BP to Ask Judge Today to Halt Spill Settlement Payments

BP Plc (BP/) is seeking to block the administrator handling its $8.5 billion settlement over the 2010 oil spill from paying certain claims, contending his decisions may cost the company billions more than expected.

The company is scheduled to ask U.S. District Judge Carl Barbier in New Orleans for an injunction halting certain payments at a hearing today. Settlement administrator Patrick Juneau’s decisions have already exposed BP “to hundreds of millions of dollars in fictitious ‘losses’ that were never contemplated by the agreement,” the London-based oil company said in court papers last month.

“Although the ultimate exposure is at this time inestimable, it grows daily and could cost BP billions,” BP said in the filing.

The blowout of BP’s deep-water Macondo well off the coast of Louisiana sent more than 4 million barrels of oil spewing into the Gulf of Mexico and killed 11 people. The accident sparked hundreds of lawsuits against London-based BP, Transocean (RIG) Ltd., owner of the Deepwater Horizon drilling rig, and Halliburton Co. (HAL), which provided cement services.

BP reached a settlement last year resolving most economic and medical-injury claims by private parties. The company estimated at the time that the settlement would cost $7.8 billion. BP raised the estimate to $8.5 billion in February, citing the dispute with Juneau.

Similar Request

Today’s hearing comes exactly one month after Barbier rejected a similar request from BP to halt payments by the administrator. The judge ruled March 5 that the settlement agreement required the interpretation of claims that Juneau has been using.

“BP’s interpretation injects a subjective notion of alternative causation and a degree of complexity that are contrary to the settlement’s terms,” Barbier said in his ruling last month.

BP was aware that the terms of the settlement agreement could produce “false positives,” Barbier said, citing a letter from a company executive to Juneau in September.

Such results are an “inevitable concomitant of an objective, quantitative, data-based test,” BP lawyer Mark Holstein said in the letter, according to Barbier.

BP has appealed that decision and filed a separate lawsuit against Juneau and the Deepwater Horizon Court Supervised Settlement Program over payments. Today’s hearing considers both the injunction request and the new lawsuit.

BP last night asked Barbier to put a hold on payments until its appeal of his order is heard.

‘Not Harmed’

“Granting a stay pending appeal will inflict little or no harm on claimants as they are not harmed by forgoing undeserved payments,” company lawyers said in a filing.

A nonjury trial over liability for the spill and explosion began before Barbier Feb. 25 in federal court in New Orleans. Barbier will determine responsibility for the disaster and whether any of the companies acted with willful or wanton misconduct or reckless indifference -- the legal requirement for establishing gross negligence.

Last year’s settlement didn’t include damage claims by financial institutions, casinos and companies claiming harm from the Obama administration’s deep-water drilling moratorium, which was imposed after the spill. It also didn’t include claims by the U.S. government and the states of Louisiana and Alabama.

Lawyers suing the company claim BP underestimated the cost of the settlement.

‘Uncapped Nature’

“The uncapped nature of the potential payments was a seminal feature of the settlement agreement,” victims’ lawyers said in an April 1 filing. “Simply because the value of the overall payments in certain industries exceeds what BP estimated does not make the individual claims ‘fictitious,’” they said.

Juneau ruled that he would measure revenue when it was received rather than when it was earned, BP complained last month. This meant that a contractor filing a claim could show a “fictitious” decline in revenue, “even though it earned the same amount for the same job performed one year earlier,” the company said.

BP said Juneau’s “rewriting” stretched the settlement accord to include claims the oil company never contemplated paying. The company said the “non-existent losses are most prevalent” in the agriculture, construction, professional services, real estate, manufacturing, wholesale trade and retail industries.

BP said two-thirds of all business economic-loss payments larger than $75,000 have been based on “flawed data.” The company also contends that more than 1,200 payments have been made to claimants in the agriculture, construction and professional services industries that are too remote from the area impacted by the spill to qualify for compensation.

Economic Loss

BP is protesting a structure for payments of economic loss that it knew about and accepted, victims’ lawyers said in court papers. Claimants are using comparable months to determine losses, as per the settlement, and counting revenue when they receive it, the lawyers contend.

“The injunction BP seeks would itself violate the express terms of the settlement and trust agreements that BP negotiated, agreed to, and supported,” the victims’ lawyers said in the April 1 filing. “BP is effectively asking the court to enjoin itself.”

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Allen Johnson Jr. in federal court in New Orleans

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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