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Case Study

ARPC hired by GCCF to provide damage estimates and compensation models in historic BP Oil Spill

Confronting the Challenge

As a result of the BP oil rig explosion on the Gulf Coast in 2010, hundreds of thousands of businesses and individuals were impacted across diverse industries such as travel and tourism, fishing, shrimping, and oyster harvesting. There was enormous pressure to devise compensation systems that would balance seemingly conflicting objectives of providing payments quickly and consistently, yet maintaining fairness and fiscal prudency. ARPC was hired by the Gulf Coast Claims Facility (GCCF), the third-party claims resolution organization formed to pay out billions of dollars set aside by BP in a trust fund to cover thousands of claims for damages, to quantify the economic and financial impacts and provide an estimate of damages.

Unlocking Insights

ARPC experts developed an economic model, based on an extensive database of public and private data sources, that would provide the means to determine the impact on the different sectors of the Gulf Coast economy and also determine the rate of recovery. This working model and recovery curve resulted in ARPC being able to recommend a series of compensation methods.

The next step involved developing a compensation algorithm that would equitably compensate claimants and minimize opt-outs, those who would file a lawsuit. The unique circumstances of the Spill created certain challenges because of the diversity of geography, business type and the extent of loss. In some industries, such as commercial fishing, there were myriad biological risk factors that impacted both the extent of the damage and ability to recover, requiring extensive consultation with experts in Gulf commerce and marine biology. There would also be a large number of claimants arising from the tourism industry, particularly hotels, resorts and restaurants. ARPC contacted industry associations to obtain data and research regarding the concentrations of potential claimants in areas affected by the Spill.

ARPC experts provided testimony in public forums to facilitate an understanding of the compensation programs by attending sessions with specific industry groups that represented blocks of claimants.

ARPC also engaged in specialized research related to compensating private property damage and personal injury claims. Our experts developed compensation protocols that were comparable to those used in similar situations. In certain business areas, unique situations arose requiring specialized review. For example, claims arising from business failures or asset foreclosures would obviously not have a current basis from which to recover to pre-Spill levels. Start-up businesses may not have had the required documentation as other business claimants, resulting in a need for a unique set of rules.

In some areas where the spill did not reach, presumptive assumptions about causality needed to be adjusted over time. ARPC was instrumental in the development of proof and valuation protocols for these situations.

ARPC provided advisory services to the Trust’s primary claims processors. At several points in the process, special situations arose requiring additional calculations or review. ARPC considered the unique characteristics of the claimant group or situation and developed an approach that would be standardized in real time for similar claimants. In addition, ARPC was charged with evaluating the processing regimen followed by the claims processors, particularly when the protocols changed. Specifically, there were two major modifications to the compensation algorithms once the final rules were in place. ARPC reviewed the resulting claims decisions to ensure compliance with the modifications. This included reviewing all claimant communications documents as well as samples of claims calculations.

The Solution

Over one million claims were filed, of which over $6 billion were paid to claimants. Most of the offers were based on the compensation methods designed by ARPC. In June of 2012, global settlement negotiations began between BP and residual plaintiffs, which made it possible to wind down the GCCF’s operations.