Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 10. Damages
damage to the region. The government brought civil and criminal cases on its own behalf to
recover its cost in cleaning up and mitigating the impact of the spill. In parallel, individual
plaintiffs began to reach for compensation.
The Compensation Fund
In the aftermath of the spill, BP committed to taking “full responsibility” for the disaster
and promised to compensate injured parties. BP hired Kenneth Feinberg, the same lawyer who
ran the 9/11 Compensation Fund, to administer claims through the Gulf Coast Claims Facility
(GCCF). Businesses and individuals filed claims with the fund, which had broad authority to set
criteria for determining eligibility and awards. The GCCF came under heavy criticism by state
governments, the Department of Justice, and plaintiffs for taking too long and for improperly
rejecting claims. The GCCF paid out nearly $7 billion before it was subsumed into the broader
class action settlement.
The Class Action Settlement
While the GCCF was paying out claims, BP was negotiating with a class of plaintiffs in
district court. BP actually supported the plaintiffs’ motion for class certification. In March 2012,
it reached a settlement agreement with the plaintiffs that was approved by the court. Under the
settlement agreement, BP agreed to pay out claims to parties who could demonstrate an economic
impact during the time period of the oil spill—without demonstrating that the oil spill actually
caused that downturn in revenue. The broad terms of the settlement led to subsequent lawsuits
over the claims administration process. BP challenged the claims administrator’s decision to give
awards to plaintiffs who could not demonstrate a causal connection between the oil spill and their
injuries, but the district court upheld the process, stating that BP was bound by the terms of the
settlement that it agreed to. BP appealed to the Fifth Circuit, and lost. In re Deepwater Horizon,
744 F.3d 370 (5th Cir. 2014). BP also challenged the accounting process that the claims
administrator of the fund was using, and the district court agreed with BP—but refused BP its
request to recoup funds paid out under the old methodology. So far, about $4 billion has been
paid out under the class action settlement. Many plaintiffs opted out of the class action process,
and those cases are still settling.
Why did BP agree to such a bad deal? At the time, BP was taking heat about the GCCF
from federal and state governments, who were both suing BP themselves and debating regulations
restricting exploitation of offshore assets. It may have believed that getting a fast, generous
settlement would have a public relations benefit that would spill over into other areas. BP
ultimately paid out approximately $2 billion to federal and state governments. After a brief
“moratorium” on approving new offshore assets, regulation has not actually significantly
increased in the Gulf, and BP has opened up new wells there in the past several years.
It remains to be seen what lessons will be learned from this debacle. Future companies
may be more cautious about agreeing to broad, ill-defined settlement agreements—but perhaps
they will take comfort from the fact that they may be able to buy their way out of regulation by
accepting tort liability.
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