Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

As the November 23, 2010, deadline to file a claim for an emergency advance payment approaches, the next step is still unclear. On October 6, 2010, the Washington Independent published a question and answer interview with Feinberg, in which he indicated that interim payments, rather than binding final payments, may be an option. Interim payments would be the just solution, as the extent of the damages will not be clear for several years.

The panel assigned U.S. District Judge Carl Barbier to preside over the multidistrict litigation (MDL). The cases will be transferred to the Eastern District of Louisiana. In determining the location, the MDL Panel stated:

Without discounting the spill’s effects on other states, if there is a geographic and psychological “center of gravity” in this docket, then the Eastern District of Louisiana is closest to it.

The MDL Panel issued a second order consolidating and transferring all shareholder actions against BP to the Southern District of Texas.

Dan Reynolds, from the insurance industry on-line news, Risk & Insurance ran a story, La. Insurance Commissioner, ESIS Deny Claims-Hiring Rumor. He did a terrible job investigating the facts if he wanted to get it right. He helped BP white wash an investigation of the claims process by interviewing only Donelon and then the company in charge of the process, ESIS. He failed to do what any reasonable junior investigative reporter would have done--dig for the other viewpoint and their information. As such, the story is a sham and reflects poorly on an insurance industry news publication that people should be able to rely upon for accurate information.

The article noted:

The claims-adjusting blog Dimechimes ClaimSmentor was one online source that on June 7 mentioned a rumor that BP had instructed ESIS, the oil company's TPA for Deepwater Horizon oil spill damage, not to hire any adjusters with experience resolving claims from the Exxon Valdez oil spill of March 1989.

"It's the first I've heard of it," James J. Donelon, the insurance commissioner for the state of Louisiana, said when Risk & Insurance® queried him on the rumor on June 16.

More experienced claims adjusters were subsequently hired, according to a June 9 post from Dimechimes ClaimSmentor.

Over the past two weeks, BP has booked full-page ads in newspapers and television featuring claims representatives to reassure claimants that it is fairly and timely resolving claims.
...

Donelon said that members of his staff have investigated some BP-related claims centers throughout Louisiana. "We have done some visits to claims centers and found them to be operating smoothly, but that is not all of the claims centers and I do not know how many adjusters there are." he said. A surge of complaints would trigger an examination of the claims operations, Donelon added.

Because BP is self-insured, however, an insurance company is often not the ultimate payer of the claim. As a result, Donelon said, it is possible that irate claimants may not be bothered with alerting Louisiana regulators about poor service.
...
"We can share that the claims professionals working with or for ESIS are experienced in crisis situations and distributing funds to people affected by catastrophes as quickly as possible," Carla Ferrara, a Philadelphia-based spokeswoman for ESIS parent company ACE USA told Risk & Insurance® in an e-mailed response to questions.

Donelon said his department has become skilled at knowing when claims are mishandled given the department's experience of settling claims related to hurricanes Katrina and Rita in 2005. "We had a million claims in connection with Rita and Katrina five years ago, so yeah, we do know when things are not being handled as they should be, I believe, and we are knowledgeable and experienced and staffed enough to monitor this situation from an insurance regulatory perspective, no doubt," he said." (empahsis added)

Two weeks ago, I wrote Is BP Hiring Ignorant Claims Handlers with Little Dollar Authority to Pay Claims? That following Monday night, I was in Destin, Florida, for an emergency City Council meeting and wrote about my thoughts in Oil and Hurricanes: Here Comes the One Two Punch:

I am writing this post late Monday night, flying home from Destin, Florida. I was in Pensacola earlier, and debated for BP contributing to a $20 billion oil spill trust fund on Fox Business News. Cash is the lifeblood to businesses. If BP does not get money it owes to Gulf Coast businesses soon, business death in the form of bankruptcy will quickly occur to many businesses with resultant harm to employees and their families.

In Destin, the City council convened an emergency meeting which I attended. Fishermen reported oil slicks 4.5 miles from Fort Walton Beach. Given this development, Destin City Hall was the scene of democracy in action. Out of frustration, the Okaloosa County Commission defied federal officers and voted to take self help measures to preserve their water and beaches, claiming they would willingly go to jail, rather than do nothing.

For those who may be critical of President Obama for alienating the British regarding the BP Oil Spill, I suggest that the people of the Gulf Coast really don't care. The Gulf Coast way of life has been damaged and more is threatened by BP's lukewarm reaction. Earlier in the evening, elected County officials joined the angry crowd and took measures into their own hands. They voted to take action not approved by the Federal Government. One official threatened use of their own police to implement their own remedy and battle BP oil spill responders.

Others not from the southern coastal states should get the feeling that many local leaders and people of the Gulf Coast don't care who is upset. They require any action which will keep the oil out of their local waters and off their shores. They are tired of hearing nothing can be done to fight the oil. A comment was made at the emergency meeting that people from Washington D.C. and Chicago don't enjoy or go on the water or beaches, but spend their time in fancy restaurants. To say that there was "anger in the air" caused by frustration would be an understatement.

