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BP Business Economic Loss Claim Appeal 2015-637: NAICS code assignment based on primary business activity


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms.

Claimant appeals the denial of its BEL claim, which denial was based on the determination by the Claims Administrator (“CA”) that Claimant was a member of the insurance industry and, therefore, excluded from seeking recovery under the Settlement Agreement (“SA”).

The Claimant’s business activities are directly linked to the real estate industry on Sanibel Island, Florida. The Claimant’s customers are realtors and their clients who purchase and sell real property and need the transaction completed. The Claimant submitted documents providing an in depth explanation of its primary business activities and providing the basic steps of a real estate closing. These documents show that the Claimant’s primary business activities are acting as an escrow agent, closing agent and performing settlement services for the transfer of real estate. Realtors bring contracts for the sale and purchase of real estate to the Claimant to complete all aspects of the closing process.

The business activities of the Claimant includes the following: 1) ordering a title search of the property; 2) communicating with banks or lenders regarding mortgages; 3) getting proof of real estate taxes being paid on the property; 4) checking on homeowner’s associations and utilities; 5) obtaining outstanding liens on the property and getting those liens satisfied for closing; 6) communicating with the buyer and seller and their attorneys, bankers, realtors; 7) once these tasks are completed over an extended period of time, the Claimant prepares the closing statement for the proper1y; 8) the Claimant prepares all the documents for the closing of the real property, such as the deed, affidavits, proration agreements, W9 forms, etc.; 9) the Claimant escrows the funds for the closing received from the buyer and/or the mortgage lender and issues the checks at closing to the realtors, seller, state agencies and banks; 10) then all the parties to the transaction meet at the Claimant’s office in one of its conference rooms to sign the dozens of documents common in real estate transactions for the final closing process; and 11) the Claimant then disburses all the funds due to the parties to the transaction.

A small part of the Claimant’s business is obtaining a title insurance policy through an underwriter and the Claimant receives a one-time premium for that service. Claimant does not receive any other premiums or commissions for this title policy from the underwriter or otherwise. The commission is paid to Claimant during the closing process and listed on the Closing Statement the Claimant prepares.

In regard to the issue of an NAICS Code assignment, the Claims Administrator’s Policy 480 v.2 recites that the appropriate code for an Entity shall be the one that most accurately describes the Entity’s primary business activities, which are the activities in which the Entity was primarily engaged during the operative Benchmark, Compensation and Class Periods. The Claims Administrator will review an Entity’s 2010 tax return and 2010 business permits and all other evidence of the business activities necessary to determine the appropriate code. The codes used on the tax return or business license will not be considered conclusive and no presumptions will be applied for the purpose of such classification.

Claimant incorporated in 1989 and from its inception has used NAICS code 531390 on its tax returns, which designates “Other Activities Related to Real Estate.” Section of the Settlement Agreement excludes “insurance entities,” including by example insurance agencies/brokerages and “other insurance related businesses.” A list of excluded NAICS codes is provided in Exhibit 18 and, while not necessarily determinative, it is noted that the code used by Claimant, 531390, is not listed.

Policy 480 permits the Claims Administrator to determine the NAICS code that most accurately describes the entity’s “primary business activities.” In this case, the CA decided to substitute for Claimant’s chosen code the alternative NAICS Code 524210 – Insurance Agencies and Brokerages – which is an excluded NAICS Code in Exhibit 18. That decision was apparently based on Claimant’s role in obtaining the title insurance policy and receiving a premium, and the fact that it has a city business license to “engage as a Title Insurance Company.”

The IRS manual dealing with NAICS coding gives examples of activities that fall under Claimant’s chosen NAICS Code of 531390, “Other Activities Related to Real Estate.” Those examples are more similar to the Claimant than those activities listed under “Insurance Agencies and Brokerages.” The IRS manual under NAICS Code 531390 states that “theses are establishments primarily engaged in performing real estate related services.” Examples that are given by the IRS manual are “Real Estate Escrow Agencies.”

The Claimant’s business activities are identical to Real Estate Escrow Agencies as the Claimant escrows the buyer’s funds, bank or lender funds and then disburses those funds at closing to all the relevant parties. These escrow activities of the Claimant are more significant activities than the passing along of a title insurance policy.

The IRS manual states that the Claims Administrator’s substituted NAICS Code 524210 “Insurance Agencies and Brokerages” relates to establishments primarily engaged in acting as agents selling annuities and insurance policies. The Claimant doesn’t sell a title insurance policy, it provides one from an underwriter as part of the whole real estate closing transaction.

A de novo review does not support the NAICS designation 524210 as there is no evidence that Claimant’s business is one “primarily” engaged in serving as an insurance agency or brokerage. The record evidence does not indicate that Claimant’s primary business is acting as an agent in selling insurance policies or providing services related to insurance to be excluded under codes 524210.

The Claims Administrator erred in assigning NAICS Code 524210 to Claimant. Thus, the appeal is upheld and the claim is remanded for processing under the NAICS Code 531390.

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