February 17, 2014

On Exxon Valdez Anniversary, Questions For America’s Legal System

This month marks the 25th anniversary of the Exxon Valdez accident – a mishap that spawned decades of litigation and delayed justice for many.  Over the two decades that litigation dragged on, an estimated 8,000 original plaintiffs died while awaiting their compensation as the company and the plaintiffs’ lawyers battled it out in court. 

It’s a legacy that BP sought to avoid in the aftermath of the Deepwater Horizon (DWH) accident.  Rather than spend decades fighting with plaintiffs in the courts, BP immediately acknowledged its role in the accident, began paying claims, and waived the $75 million statutory cap on its liability.  It also established a $20 billion trust fund to assure the nation that funds would be available for economic and environmental restoration in the Gulf.  In 2012, BP went further, entering an agreement with the Plaintiffs’ Steering Committee (PSC) to resolve the substantial majority of legitimate private economic loss claims stemming from the accident and oil spill.  The company did so because it wanted to do the right thing and compensate claimants that suffered actual losses as a result of the spill.

BP meant what it said, and the company has lived up to its word.  In the almost four years since the accident, BP has already paid out more than $12 billion on claims submitted by individuals, businesses, and government entities.  That’s on top of the more than $14 billion the company has spent on response and clean-up. 

Unfortunately, the company believes that misinterpretations of the settlement agreement have resulted in huge awards for claim­ants with fictitious losses and losses with no apparent connection to the spill.  Among them: A wireless phone store that was closed for nearly all of 2010 as a result of a fire that predated the oil spill; a lawyer located approximately 200 miles from the Gulf who lost his license four months before the spill; and a wheat farm more than 200 miles from the Gulf that elected not to plant and harvest crops in 2010.  All got awards from the claims program.  No company would agree to pay such awards – and BP certainly didn’t.

Over the last year, these misinterpretations have been the subject of extensive litigation in the courts.  BP won a favorable ruling on the question of whether revenues and expenses must be appropriately matched in calculating lost profits, and the company awaits a decision on the proper interpretation of the settlement agreement’s causation requirement for class membership.

But in BP’s opinion, a warped application of the agreement isn’t just BP's problem – it also sends a troubling message to companies involved in future accidents: that they might as well litigate as long as possible rather than risk exposing themselves to new liabilities by trying to make amends.

BP believes that the public policy ramifications of this message are especially perverse in the case of oil spills.  As former members of the Presidential Commission that investigated the DWH accident said in a subsequent report last year, the Gulf states “and the country at large were fortunate that BP … ignored the [liability] cap and had both the resources and the willingness to bear the full costs of responding to the spill.”

Moreover, errors in interpretation of this landmark agreement, the company believes, could spell problems for the use of class actions as a means of resolving business problems.  The Fifth Circuit warned: “This case is one of the largest and most novel class actions in American history.  As such, significant legal questions are involved that will affect the course of class action law in this country going forward, and the class action as a suitable vehicle for the resolution of conflict for businesses and litigants.”

All this week, BP will run a series of ads in Politico about the serious concerns the company has raised regarding the way in which the settlement agreement has been implemented.  The company is running these ads to explain why the litigation over the settlement continues and the extent to which the company's commitment to the Gulf is being twisted and exploited.  The examples highlighted in the ads speak volumes, but for every one cited, there are many more where the settlement program made an award for alleged losses with no apparent connection to the spill.  In all, such awards have thus far totaled at least half a billion dollars. 

BP will continue to work hard to return the settlement agreement to what it believes was its original intent: providing compensation to claimants that suffered actual losses as a result of the spill.  A quarter century after the Exxon Valdez accident, America’s legal system should encourage fair and efficient resolution of legitimate claims – not endless litigation and huge awards for non-existent or unrelated injuries.