If Insurance Commissioner Donelon or reporter Dan Reynolds attended these type of meetings, they would hear numerous examples of delayed and inept claims handling. The group of attorneys that we are working with on our class action cases obtained a recording of that meeting, and just this one example of dozens that indicate the claims payment problems and disconnect between those damaged by BP and the BP claims administrators:

My name is Steve Travin, I am a small business owner and I have some direct questions for Jay, BP. I want to know when they are going to stop spending their multi-millions on their image and advertisements and pay the poor fishermen, the people who work the docks, the waitresses and for everyone and all the hoops that they make you jump through, you go through their office and they make you file paperwork 10 times over and everyday they have another piece of paper for you to file, we get no money to pay our bills. We get promises and we get nothing back out of that. I have a boat that I have put in with BP and I cannot even get a call me to put the boat back in the water.

BP Claims Rep (Jay Prothro): I do understand the frustration of the vessels of opportunity program, it has not been without many faults. It is on its 5th or 6th iteration right now trying to improve the process because it has been just a big calamity of errors. There have been issues with contracts, issues with activating existing vessels, issues with the commercial vehicles versus the private owned vehicles that are just pleasure boats. All of those things are being addressed and they are attempting to call out the pleasure boats now. They are attempting to create a situation where they rotate boats so that the boat owners and the commercial folks who has not had an opportunity to get in the program yet that can be rotated in, that they boats and vessels can be used and they can earn some money as well. We do understand there are some problems with it, and what I would like to suggest, is if you have had an issue with the VFO program that you contact us at the office in Fort Walton and we will do everything we can to help you straighten out those issues.

President Obama understood the problems after meeting with people who live and work in the Gulf, and he forced BP to put $20 Billion in a claims fund and independent review of the claims program. How could any reporter or Insurance Commissioner miss the problems? Numerous other journalists wrote articles on the these problems that were supported by Congressional testimony, as explained in BP Trying to Limit its Payouts, Lawyers Say:

But, in a letter Tuesday to BP head Tony Hayward, Allen expressed "ongoing concerns related to delayed processing times for larger loss claims, claims pending with no action taken, payment calculations for individual loss of income claims (particularly for seasonal workers), translation of claims material and accessibility for the hearing-impaired." Allen also told Hayward, "We would like more information about BP's plan for continuing loss of income claims, the mediation program BP is putting in place, and BP's placement of claims coordinators in each state and how these liaisons will engage with local officials."

Allen also informed BP he was appointing Tracy Wareing, who has been working as part of the National Incident Command, to oversee the claims process. Wareing met with BP officials Wednesday and on Thursday reported progress in making the claims process more responsive and open.

"During the meeting, we directed BP to provide clear public information on the entire life cycle of the claims process that they have produced, and ensure that we have greater accountability for the American people," Wareing said.

On the length of time it takes to pay businesses for losses, she said, "we indicated that -- and they recognize -- that their previous approach of waiting until basically after the books have closed for each month to calculate losses will not work. It won't get dollars out quickly enough for the businesses that are struggling on the ground."

She said BP promised "a more expedited claims process for these larger-loss business claims that will basically take into account the ability to allow for those businesses to pay their expenses for the upcoming month as opposed to reflective to the last month."

She said Willis, who was at the meeting, would be participating with her in a series of meetings across the Gulf in the next several days to hear concerns about the process.

And she said that they are going to meet with BP's claims contractor "to ensure that we can make some changes to better explain to the American public what claims are being paid, what the status is of pending claims, and ensuring that they're being paid timely and fairly." (emphasis added)

I think there has been some progress on getting larger lost income claims paid. Our firm is following up with those success stories, so accountants can learn to put together claims packages that will be approved and paid quickly, for much greater amounts.

Following my speech on Understanding Valuation Issues of Gulf Oil Spill Claims Thursday in Atlanta, an accountant thanked me for explaining that BP needs to hire a legion of accountants who understand and can quickly calculate the amount of money businesses are losing as a result of the oil spill. He then told me that a hotel for which he calculated a lost income analysis was denied a claim because BP’s claims representative thought lost revenue projections had to be performed on a room by room basis. That is a stupid demand and it shows the ignorance of the BP claims representative. Significantly, the claims adjuster did not use the "D" word for denial, but asked for it to be "resubmitted." No wonder BP can claim it has not denied any claims.

Until our elected officials and the reporters get on the ground in the impacted areas and talk with enough people involved with the particular issue, it is hard to get a story correct. Of course, if you want a white wash for BP propaganda purposes, Donelin and Risk & Insurance have done a marvelous job of portraying BP as running a "smooth" claims process. 

The truth is that these claims, like most lost income claims, can be extraordinarily complicated. My conclusion is important and optimistic:

So long as courts continue to interpret the OPA as providing broad theories of recovery, we have a tremendous opportunity to help victims get fully compensated for their economic loss. Attorneys should leave no stone unturned in assessing and valuing claims and pursuing every theory that could restore the livelihoods, property and way of life that have been indefinitely disrupted.

Since these claims will involve so much money, it seems that the following is appropriate for a mid-week break:

This post is written after a lot of extreme debate and disagreement over the value of a number of cases in a lot of different venues. We are preparing for trial in a case where we cannot agree with our opponents. Sometimes, I wonder whether the easy thing to do is let a jury decide the amount of fair compensation. I currently have settlement offers in other cases where everybody seems to disagree as to what would be a "fair" amount. And, as I am writing this post late on Wednesday night, my email indicates that BP is "chickening out" and filing a motion to prevent an evidentiary hearing (a sort of mini trial) to happen this Friday in a very public disagreement over how the oil claims process and other matters involving the oil spill should work.

