, “BP disagrees with today’s decision and will appeal it. We asked the Court, as a matter of equity and fairness, to order the return of excessive payments.”

Judge Barbier added that compensation for cleanup workers whose medical problems did not manifest until after the deal’s deadline of April 16, 2012 would be evaluated at a later date. That settlement entitled workers who became ill with chronic conditions such as rashes or breathing problems to receive over $60,000 in damages if they suffered symptoms at the beginning of the cleanup.

The oil spill, which resulted from an explosion that ripped open BP’s Macondo well in the Gulf of Mexico, killed eleven workers and destroyed the Deepwater Horizon drilling rig. It has been called the country’s worst oil disaster.

Many containment efforts implemented in the first three months failed, which tainted seafood grounds, as well as coastal marshes and beaches. To save face, BP promised to compensate victims.

BP argues that its financial situation is different than it was four years ago. “In 2010 and 2011, BP was willing to cut any deal necessary with anyone to reduce its legal risk. Now the company is taking a more assertive approach,” Pavel Molchanov, an energy analyst for Raymond James, explained. On the date of the explosion, BP’s stock was $50.20 a share. By June 2010, it had plummeted to $22.80. Shareholders cautiously returned after BP reassured them that $42 billion was set aside to cover liabilities associated with the spill.

However, BP’s expenses may not be clear at this point after the judge ruled BP exhibited gross negligence and willful misconduct after the spill. This reduced the company’s market value by $9 million in one day. “It added a big question mark,” Molchanov said.

BP faces up to $18 billion in fines and penalties for violating federal pollution laws, and BP claims it has already paid $27 billion to settle damage claims and restore the coastline. The settlement fund is not capped, and $4.1 billion has been paid to 50,700 people and businesses. BP may have to sell assets to cover the hefty fines.

Photo credit: bpoilspill.us