One word: policy. For BP oil spill claims, there is no policy.
For almost two decades, the vast majority of my experience has been in calculating business interruption losses for insurance claim purposes. Because the amount that a business recovers for a business interruption loss is limited by the provisions within the insurance policy, a business may experience damages beyond what is actually covered in the policy. When this situation occurs, it can be very frustrating to the business owner or corporate officers.
What makes the BP oil spill claim process different is that there is no policy that limits the damages that can be claimed against BP. All damages that can be supported, with a reasonable degree of accounting/valuation certainty, should be presented and considered for reimbursement by BP and Mr. Feinberg’s team.
As a matter of fact, until very recently, it has been the position of both BP and Mr. Feinberg that all “legitimate claims” would be paid. This sounds very reasonable to me as a damage valuation expert. Businesses should have to quantify, support, and defend their damage measurements. However, in recent public statements, Mr. Feinberg has revised his position. He now states that not everyone will be paid and that physical damage, in other words, oil on the beach, is a prerequisite for recovering damages. My question is, “Why did this change in his thinking occur?”
I’ve recently learned that BP has engaged ESIS to administer the claims related to the $20 billion fund for BP claims. ESIS is a third party administrator with the technical abilities to handle a large volume of damage claims. Sounds like a good idea, right? It does, until you look a little closer at who’s really involved.
ESIS is owned by ACE. ACE is a property insurance company. A company well versed in both limiting their liability by verbiage in their insurance contract and then hiring teams of experts to minimize payments on claims made against them.
In other words, a property insurance company has now become involved and all of a sudden businesses must prove “physical damage” in order to be reimbursed for financial damages. It’s not hard to connect the dots.
Here’s my prediction: at some point, you will hear Mr. Feinberg talk about limiting the damages to a specific time frame following the actual oil cleanup. The insurance term for limiting a time frame related to damages is the “extended period of indemnity.”
The powers that be are trying to, and will continue to, apply insurance policy theory to a situation where no insurance policy exists, in order to limit the amount of damages BP will have to pay. The situation is supremely unfair to Gulf coast residents, who never entered into a contractual agreement with BP, but are now seemingly subject to rules they never agreed to.
Does anyone really know how long the damage due to the oil spill in the Gulf of Mexico will be around? How long will business owners and residents be affected–months, years, or decades? Hopefully, Mr. Feinberg will have compassion for the people of the Gulf coast when evaluating these claims, rather than listening to only his new insurance company friends.
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