Ruck DeMinico sends all our firm’s attorneys case updates in our field of law so we can keep up on the most recent developments. Most law firms do not invest in a "knowledge manager" like Ruck, and I am certain our attorneys are better for the support we get from him. He will have reviewed my prose before you read this.

Ruck forwarded a very recent Mississippi insurance agent negligence case, Marmillion v. American International Insurance Company, that should serve as a reminder that judges and juries do not always agree with what a party or an attorney thinks about a case. The case also serves as a reminder about how important it is to obtain experts in insurance negligence cases to provide evidence of duties and obligations of care rather than rely upon the simple interaction between agent and policyholder.

The Court noted that Mississippi law recognizes an insurance broker’s “duty to his principal to procure insurance policies with reasonable diligence and good faith.” First United Bank of Poplarville v. Reid, 612 So. 2d 1131, 1137 (Miss. 1992). That is about as good as the case would get for the policyholder. The facts indicate why:

In a letter dated August 18, 2005, a Willis employee informed Marmillion that the beach house policy had been cancelled effective April 6, 2005, and that Willis would make no attempt to have the policy reinstated or replaced absent receipt of a written request from Marmillion. Marmillion never contacted Willis to seek reinstatement or replacement of her policy.

Hurricane Katrina struck on August 29, 2005, and damaged the beach house. On September 15, 2005, Marmillion overnighted the check drafted in August, and Willis assisted Marmillion in filing her claim on the beach house policy. Her claim was later denied by AIG on the basis that AIG cancelled her policy before the claim arose.

After AIG denied her claim, Marmillion filed suit. The case proceeded to trial. But, at the close of Marmillion’s case in chief, the district court granted AIG’s motion for judgment as a matter of law on one of Marmillion’s theories of breach of contract and dismissed AIG Marketing, Inc. The district court also granted Willis’s motion for judgment as a matter of law on one of Marmillion’s theories of negligence and dismissed Willis North America, Inc. At the close of the case, the district court granted judgment as a matter of law on Marmillion’s remaining claims.

Parties have to apply both the facts and the law to the case when analyzing the probabilities of success. Just because the plaintiff has lost everything, does not mean that judges and juries will side for the plaintiff out of sympathy. Indeed, it has been my experience that just the opposite happens. I am not saying that policyholders should not pass on unfair settlement offers. I am suggesting that each case should be coldly analyzed in the framework of true facts, not the facts the plaintiff wished he had, along with the applicable legal rules that the judge and jury will apply. This is much easier said than done.

Oil and water don't mix,
Petroleum don't go with no fish,
Awww, it ain't my fault

BP big pimpin',
Big pile of bad presses,
Billionaire point pressure,
Awww, it ain't my fault....

The track is available on iTunes for less than a dollar, and all the proceeds will benefit fishermen and those who work in seafood restaurants, whose lives and work have been affected indefinitely by the oil spill.

Enjoy the video:
 

There are some lessons from experience that all can apply as we get deeper into the summer months. First, purchase flood insurance. As noted in our Condominium Insurance Law Blog post, FEMA Clarifies Position: Flood Waters Mixed With Oil Will Be Covered, National Flood has told everybody in advance that it will pay for additional costs of oil if floods or storm surge carry oil with it during a hurricane. Do not underinsure the amount--be safe and err on the side of overinsuring your structure because my experience is that most underestimate how much repairs costs. Think of the additional costs associated with removing oil if you have a problem paying a little extra to follow my advice.

The only problem is that you might not be able to purchase flood insurance right now. As noted yesterday in Industry Groups Urge Congress To Extend NFIP, Put Politics Aside:

The official start date of the Atlantic hurricane season was June 1, but no flood policies have been issued or renewed because the National Flood Insurance Program has expired, said two insurance groups, calling for a long-term extension of the program.

The NFIP expired May 31, resulting in the third lapse in the ability to purchase flood insurance coverage this year.

As a result, no NFIP policies can be issued or renewed until Congress reauthorizes the program, and existing policyholders cannot increase their coverage limits during the program’s hiatus, which is particularly troubling for those who may be impacted by the Deepwater Horizon oil spill should a storm occur, the Property Casualty Insurers Association of America (PCI) said.

Second, review all your coverages with your agent. Insure to full value and especially consider whether you have sufficient code upgrade coverage. Discuss whether your policy covers damage from wind blown rain and whether your business policy has sufficient loss of earning coverage and forms for dependent losses. Some of these coverages are discussed in Nationwide Insurance Commercial Customers Should Check Their Policies for Dependent Property Lost Income Coverage and Oh My Cheese! What Can Dairy Farmers Teach Us About Contingent Business Coverage? -- Understanding Business Interruption Claims, Part 7.

Third, harden your structures by repairing roofs, painting, and glazing or caulking openings, doors and windows. These are the most cost effective protective measures that can be taken. They will even help prevent loss during severe rainstorms.

I am writing this post late Monday night, flying home from Destin, Florida. I was in Pensacola earlier, and debated for BP contributing to a $20 billion oil spill trust fund on Fox Business News . Cash is the lifeblood to businesses. If BP does not get money it owes to Gulf Coast businesses soon, business death in the form of bankruptcy will quickly occur to many businesses with resultant harm to employees and their families.

