Retail Sector at the Forefront of Deepwater Horizon Claims

It’s been just over three years since the Deepwater Horizon drilling rig exploded, spewing millions of gallons of oil into the Gulf of Mexico in what would become the most devastating offshore oil spill in American history.
While myriad industries were affected by the disaster, the retail sector was hit particularly hard. Of the top 50 firms on the STORES Top 100 Retailers list, nearly 9 in 10 have operations in areas potentially covered for damages under the settlement agreement reached between BP and victims of the spill. BP estimates the total cost of the settlement could climb as high as $7.8 billion—and retailers are likely to claim a good portion of those funds.

The settlement agreement reached after the Deepwater Horizon incident places considerable emphasis for causation requirements on revenue trends. If the agreement’s causation thresholds are met, businesses claiming damages can begin calculating the value of their claims.

Additionally, many retailers fall under the definition of businesses in the “tourism” sector, which, in some cases, has an even lower burden of proof than other sectors. Clothing stores, sporting goods stores, department stores, general merchandise stores, and a host of others are classified as “tourism” businesses, and will thus be able to file for claims as such. All things being equal, compensation for claimants in the “tourism” industry will generally be greater due to the fact that larger compensation adjustment factors are able to be applied in the claim for compensation.

Having worked extensively on claims administration matters, we know that navigating the claims process can be extremely difficult and that compensation awarded under the settlement agreement depends upon a multitude of factors. Here are three key issues retailers should keep in mind when filing a claim:
  1. Assess Impacted Locations: The settlement agreement established four zones which each have different causation requirements in assessing whether the claimant qualifies for compensation. For each eligible location, monthly profit and loss statements must be analyzed in order to evaluate the revenue trends and costs.
  2. Establish Revenue Trends to Assess Causation:  The settlement agreement established various causation tests to prove that claimants were negatively impacted by the spill. Those tests include, but are not limited to, the V Shaped Revenue Test, Modified V Shaped Test and Decline Only Test. These causation tests vary by zone and industry.
  3. Step One, Step Two and Risk Transfer Compensation: The settlement agreement outlines that claimants deemed eligible for compensation will be afforded three types of compensation:
    • Step One compensates claimants for the reduction in its profits during the 2010 compensation Period (May 2010 through December 2010) as compared to a benchmark period of historical operating results. This compensation awarded is for a reduction in revenues less variable costs as defined in the settlement agreement.
    • Step Two compensates claimants for incremental profits or losses the claimants might have expected to generate in the absence of the spill relative to sales from a benchmark period. As such, this compensation looks to apply a potential growth trend to the measurement.
    • Risk Transfer Premium (RTP) Compensation is the amount paid to a claimant for any and all alleged damage, including potential future injuries, damages or losses not currently known, which may later manifest themselves or develop, arising out of, due to, resulting from, or relating in any way to the Deepwater Horizon incident, and any other type or category of damages claimed, including claims for punitive damages.
The deadline for filings claims is April 2014, less than a year from now, but as you can see, the process for doing so is quite complex. Retailers looking to do so are advised to get started as soon as possible.

Blog-subscribe-ad_CB.JPG