Claimants to BP Plc's $20 billion oil spill fund may soon be required to transfer to the company their right to sue other defendants, a move that could help BP's efforts to collect billions of dollars from its business partners.
The proposal is part of a final set of rules being circulated by fund administrator Kenneth Feinberg, who is overseeing the release of cash to shrimpers, hotel owners, restaurateurs and others on the Gulf Coast seeking compensation.
The proposed rule, outlined in a draft document obtained by Reuters, would still offer victims the opportunity for full payment for documented damages.
Lawyers who have seen the document said it could be a powerful tool for BP as it seeks contributions to the compensation fund from other corporate defendants, including Halliburton Co and Transocean Ltd.
"I think the most significant thing about this is it reconceptualizes the fund as not just BP's share but BP trying to settle all the claims with whoever accepts it and then being able to go after the others for a contribution," said Bob Percival, a professor at the University of Maryland School of Law in Baltimore.
Language in the draft proposal requires that claimants transfer, or subrogate, their legal rights to BP. Claimants would sign over their right to sue those responsible for the spill in the same way a car owner might when accepting an insurance payment after being hit by a negligent driver.
Just as the auto insurer could use that right to try to recover money from the negligent driver, BP will be able to pursue its partners for a portion of the claims it paid, according to legal experts who have seen the draft document. That could be worth billions of dollars if BP is successful.
"They are trying to shift the loss to other companies," said Michael Steenson, a law professor at William Mitchell College in St Paul, Minnesota. "They are trying to get out of it at least some of what they put in."
The proposal could be implemented as soon as next week, when the fund is scheduled to shift from paying partial emergency payments with no strings attached to final payments, which require claimants to drop lawsuits and legal claims.
In an emailed statement on Wednesday, Feinberg's office emphasized the language of the proposal is not final. The statement also said the fund will continue to make partial payments with no strings attached beyond next week.
"Options are available to claimants," the statement said.
Feinberg circulated the proposed rules to lawmakers and attorneys for comment, but he has made clear the decision to implement the rules will be his, not BP's.
"It is ultimately my call as the administrator," he told Reuters in an interview last week.
Reuters obtained the draft document from two people involved in the claims process.
BP declined to comment beyond saying it supports the efforts of the fund and those of Feinberg, who the company has called a neutral or independent administrator.
Halliburton, which cemented BP's well, and Transocean, which owned the rig, did not return calls seeking comment.
Although legal specialists said there are few comparisons to the Gulf claims fund, similar transfers of rights were required for those who accepted payments from a fund set up to compensate for the September 11, 2001, attacks. Feinberg also oversaw that fund.
INCREASING CRITICISM OF FUND
The April 20 explosion aboard the Deepwater Horizon rig set off the largest oil spill in U.S. history. Under pressure from the Obama administration, BP set up the claims fund in June. It was meant to demonstrate that the company would pay for the damage caused by the spill.
More than 300,000 businesses and individuals have filed claims so far, and the fund has paid about $2 billion, Feinberg said.
Last Friday, Halliburton moved to defend itself against BP. In court papers, the company said it did not intend to waive a $75 million legal cap on its liability from the spill and said that cap would apply toward efforts by others to get a contribution toward their settlements.
BP has waived the cap and has encouraged its partners to do the same. The cap does not apply in cases of gross negligence or when federal safety regulations have been violated.
The amount that each party could be at fault is unlikely to be resolved soon, and could be settled in a trial set for early 2012.
A White House oil spill commission last week issued a report largely agreeing with BP's investigation that put much of the blame on the partners in the drilling operation.
Feinberg will release his final rules at a time when he is under increasing criticism along the Gulf Coast for what some have called slow and inconsistent payment of claims.
If fewer people sign up for final payments and instead pursue claims in court, that could add to BP's legal problems. Plaintiffs could end up spending years in court and have no guarantee of winning, but if successful they could reap large punitive damage awards.
Alabama Governor Bob Riley said last week that Feinberg was using "extortion" by underpaying emergency claims as a way to force businesses into the final settlement process.
Feinberg told Reuters he has paid 85% of the claims for emergency payments in full. He also said he plans to continue a partial payment system, with no strings attached, so no one would be forced to a final settlement.
"I reject the criticism out of hand that the Gulf Coast Claims Facility is reducing payments for the vast number of claimants. It's just not true," said Feinberg.
The Press-Register newspaper in Mobile, Alabama has called for Feinberg to resign, saying he had tossed businesses in need "just enough crumbs to barely keep them alive.