In Destin, the City council convened an emergency meeting which I attended. Fishermen reported oil slicks 4.5 miles from Fort Walton Beach. Given this development, Destin City Hall was the scene of democracy in action. Out of frustration, the Okaloosa County Commission defied federal officers and voted to take self help measures to preserve their water and beaches, claiming they would willingly go to jail, rather than do nothing.

For those who may be critical of President Obama for alienating the British regarding the BP Oil Spill, I suggest that the people of the Gulf Coast really don't care. The Gulf Coast way of life has been damaged and more is threatened by BP's lukewarm reaction. Earlier in the evening, elected County officials joined the angry crowd and took measures into their own hands. They voted to take action not approved by the Federal Government. One official threatened use of their own police to implement their own remedy and battle BP oil spill responders.

Others not from the southern coastal states should get the feeling that many local leaders and people of the Gulf Coast don't care who is upset. They require any action which will keep the oil out of their local waters and off their shores. They are tired of hearing nothing can be done to fight the oil. A comment was made at the emergency meeting that people from Washington D.C. and Chicago don't enjoy or go on the water or beaches, but spend their time in fancy restaurants. To say that there was "anger in the air" caused by frustration would be an understatement.

While observing this, I thought about the already warm water and the season's first tropical wave  possibly forming in the Atlantic. It has been my experience that misfortune happens at precisely the wrong time. Since the precisely wrong time for a hurricane to strike the Gulf of Mexico is over the next several months, Bob Dylan's immortal lyrics come to mind..."It does not take a weatherman to know which way the wind blows."

Prepare for the worst. Hope and pray for the best.

I have previously explained that Accountants and Business Interruption Experts Will Play an Important Role Recovering BP Oil Spill Income Loss Claims because the analysis is not as simple as looking at past years tax based income and then averaging them for expected future income. Some claimants have told us that this is the method BP is using to determine their lost profit claims. Given the people BP has hired to determine what it owes -- as criticized in Is BP Hiring Ignorant Claims Handlers with Little Dollar Authority to Pay Claims? -- this methodology and result is not surprising. In How to Value an Oil Spill Claim--Not an Easy Task, I warned that these accounting and business calculations are not easy.

Merlin Law Group attorney Kristin Demers Crowell was recently published in a treatise, CAT Claims: Insurance Coverage for Natural and Man-Made Disasters, which has four important chapters concerning the handling of business loss of profit claims following a catastrophe. While I could make fun of BP and suggest that it purchase rights to the treatise and start teaching its claims adjusters some basic accounting and loss of earning concepts in a post catastrophe economy, this treatise notes the importance of a "team" and how consultants help determine the theoretical accounting calculation determining the loss to the business and needs for reasonable mitigation actions and expenses:

...the team members will need to determine the immediate and longer term steps that will have to take place.
...

...claims are based on theoretical calculations of what the business would have made as income had the event not occurred.
..

The team...should develop the initial strategy for the handling of the claim...
...

The legal representative should advise the team...

One of the basic questions all business loss of profits and oil spill clients should be asking when considering the important decision of a hiring an attorney is what kind of team will help determine the amount of the loss and help the client through the catastrophe. Claimants should understand that their accountants are not lawyers and may be unintentionally damaging a client by wrongly representing a claimant in a legal proceeding and by not properly presenting the claim. ("Consultants" and other non-lawyers filing legal tort claims for others are wrongfully practicing law and will probably be hearing from state attorneys who have made a point of prosecuting these individuals.) I usually request at least two accountants help determine the amount of the loss, understanding from experience the importance of having specialized forensic accountants work with a client's regular tax accounting firm. The role of such an accountant was noted in The Forensic Accountant's Role In Business Interruption And Business Income Claims.

MBAs, various economists, brand marketing specialists, disaster recovery specialists, supply chain specialists, restoration specialists, market experts, industry consultants, public relation experts, advertising experts, and various scientific experts may all have to be considered and part of a "team" just to determine what to do and how to value a loss. Based on my experience, my bet is that most of the BP attorneys and their liability claims adjusters who will review the larger and more complex claims, which are accurately prepared, will be lost and in need of help from accountants as soon as the discussion gets to the point of explaining an "accrual basis" of past and future performance in lieu of previously prepared tax or cash basis records. Retaining specialists who can communicate clearly and explain to BP's claims consultants how the amount of loss was determined is an important consideration in hiring the particular specialists by or for the client. Simply having claims denied and litigation needlessly initiated because the claim valuations are not understood by the opponent can be devastating to a client who needs money now.

I suggest that those involved in these cases and those that may not have previous business loss of profits experience attend Oil in the Gulf: Litigation & Insurance Coverage on June 24-25 in Atlanta where I and others will discuss these issues in much greater detail.

Rumors on the streets or email highway in the independent adjuster world are saying that BP has instructed the ONE adjusting firm assigned to handle the claims not to deploy anyone experienced in handling the Exxon Valdez oil spill claims. Please look into this and assure us that is not true and the thousands upon thousands of independent adjusters sitting at home not deployed to help are not being excluded because they have experience handling claims. That is just unimaginable and I hope proves not to be true. The numbers of people who have applied directly to ESIS and to independent adjusting firms who have heard nothing might prove what you are told when investigating this that it is a fact. Let us know please. Rumors can destroy you. Facts posted on the ever popping up response websites would be helpful. Also, I suggest you not believe one rumor that we have run out of independent adjusters available. A quick check of the number of licensed resident and non resident independent adjusters will prove this is impossible even if 10,000 are already deployed yet we hear less than 1,000 are now in the BP field claim offices.

