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BP Business Economic Loss Claim Appeal 2016-1761:AVM Methodology Is The Default Approach; Specialized Methodologies Used Only If Revenue Doesn’t Reflect “Economic Reality”

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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.

Plaintiff is a business in Birmingham, AL that designs and builds custom gates.
The Settlement Program determined that Claimant’s business warrants application of the Construction methodology, and denied the claim. Claimant appeals, asserting it was error not to apply the AVM methodology, under which Claimant would have qualified for an award.
Claimant maintains that it is a short cycle business, and that in FYE 9/30/10, it had a single job that took longer than 30 days to complete. It cites the FYE 2010
Revenue Analysis to support the conclusion that all other jobs, representing almost 80% of its revenue, were done in less than 30 days, billed immediately, and collected
“Net 30.”
Upon Reconsideration, the Claims Administrator’s reasons for the Construction classification of this claim were essentially that it maintains little or no inventory, the claimant pays for materials quickly, and larger jobs are paid as much as 2 months after completion. Of note is that this was a new rationale; the reasoning given for the two earlier denials having been dropped.
The AVM methodology, urged as being the appropriate treatment by Claimant, was specifically designed for the majority of regular BEL claims. “[F]or the majority of claimants, sufficient ‘matching’ of revenue and expenses will be best accomplished through an annual variable margin methodology…”See Policy 495, Underlying Issues/Principles.
Here, it was inappropriate to employ the Construction methodology under Policy 495. Claimant did not have a CON NAICS code as listed in Policy 495 for application of the Construction methodology, although this was initially, and mistakenly, cited as the basis for use of the Construction methodology. Given the short duration of about 80% of Claimant’s jobs, monthly revenues were not unreliable. Only a single revenue item in FYE 2010 was identified as having been paid two months after completion, according to the record cited above.
The AVM Methodology is intended to be the default approach. The specialized methodologies are exceptions to the rule to be used if a claimant’s revenue does
not reasonably reflect economic reality. Given the de novo nature of this review, it is this Panelist’s determination that the AVM methodology would have been the
appropriate approach under these facts. Hence, the denial is overturned, and the matter remanded to the Claims Administrator for treatment consistent with these
findings.

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