How to Value an Oil Spill Claim--Not an Easy Task
The lost profit and earning capacity commercial claims arising from the BP oil spill are not easy calculations. BP should not hire liability and casualty adjusters to determine these claims, as they are now doing. In my experience, the vast majority of these adjusters do not know what they are doing when it comes to determining lost profits following business interruption. Many of my attorney colleagues advertising for these cases in a "sign them up and we'll figure it out later mentality" have quite a bit of learning to do as well. Merely asking clients and claimants to send in financial documents and then analyzing them will not determine the amount of the lost profits and earning capacity caused by the BP oil spill.
Many can learn what to do by attending the Oil in the Gulf: Litigation & Insurance Coverage Conference on June 24 in Atlanta. Just before Robert Kennedy, Jr., gives the highlight keynote presentation with plenty of media fanfare, I will give a much more practical presentation-- dear to the hearts of all claimants-- regarding how the valuation of oil spill claims should be made. My co-presenter is an experienced Exxon Valdez valuation expert, John Kilpatrick, PhD, the Chief Executive Officer of Greenfield Advisors. His paper, The Aftermath of Katrina: Recommendations for Real Estate Research, should be considered by those representing BP oil spill claimants to provide some ideas as to the long term lost profit implications following this catastrophe.
The BP oil spill claim process for private claimants is currently a publicity stunt. Even President Obama noted this concern in a Bloomberg Businessweek article, Obama Doesn’t Want BP ‘Nickel and Diming’ Victims.
"President Barack Obama said he doesn’t want BP Plc “nickel and diming” fishermen and small businesses and that the company has a “moral and legal obligation” to compensate those affected by the oil spill in the Gulf of Mexico."
The truth is that unless BP is forced to hire a legion of accountants, economists, and scientific researchers right now, nickels and dimes are all oil spill claimants will be paid because the casualty adjusters BP has hired simply do not have the experience, knowledge and creativity to properly forecast and calculate lost profits and lost earning capacity. The insurance industry has substantially outsourced its obligation to adjust lost income and business interruption losses to specialized accounting firms. Claims adjusters no longer have the ability to handle lost profit claims. Unless a sufficient number of those specialized firms and other accountants are retained, along with transparent economic forecasts, claimants will probably not collect or realize the full extent of the damage caused by the oil spill.
BP currently pays a part of the damage, says it "will" pay for all legitimate claims,” and then intentionally fails to retain a sufficient number of motivated experts who can determine the full extent of the damage. BP is not spending the money required to compensate those whose lives and livelihoods have been devastated by this disaster. Yet, BP maintains the appearance of trying to fairly compensate those harmed. It seems as if BP has read the playbook of many insurance companies when it comes to prompt and full payment of business loss claims.
I agree that BP is not on top of how a claim should be submitted and evaluated.
I actually called the BP 800 number to inquire about filing a claim for a hotel. The representation told me I had to file a separate claim for each room in the hotel. After 15 minutes of explaining that I wanted to file one claim for the entire hotel and not each room separately (which makes absolutely no sense)she referrred me to a supervisor. The supervisor confirmed that each room would represent a separate claim. After a total of 25 minutes I gave up, thanked the supervisor for her help and hung up.
I am afraid that claim settlements with BP will be a very unpleasant experience with out professional help on both side.
Robert Glasser CPA, CFE
Manageing Director
BDO Insurance Claim Services
gee, Chip, have you already dealt with EVERY BP Adjuster? What did they do, provide a roster of how many adjusters they hired, including Resumes?
Just curious how you can make these "fact" statements:
"...because the casualty adjusters BP has hired simply do not have the experience, knowledge and creativity to properly forecast and calculate lost profits and lost earning capacity....
"..BP currently pays a part of the damage, says it "will" pay for all legitimate claims,” and then intentionally fails to retain a sufficient number of motivated experts who can determine the full extent of the damage. BP is not spending the money required to compensate those whose lives and livelihoods have been devastated by this disaster... "
You certainly are not alone in criticizing BP...I would venture to say (though I'm not claiming as fact) that 99.9% of all AMERICANS are upset by this huge, mostrous oil mess - even if it hasn't impacted their homes, businesses, livelihood, etc....BP HAS ASSAULTED OUR MORALE AND OUR "SAFETY NET" TO BE SECURE IN OUR "WORLD." It has attacked our beautiful waters, is killing our wildlife, plants and, of course, adversely impacting Americans' homes, businesses, livelihoods, etc.
Sure, they can pay - just like an ins. co. - money always softens the blow for those directly affected and those chasing the $ - but BP CAN NEVER UNDO WHAT THEY HAVE DONE! THERE'S NO AMOUNT OF $ IN THE WORLD THAT CAN RIGHT THIS WRONG.
Take care,
SHIRLEY HEFLIN
I have over 50 years property and casualty claims experience. I had 10 years oil & Gas sales and service experience from 1972 to 1982. I had 4 years claims experience on oil & gas operators from 1990 to 1994.
I agree with Mr. Merlin 500 bodily injury & catastrophe adjusters or just for show. None of these 500 people have the background to work these economic losses for loss of business income.
I have worked losses that had 10, 50 and 100 million deductibles on oil and gas properties in the Gulf of Mexico during Andrew, and a monster flood on the world largest copper mine for Freeport McMoran. I was over my head and needed the best accounting firms and MBA's.
I agree with all of the comments to date. I have 40 years in the property adjusting industry, with 33 of those on the company side, and the last several as a public adjuster here in California. Unless the claim is very minor, a good 95% of the property adjusters do not know how to evaluate the resulting loss of business without the assistance of an accounting firm.
IMHO, these claims should be only overseen by a highly experienced adjuster wiuth the bulk of the analysis being done by an accounting firm. Having worked for both sides, I know that some claimants will think it's Christmas. But, with both an experienced adjuster and accounting firm, a resolution that is fair to both parties should be possible.
Naturally, BP can't be expected to fork over $25,000.00 to someone just because he says he lost it. There is more than one way to prove (or dis-prove) a claim, and in this very high profile catastrophe, BO would be well advised to not hire auto or liability adjusters just to get a warm body.
I currently am researching employment in whatever area my experience could be best utilized.
I agree with you that these claims should be overseen by an experienced adjuster.
We are accountants in the Alabama gulf coast area and have helped multiple clients file claims. If you know of any businesses facing this challenge that need professional accountant's assistance, please send them our way. BP will pay the fees associated with the production of the documentation necessary to file a claim.
Rachel Byers
Chip --
Thanks a bunch for the kind comments, and citing my article on Katrina. I'd also suggest that your readers visit our web site for other key valuation information. We're planning to make a major announcement about property valuation in the coming days, so we'll keep you posted!