This blog displays links for search terms adjusters use that leads them to our blog. Since the BP oil crisis, search terms are at least 50% of all search hits on this site where adjusting firms and adjusters are looking for information as to who is handling the BP Oil spill claims.

Thus far the information circulating in our discussions is that ESIS has only appointed ONE adjusting company to assist their personnel. ONE-and that firm fortunately is a reputable adjusting firm- Worley Catastrophe www.worleyco.com. Rumor on the street is that they are inundated with resumes flowing in but many many of us have not even gotten a reply to email and resume submissions.

There was also a response to my post, How to Value an Oil Spill Claim--Not an Easy Task:

Chip Merlin, a consumer attorney wrote a blog this week suggesting BP use CPA’s and accountants on the loss of income claims. While he provides good reasons, we in the claim industry are plenty capable of helping issue the $5,000 advances and there are thousands of adjusters trained in business interruption claims for loss of rents, tourism cancellations, and much more but I do agree CPA firms are often used by insurers for proper determination of amounts due for large commercial business interruption claims. In fact, my brother in law is a retired IRS CPA and has huge resources to other CPA’s who are also interested in deploying. In fact, this week I will post a large number of online business interruption links for some great information on business interruption claim training.

Any money paid to those with lost profits and earnings is better than no money. If full and prompt payment is really its goal, BP needs to hire and send legions of adjusters to DimeChimes business interruption night school, hire accountants and bookkeepers, and retain a significant number of independent economists motivated to determine the full extent of projected lost revenue. Lost income projections and continuing expense recovery have not been something typical claims adjusters have been trained to do. Other than my experience and numerous depositions, additional proof is in the internal insurance company claims manuals that instruct insurance company adjusters how send business income claims to insurance industry forensic loss accountants.

The problem is that BP has never been in the business interruption and lost income business. This is something insurance companies and adjusters do. The truth is that the insurance adjustment community is much quicker to count the sticks and bricks following catastrophic loss and traditionally take months to determine the business interruption loss. I bet that if I put a gun to the current BP liability claims adjusters and asked them how to determine the typical continuing expenses and extra expenses of a retail fish store, shrimp fleet operator, condominium, hotel, restaurant, seafood wholesaler or association of commercial fishermen whose members can no longer pay dues, most would start crying and beg for mercy.

I use this example to show how criminal it is for BP to suggest that it is taking care of claimants by simply spouting statistics of claims adjusters hired, claims offices opened, and partial monies paid. A second financial catastrophe is happening as I write because only a few in the claims industry have ever undertaken complex business loss of income analysis. I routinely have to teach my clients’ regular accountants how to do these types of claims calculations and often suggest specialized consultants help them. How are liability adjusters going to learn accounting and business to competently do this job without a plan? Telling them to read all of Michelle Claverol's Sunday posts on this blog regarding business interruption claims will not help, although it is better than nothing.

To further my point regarding the catastrophe training that Worley offers its adjusters, look at their training schedule. The typical BP Oil Spill claims handler has experience in car and structure claims. Even maritime adjusters usually turn over the financial income loss claims to insurance accounting firms like Campos & Stratis, a company I have long battled.

The BP Oil Spill will probably be the greatest loss event in terms of business income loss claims in my lifetime. Many of the BP claimants have never contemplated business loss insurance, but that is essentially what the OPA and corresponding state laws have provided. Adjusters, accountants and claimants need a quick education into the nuances and considerations of these types of losses.

Examples of reasonable mitigation expenses which will help commercial enterprises survive during the revenue loss need to explained and paid for immediately. Many of those businesses that could be expected to survive will not because BP is not proactively paying costs of survival mitigation. Most businesses simply do not have the cash or credit to front these costs themselves.

Time is of the essence for the entire Gulf Coast community when it comes to preventing this second financial catastrophe. This is truly an extraordinary situation where large scale economic ruin can be prevented if timely systems of remedy are put in place now. I believe our jurists need to appoint special masters who can listen to the concerns I have raised and put in motion a working claims process that will address the unique nature of business interruption and mitigation claims.. Everyday we fail to address the claims payment process properly, the greater the long term implications of economic damage in our Gulf Coast Community.

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.

Chip Merlin, founder and president of Tampa-based Merlin Law Group, fights insurance companies for a living. Chip likens the Deepwater Horizon disaster to one of those best-selling thrillers where you know who the bad guy is from Page 1 but you keep reading for the ironic twists and turns that follow.

Ironic insurance twist No. 1: Despite the acid-reflux-inducing news footage, the raw crude oil from the BP spill may not fall under the standard insurance definition of a "pollutant," and hence may not be covered under the $10,000 standard pollution cleanup provisions. Chip explains the subtleties:

"As a naturally occurring substance that hasn't been refined at all, crude oil itself might not be a pollutant under the policy," Merlin says. "A lot of the attorneys in my firm say it might not."

Ironic twist No. 2: Homeowners may receive some cleanup assistance under standard insurance coverage against explosions if it is determined that the explosion that sank the Deepwater Horizon rig directly led to the spill.


Ironic twist No. 3: Unless the spill physically smears your house, your homeowners insurance likely won’t cover it. Many policies define “property not covered” to include “roadways, other paved surfaces, land and foundations.” Direct damage to insured property is usually required to trigger coverage.

