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BP Business Economic Loss Claim Appeal 2016-948: Trigger hit, yet 4C still correctly applied


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.

This Claimant owns a luxury hotel in Key West, Florida (Zone A). It received a Business Economic Loss award in the amount of $821,882.49, pre-Risk Transfer Premium. BP appeals, alleging that the Claims Administrator erred in failing to apply the CAO Approved Policy 495 Annual Variable Margin Methodology in analyzing Claimant’s financial data while simultaneously not limiting the Settlement Agreement Exhibit 4C Step 2 Compensation Calculation.

Examination of the record reveals the following, undisputed facts which bear upon these issues. In late December, 2006, two of the hotel’s guests were overcome by carbon monoxide in their room. One unfortunately succumbed; the other was hospitalized and recovered. The hotel was immediately shut down in order to investigate the cause of the incident and conduct whatever equipment repair or replacement might be necessary. It remained closed during the months of January and February, 2007. It reopened the following month.

During the course of the investigation, it was determined that the hotel had not been issued a final occupancy permit upon completion of construction in the year 2000. The city‘s records reflect that the initial construction permits indicated the work was to be completed on January 8, 2001 and that permits were issued for additional work on September 24, 2001, November 7, 2002 and August 19, 2005. All the work covered by those permits was successfully completed. Apparently when the new permits were requested, the city’s building department staff did not realize or determine that it had failed to do a final inspection and issue a permanent occupancy license when the original construction was completed years earlier. Nevertheless, the hotel’s certificate of occupancy and occupational licenses were revoked pending completion of the necessary repair work and subsequent safety inspections.

Claimant then replaced and relocated the equipment which generated the carbon monoxide, and installed the most advanced smoke, heat and carbon monoxide detectors available. Following completion of that work and requisite public safety inspections and permit issuance, the hotel was permitted to reopen in March of 2007. As might be expected, during its period of closure, its revenue dropped precipitously while its operating expenses continued.

The record reflects, following initial review, the Administrator determined that two of the Policy 495 matching criteria were triggered and then used the AVM Methodology in order to achieve sufficient matching. An Eligibility Notice containing a pre-RTP Compensation Amount of $311,316.30 was then issued.

Claimant sought Reconsideration, arguing that:

The reason that this claim fails to be considered sufficiently matched under the Policy 495 Matching Test is because of the closure in January and February, 2007. Those two months cause a dormancy result but the expenses should still be considered as matching sufficiently with the revenues. The expenses in those two months had no direct relationship to the revenues in the remaining months of 2007. Every other month in the four year period is “sufficiently matched”. There should be no need to apply the AVM adjustments to this claim.

The Administrator’s analysis and conclusion are recorded in the following Calculation Notes:

Flags 6 & 7, on the Declaration Tab, are trigged by non-typical revenue and expense cycles January & February 2007 which stem from the December 2006 incident at the hotel. It was identified that expenses are recorded in their intended periods. For the reasoning presented, the DWH accountant utilized the General BEL methodology for this claim.

* * *

We have reviewed the Re-Review Request regarding the application of Policy 495; since the Claimant’s revenues and expenses appear to be sufficiently matched in all months in the benchmark and compensation periods except January 2007 and February 2007, and the exceptions in these months can be explained by the dormancy periods due to the explosion at the hotel in December 2006, this Post-Re-Review Eligibility notice applies the General BEL Methodology as set forth in Exhibit 4C of the Settlement Agreement.

A Post-Re-Review Eligibility Notice with a pre-RTP Compensation amount of $821,882.49 then followed.

BP asserts correctly that Step 2 of the Compensation Calculation for Business Economic Loss claims is intended to compensate a Claimant for incremental profits he or she might have been expected to generate in 2010, in the absence of the Spill, based on the Claimant’s growth in revenue in January through April of 2010, relative to the Claimant selected Benchmark Period. Here, submits BP, Claimant did not experience growth in January through April, 2010, as compared to the same period in prior years, citing its performance during those months in 2008 and 2009. It argues that because Claimant “was closed by regulators for illegal operation of its hotel,” it is not possible to compare its January – April performance in 2010 with that during 2007. According to BP, well-established judicial precedent and holdings in prior Appeal Panel Decisions prohibit a Claimant from profiting from its own illegal conduct. Here, Claimant was “shut down for illegal operation of its hotel” and should not be permitted “to use the shutdown to obtain a $2 million plus windfall.”

The panel decisions relied upon by BP are inapposite. One involved a claim by a Louisiana pharmacist whose license was suspended and upon whom sanctions were imposed for illegal trafficking in oxycodone; the other involved a claimant who pleaded guilty to conspiracy to commit the crime of healthcare fraud. This Claimant’s lack of a permanent occupancy license does not begin to rise to that level of offense. Indeed, it is not all clear whose responsibility it was to complete the process. There is no evidence that operation of the hotel under these circumstances was a criminal offense. There is likewise no evidence that its operation generated any illicit revenues. Following completion of an extensive investigation conducted by or on behalf of a broad range of state and local officials, the Monroe County State Attorney reported that the alleged negligent installation and maintenance of the hotel’s boiler and related equipment did not meet the standards of “conscious intent to harm” or “gross and flagrant negligence” necessary to warrant the filing of criminal charges. This BP assignment of error is insupportable.

BP’s Policy 495 AVM argument likewise cannot be sustained. The record reflects careful consideration of this issue by the Administrator and a clear explanation of his decision. This panelist finds nothing which would warrant a contrary conclusion.

For the foregoing reasons, this BP appeal is denied. The decision of the Claims Administrator is affirmed and Claimant’s Final Proposal is therefore selected.

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