Why The US Supreme Court Rejected BP Appeal

By: MICHEAL KAUFMAN
Published: Dec 9, 2014 at 4:11 pm EST

BP plc (ADR) (NYSE:BP) was involved in America’s largest oil spill in the Gulf of Mexico in 2010, resulting in the death of 11 rig workers along with long-lasting damage to the wildlife and its habitat, and local businesses; a total of 4.9 million barrels of oil were spilled. Five US states were affected as a result including Florida, Texas, Alabama, Mississippi, and Louisiana.

Following investigations, US district judge Carl Barbier deemed the oil company grossly negligent and imposed fines amounting $4.25 billion related to environmental losses, excluding reimbursement to individuals impacted by the catastrophe. BP has already paid $2.3 billion, and has appealed against the judge’s ruling, claiming that the company was being unfairly charged higher. The UK-based energy company has also criticized the claims office; it said some businesses that were not able to prove financial losses from the disaster have collected large amounts in payments.

For instance, BP had to pay $3.5 million to a company in Alabama. BP argues that financial losses accrued by the particular company were a result of its asset divestitures in 2009, and was unrelated to the oil spill.

But the US Supreme court, in a recent decision on Monday, December 8, decided against BP. The oil company has kept aside $43 billion in order to resolve claims. According to Reuters, the company could pay as much as $18 billion in claims following the Supreme Court’s decision.

Earlier in March, the Fifth US Circuit Courts of Appeal had also rejected the company’s appeal. According to reports, the company had agreed to a 2-1 ruling, and would avoid trial and manage the claims more efficiently. According to the settlement, businesses located in the vicinity of the oil spill just had to show a decline in revenues in 2010, and a recovery the next year, in order to claim payments from BP. But BP is now contradicting its initial agreement, asking for substantial proof of damages caused by the spill. The US Supreme Court wants BP to abide by the initial agreement, which required no proof of damages from local businesses.

Back in 2012, when BP agreed to the settlement, it had estimated costs of around $7.8 billion. Following the Supreme Court’s decision, BP has revised up its estimate to over $10 billion, with the possibility of a further rise.

Attorneys representing the plaintiffs expressed joy at the Supreme Court’s ruling; Stephan J. Herman and James P. Roy said, “Today’s ruling is a huge victory for the Gulf, and should finally put to rest BP’s two-year attack on its own settlement.”

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