“Because the property policies don’t cover land, the insurance companies are going to argue that there is only damage to the land and we only cover damage to structures,” Merlin says.

Ironic twist No. 4: Should the sticky stuff be washed ashore by a hurricane, your insurance company would likely deny claims involving storm surge, which courts have ruled fall under flood insurance.

“The insurance industry is going to argue that it is excluded because the damage is the result of storm surge, which has been held to be excluded every single time it pops up,” Chip predicts.

Ironic twist No. 5: Owners of beach rentals may not be able to recover business insurance losses.

“Most lost income claims on a rental property require some property damage,” Merlin says. “Most insurers are going to deny those claims based upon the fact that they do not involve property damage; the oil is just floating out there and people are just canceling reservations.”

Residential and commercial insurers will likely seek reimbursement via subrogation from BP’s insurers for any oil-related claims. Federal and state agencies are expected to do likewise, as well as tap the Oil Spill Liability Trust Fund, which taxes the petroleum industry to help clean up its spills.

Whether homeowners insurance will absorb the oil spill remains to be seen. Merlin predicts years of litigation ahead as legions of claimants and scores of class action suits wash up on BP’s doorstep.

That is exactly what I concluded this morning in The BP Oil Spill Causes an Epidemic of Claims. However, every homeowner and businessowner should first read the language of their policy. Commercial policies have various coverages that may provide benefits, including event coverage, contingent income loss coverage, environmental coverage, debris coverage, trade loss coverage and supply chain coverage. Policy wording is crucial when analyzing these losses under first party insurance policies.

The economy along the northern Gulf Coast is being destroyed because of unnecessary tourist cancellations and vacation plan changes. The truth is that the BP Oil Spill has not physically impacted the islands or beaches in Florida. Instead, the media coverage caused by the spill is impacting the Gulf Coast economy. Florida's leaders from Miami-Dade and Broward County may want to consider this the next time they place themselves in the media to show concern about the crisis. They may want to make their preparations in a more quiet way or damn the people they are trying to help.

The condominium shown in the video, Edgewater Beach Condominium, is a lead client of ours in the class action lawsuit we have filed. We have added a distinguished class action attorney, Adam Moskowitz, and his firm, Kozyak Tropin and Throckmorton, to the team of lawyers with the notable Florida panhandle firm of Keefe, Anchors Gordon & Moyle. On Friday, we amended the class action complaint and also filed an emergency motion for injunctive relief.

The other condominium shown in the video is one of a number of individual commercial clients we represent that have been economically damaged by the oil spill. The recurrent property insurance coverage question people are asking is 'what happens if a hurricane pelts my property with oil?' My first response is that people should not worry about perils that may never occur, except to have the most broad coverage they can obtain. Second, I am not certain whether the scenario will happen, because the oil probably would not fly into a structure, but only get carried in the water as part of the storm surge. I anticipate that many carriers would claim that the cause of the loss would be flood rather than wind, and we would be in the same wind versus water quagmire that plagues us in so many other hurricane events. We can speculate on those coverage issues later. My suggestion today is to buy flood insurance now.

In the meantime, visit and enjoy the sun and water along Florida's beaches. We'll take care of the dragons.

The post, Public Adjusters Arrested in Broken Tile Insurance Fraud Scheme, set records for “hits” on this site. I also received all kinds of emails and discussion from others. At lunch with six attorneys in our firm, I mentioned that I have been doing this line of work since 1983 and have never handled a broken tile claim. Four others had the same experience, one attorney had a couple, and only Michelle Claverol, in our Coral Gables office, had more than a few.

I learned that some experts conducted tests regarding the breaking of tile. They found that breaking tile is not as easy at it may seem. A pot, shoe, or falling object has got to hit a tile just right or the tile has to be loose or set improperly for breakage to occur. They are not fragile. The back side of a hammer is sharp enough to cause the breakage quite easily with a strong strike.

I was reminded that an attorney friend of mine advertised for broken tile claims at the Windstorm Conference several years ago. Apparently, he had a fake million dollar check with his firm and that of a public adjuster as payees. The space in the bottom left had “one cracked tile’ written on the explanation line. The Florida Bar certainly would not have approved of such an advertisement. Indeed, it is quite unprofessional. To imply to public adjusters and the public that attorneys can help obtain large recoveries for a small cracked tile loss begs for the type of conduct that happened as indicated in the post. This past legislative session, some in the Florida Legislature mentioned this type of conduct as a reason to change longstanding consumer protections regarding insurance. If public adjusters and policyholder attorneys want a bad reputation can be developed, all we need is for some to continue this type of conduct. Insurance adjusters and insurance company management are rightfully upset, and so are the rest of us. A few bad apples are harming legitimate and law abiding public adjusters and consumers.

Finally, the oil spill issues are dynamic. Following my post, Accountants and Business Interruption Experts Will Play an Important Role Recovering BP Oil Spill Income Loss Claims, a dozen or so accountants have offered their services for lost income and earning capacity oil spill claims. Two weeks ago, I was in Steve Riggs’ office at Carr, Riggs & Ingram when I appeared on Fox News in the following interview regarding the oil spill:
 

I suggest that businesses consult with their accountants regarding these lost income claims. On anything more than a simple loss, I encourage businesses impacted by the oil spill to at least discuss the matter with qualified counsel. Proof and presentation of these claims and proving the full impact of the loss of earning capacity are what business interruption attorneys do all the time. Whether counsel should be retained should be determined on an individual basis. Often, no attorneys will be needed.

