Wednesday, June 2, 2010

BP hit by avalanche of compensation claims over US oil spill

Business owners claim company ignored evidence of broken seal on Deepwater Horizon well

The Crab Shack

An array of potentially costly lawsuits are landing at BP’s feet, some from seafood businesses and restaurants. Photograph: Stephane Jourdain/AFP/Getty Images

While work continues to try to staunch the flow of oil into the Gulf of Mexico, an avalanche of class action lawsuits is descending upon BP in courthouses from Texas to Louisiana, Alabama, Mississippi and Florida.

The suits include claims for loss of earnings, loss of enjoyment or property, or for bereavement suffered by families of the 11 workers killed when BP's Deepwater Horizon rig caught fire and sank on 30 April.

BP has pledged to meet all "legitimate claims". But after the failure of the company's attempted "top kill" fix at the weekend, financial analysts fear the cost could become astronomical if oil continues to flow into the Gulf for weeks to come.

Estimates of the potential cost of the spill vary widely. Including the clean-up, compensation and fines, UBS has suggested BP could face a bill of $12bn (£8.25bn). Jason Kenney, an analyst at ING Commercial banking, increased his estimate of the cost from $5.3bn to up to $22bn if the spill continues until August.

Among the most harrowing claims is a suit filed by survivors and bereaved family members from the blast that sank Deepwater Horizon. Rhonda Burkeen lost her husband, Aaron, on the rig, where he worked as a crane operator. Another plaintiff, Bill Johnson, was Burkeen's supervisor, who escaped the accident but suffered smoke inhalation and traumatic stress.

Johnson escaped on a lifeboat, but was kept alongside the rig, with colleagues, for hours as a fire raged. The lawsuit says: "The company made the decision to keep these men there for over 10 hours alongside the blazing rig as the men stared at the rig, knowing their friends were on it."

The rig, leased by BP from a Swiss-registered firm, Transocean, was covered by a Lloyd's insurance policy. Lloyd's said last week it expected to meet claims of between $300m and $600m arising from the loss of the offshore platform.

Faced with clean-up and compensation bills, BP is seeking up to $700m from Transocean's insurers. This claim, filed on 14 May, has gone down badly with insurers, who say they are only responsible for damage to the rig – not for any leak below the surface of the water.

An array of potentially costly lawsuits are landing at BP's feet. One suit is filed in the name of Kimberly and Do Nguyen, who run a seafood business called The Shrimp Guy. It seeks damages on behalf of all Mississippi businesses engaged in "wholesale, retail and/or delivery" of seafood caught in the Gulf of Mexico, accusing BP of failure to "prevent or mitigate risk" of an oil spill.

In common with many similar lawsuits, the claim alleges that BP ignored evidence of a broken seal on its well, 50 miles off the US coast, and that it and Transocean were aware of failures in the power source of a blowout preventer that was supposed to seal the well in an emergency.

A class action lawsuit on behalf of restaurant owners has been filed under the name of the Smiling Fish Cafe, known for its locally caught seafood, in Santa Rosa Beach, Florida. It says pollution has made produce costlier and harder to come by, and tourism is under threat. "May is the beginning of the summer season, when visitors and locals alike flock to Florida's coastal seafood restaurants to enjoy the sea's bounty," it says.

The Sprinkle Net Shop, which sells and repairs equipment used by fishermen in Mobile county, Alabama, claims its business and thousands like it have been hit by BP's "negligence". And a trio of Mississippi businessmen say their recently completed 16-room luxury fishing lodge, intended for upscale tourists, has been rendered "practically worthless" by the spill.

Mark Lanier, a Houston-based lawyer for one group of plaintiffs, said the litigation against BP would make the 1989 Exxon Valdez oil spill in Alaska look like "an oil leak in a car".

"Honestly, this is a monstrosity, it's a tragedy," he told Texas Lawyer magazine. He said it might become the biggest legal battle in US history. "This is going to be, in my estimation, the largest tort we've had in this country."

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