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BP Business Economic Loss Claim Appeal 2017-1021:Drywall Contractor Fails to Pass SA Exh. 4B Causation Tests

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 drywall and insulation contractor located in Hodges, Alabama (Zone D) appeals the denial of its Business Economic Loss claim for failure to pass any of the Settlement Agreement Exhibit4B causation tests.
After review of Claimant’s financial data in keeping with the requirements of CAO Policy 495 identified matching issues, the Claims Administrator utilized the Construction Methodology to correct them. The reallocation of Claimant’s revenues prescribed by that methodology caused it to fail all of the requisite causation tests.
In this appeal, Claimant contends the Claims Administrator should have utilized the Annual Variable Margin Methodology because it engages in short duration projects lasting a few weeks; its customers are consistently billed 50% at the commencement of a project and 50% upon completion; and payments are generally received within 30 days. Based on these factors, it says, revenues appear to be more indicative of its business operations. Further:“Building Material–Other” is the main driver of variable expenses on the claimant’s profit & loss statements. There are wide variances on a monthly basis for this expense item, where one month can sometimes be four to five times higher than the preceding month. Restating income based on these expenses does not provide a realistic picture of the claimant’s business.
In rejoinder, BP argues that, despite Claimant’s contentions, its financial data presents the matching problems that the Construction Methodology was designed to address, citing the Claims Administrator’s finding that “[r]evenue does not appear to fluctuate in conjunction with variable expenses;” and the monthly revenues reported on Claimant’s Profit and Loss statements fluctuated throughout, including lack of any revenues during July, 2007 and May, 2010.
Nonetheless, Claimant still recorded significant variable expenses during those months. Claimant does not dispute that it is a construction company nor that its financial data is not sufficiently matched. The NAICS Code assigned it by the Claims Administrator is 238310, Drywall and Insulation Contractors, a code which is assigned by Policy 495 to the Construction Methodology. While that policy is not binding upon the Claims Administrator in the event he concludes another methodology would be more appropriate in order to achieve sufficient matching, de novo review leads this panelist to the inevitable conclusion that the Construction Methodology was appropriately selected and utilized in this case. Unfortunately, that resulted in Claimant’s inability to pass causation.
For the foregoing reasons, this Claimant appeal cannot be sustained. Denial affirmed.

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