As noted by Bruce Smith:

...In my experience, I have found that the earlier the forensic accountant is involved in the claim process, the more value he/she typically provides. The value derived from the forensic accountant is his/her technical knowledge of accounting and familiarity with the claims process, which may result in a more expeditious resolution to the Business Income claim.

...

To quantify a Business Income loss, an analysis of pre- and post-loss revenue, costs and operating expenses is required. A competent forensic accountant will provide...with...knowledge and experience in matters, including, but not limited to: technical aspects of accounting rules and procedures and other related data, familiarity with policy terms and conditions, and establishment of accounting and document control procedures to ensure inclusion of all relevant data into the claim calculation.

The above-mentioned services will result in an expeditious compilation of a Business Income claim that properly indemnifies the policyholder for its Business Income loss in accordance with its coverage(s). Some specific examples of how the forensic accountant can assist:

• Requesting the relevant books and records needed to support a Business Income claim.
• Using his/her general knowledge of coverage to properly analyze, indentify and segregate revenues, costs and expenses to coincide with coverage and facilitate the expeditious preparation of the claim. Please note, a forensic accountant does not provide coverage interpretation, as this is the responsibility of an adjuster and or legal counsel.
• Providing an avenue for communication between the “two sides” on technical accounting and related matters that may be beyond the understanding of the adjuster and or legal counsel.
• Preparing a Business Income analysis...in an expeditious manner. (emphasis added)

Regarding the documentation and financial information needed to support a loss income or earning capacity claim allowed for in the BP Oil Spill claim process, Bob Glasser was completely on point noting:

The ability to submit and ultimately settle a claim for lost revenue with either an insurance carrier, BP, or another entity will be predicated on the culmination of many hours of dedicated recordkeeping and consistent application of data accumulation protocol. The critical lesson learned is that when an organization is able to execute the above steps, the likelihood of proving a loss and recovery is substantially increased. (emphasis added)

Bob Glasser has a specialized understanding of the hospitality industry and has long taught how to calculate lost revenue and account for the expense of mitigation efforts that are unique in that industry, which is being devastated by the significant drop in tourism, even before the oil strikes land. This intimate knowledge was partially demonstrated when he advised:

Quantifying and documenting lost revenue has been a complicated undertaking for the hospitality industry. On one hand, documenting cancellations in connection with booked rooms is relatively straightforward. On the other hand, identifying lost demand prior to a booking can be quite subjective.

Capturing cancellations with appropriate and supportable documentation to withstand future audit can happen only if specific protocols and procedures are put in place now. The process needs to be properly documented and communicated to the relevant employees. Documentation objectives include memorializing discussions and correspondence among hotel sales personnel or reservation agents with guests, potential guests, corporate booking agents and wholesalers, for the purpose of identifying the reason for a cancellation. Loss documentation prepared today should be reviewed by a seasoned financial professional to increase the likelihood it will withstand challenge by an adverse party. Date, time, conversation or action reported contemporaneously, and person making the entry should be made as it is done and collected at least daily.

The protocol for associating lost income from cancelled bookings to the oil spill may include refinements to existing sales software or the use of a database/spreadsheet to include the group name, group contact, intended date of stay, number of rooms, F&B revenue, room revenue, ancillary revenue, date of cancellation and reason for cancellation as well re-booking date if any and where the group moved, if known. Additional recommended procedures to be implemented include but are not limited to the following:

1. Reservation call centers should be provided specific instructions on how to document lost demand when guests ask about oil spill conditions.
2. Properties should identify any group discounts they offer to either appease a group with complaints due to the oil spill or to maintain a group reservation that was considering cancelling due to the oil spill. These discounts would be considered a mitigation strategy to curtail future lost revenues.
3. Any extra expenses incurred for marketing promotion or additional advertising over the normal operations to negate a loss of occupancy due to the oil spill should be documented.
4. Subsequent drops in occupancy rates from historical levels attributable to the oil spill should be recorded. Therefore, pre-oil spill occupancy, ADR and RevPar reports must be archived and maintained for future documentary support of decline in revenue.

The Oil Pollution Act of 1990 specifically indicates that those claiming loss income or loss earning capacity do not have to own the property damaged to have a claim for lost income or earning capacity. This is significant because some state laws which apply to the oil spill might be not so broad. "Loss of profits and earning capacity" under the Oil Pollution Act of 1990 means damages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources.

The Coast Guard publishes some information describing the business documentation which should be accumulated for an oil spill claim:

You must provide evidence that supports your claim, and you can use whatever documentation you believe best supports that claim. Listed below are examples of documentation often submitted with property damage claims:

• Photographs
• Tax returns for loss year and previous three years,
• Income Statements for loss year and previous three years,
• Balance Sheets for loss year and previous three years,
• Cash Flow Statements for loss year and previous three years,
• Receipts or other proof of revenue combined with proof of expenses
• Reports from the Federal On-Scene Coordinator (FOSC), fire department, police, or other responder
• Information on Coast Guard or EPA notification
• Newspaper reports describing the spill
• Any other documentation you feel supports your claim

A Compliance Guide for submitting claims under the Oil Pollution Act of 1990 has some specific information that BP claims representatives and its lawyers may need before approving business income or earning capacity claims. It provides:

