Shocking: Federal Intervention In BP Claims Process Isn’t Helping

An AP piece from last night brings up something we just knew would happen:

BP said Monday it had received 145,000 claims from residents and business owners like Lindsay citing lost income because of the massive spill in the Gulf of Mexico, and had paid out $324 million without denying a single claim.

That sounds pretty good, until frustrated residents and officials point out that 39,000 claims are in limbo — some of them, including Lindsay’s, have been there for months. Some that have been paid are only partial payments, and many of those people are still fighting for more money.

“Therein lies the problem,” Mississippi Attorney General Jim Hood said recently. “They don’t deny them. They just hold them open forever.”

Hood speculated that BP PLC would rather wait for Kenneth Feinberg, the federally appointed administrator of the $20 billion compensation fund BP established at the behest of the White House, to take over the claims process this month. That way, if a claim is denied, “he’s the bad guy” instead of BP, Hood said.

BP claims director Darryl Willis said the company isn’t deliberately delaying. Rather, 26,000 pending claims are still being evaluated and thousands of others need more documentation, the company said.

“Our intent is to continue paying claims until this process is handed over to Ken Feinberg,” Willis said. “There’s no intent to slow this thing down.”

However, BP does defer “questionable” claims to Feinberg, including “restaurants and tourist claims from areas that haven’t been impacted by an oiled beach,” company spokeswoman Pat Wright said.

The article goes on to say that when BP doesn’t think a claim has merit they pass it up the line to Feinberg – whose outfit hasn’t even gotten started yet. Meanwhile, BP has put $3 billion into Feinberg’s claims-paying account.

When President Obama met with BP’s top brass and “shook them down” for that $20 billion, we smelled a rat. So did lots of other people, including Rep. Joe Barton, the ranking Republican on the House Energy & Commerce Committee. Barton’s apology to then-BP CEO Tony Hayward was terribly misplaced, but he was on to something in that the establishment of the slush fund to pay claims reeked of inside dealing.

And it does. For a couple of reasons.

First, that $20 billion handover to Feinberg, which will happen over the space of four years, gives BP a $10 billion tax writeoff this year. So when the Obama administration traipses around the country talking about how none of your tax dollars are being used to clean up the spill or pay claims, that’s not really true.

SEC officials had come under fire from Congress for previously allowing tax deductions from penalties in other cases.

Analyst Fadel Gheit of Oppenheimer & Co. called the tax credit the result of “straightforward costs related to operation.”

But at least one Democratic lawmaker, U.S. Rep. James Oberstar of Minnesota, chairman of the committee on transportation and infrastructure, is appalled. “BP’s decision to claim a nearly $10 billion tax credit stemming from costs it incurred during the oil spill cleanup is nothing short of reprehensible,” he said in a statement.

“At a time when the Gulf Coast is reeling from this catastrophic economic and environmental disaster, the last thing the region needs is for BP to substantially offset the amount it is paying to meet its responsibilities for cleanup and compensating victims,” Oberstar added.

Another wrinkle in this situation, though, is that it appears no other entity in hot water with the U.S. government has incurred costs on a similar scale as BP. The company has agreed to put $20 billion in an escrow account to pay claims for oil-spill damages.

A goof?

But half of that may now come out of government coffers, and it could prove to be embarrassing for the Obama administration, presuming the president and Hayward did not discuss the issue at their recent meeting, according to David Desser, managing director of Juris Capital, which invests in corporate litigation. It was after that meeting that Hayward announced the $20 billion escrow fund.

“You would have thought in advance of that meeting, they would have thought of all of those issues,” Desser said. “How do you unring that bell?”

“It looks to me like maybe the administration goofed here,” he added.

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