General Information for Claims by Businesses:

• Description and documentation of business losses due to spill
• Copies of letters of business cancellations caused by the spill damage
• Maps or descriptions of the area showing the business location and the spill impact area
• Financial statements for at least two years prior to spill and from the year of the spill
• Signed copies of income tax returns and schedules for at least three years prior to spill
• Details on efforts to mitigate losses or why no efforts were taken
• Statement from you or witnesses on how the spill led to loss of income or earning capacity; explain any earnings anomalies
• For hotels, daily and monthly occupancy information for two years prior to spill and the year of the spill

General Information on Claims by Fishing or Marine Charters:

• Description of business losses caused by the spill
• Evidence that vessel(s) were in the area impacted by the spill and were unable to carry on their business due to the spill
• Maps or descriptions of the area showing business location within spill area
• Statement from you or witnesses on how the spill caused the loss of income; explain any earnings anomalies
• Signed copies of income tax returns and schedules for at least three years prior to spill
• Details on expenses not paid out during period being claimed (e.g., wages)
• Booking records for three years prior to spill and year of spill
• List of charter rates, including any services the business specializes in (e.g., sport fish-ing)
• Copies of any logs relating to boating activities for the year prior to and the year of the spill
• Registration documents for the vessel(s), copies of business license, vessel license, fishing license, captain's license

My advice to all claimants with significant business loss from the BP Oil Spill is to consult with an attorney and retain an expert to prepare a sound and proper explanation of business income loss or loss of earning capacity. Mitigation attempts required under the law can be explored with your counsel and those with experience in disaster recovery. In many instances, the claims may often need no attorney involvement because they are not very complex. The larger and more complex the claim, the greater the need to have a professionally prepared lost income claim with calculations by an experienced expert like Bob Glasser and Bruce Smith.

My friends and attorneys at Levin, Papantonio, Thomas, Mitchell, Echsner, Rafferty & Proctor, P.A. are doing it right. I had the pleasure of working with them as co-counsel on a great number of Hurricane Ivan matters, and they were kind enough to attempt to refer some major business income claims to me following Hurricane Katrina. My understanding is that they have decided to not charge clients for work to recover money that BP will voluntarily pay as a partial damage claim, and they will charge attorney fees only on claims that are denied or have disputed amounts. That is fair. There are some businesses that will need help right away to prepare and present these claims, and the fees for those services should be far lower than the one third of any recovery that some attorneys have been quoting.

Bob Glasser sent me the following article, that I minimally edited, which will help some insurance and BP claimants in their future first and third party claims.

How to Capture Hotel Lost Profits Today Due to the Gulf Oil Spill
in Order to be Reimbursed by the Responsible Party

With uncertainty and concern surrounding the impact of the Gulf oil spill to the coastline from Florida to Texas, many companies are asking what needs to be done to quantify and document lost income for future claims. Many businesses are considering filing insurance claims. Others may be looking at the potentially responsible parties for direct reimbursement. Regardless of the source of indemnification, proper documentation of claimed losses is critical.

Quantifying and documenting lost revenue has been a complicated undertaking for the hospitality industry. On one hand, documenting cancellations in connection with booked rooms is relatively straightforward. On the other hand, identifying lost demand prior to a booking can be quite subjective.

Capturing cancellations with appropriate and supportable documentation to withstand future audit can happen only if specific protocols and procedures are put in place now. The process needs to be properly documented and communicated to the relevant employees. Documentation objectives include memorializing discussions and correspondence among hotel sales personnel or reservation agents with guests, potential guests, corporate booking agents and wholesalers, for the purpose of identifying the reason for a cancellation. Loss documentation prepared today should be reviewed by a seasoned financial professional to increase the likelihood it will withstand challenge by an adverse party. Date, time, conversation or action reported contemporaneously, and person making the entry should be made as it is done and collected at least daily.

The protocol for associating lost income from cancelled bookings to the oil spill may include refinements to existing sales software or the use of a database/spreadsheet to include the group name, group contact, intended date of stay, number of rooms, F&B revenue, room revenue, ancillary revenue, date of cancellation and reason for cancellation as well re-booking date if any and where the group moved, if known. Additional recommended procedures to be implemented include but are not limited to the following:

1. Reservation call centers should be provided specific instructions on how to document lost demand when guests ask about oil spill conditions.
2. Properties should identify any group discounts they offer to either appease a group with complaints due to the oil spill or to maintain a group reservation that was considering cancelling due to the oil spill. These discounts would be considered a mitigation strategy to curtail future lost revenues.
3. Any extra expenses incurred for marketing promotion or additional advertising over the normal operations to negate a loss of occupancy due to the oil spill should be documented.
4. Subsequent drops in occupancy rates from historical levels attributable to the oil spill should be recorded. Therefore, pre-oil spill occupancy, ADR and RevPar reports must be archived and maintained for future documentary support of decline in revenue.

The ability to submit and ultimately settle a claim for lost revenue with either an insurance carrier, BP, or another entity will be predicated on the culmination of many hours of dedicated recordkeeping and consistent application of data accumulation protocol. The critical lesson learned is that when an organization is able to execute the above steps, the likelihood of proving a loss and recovery is substantially increased.

Those making a third party claim or insurance claim should consider obligations of mitigation and consult with competent legal counsel and trusted business professionals.

About the Author
Bob Glasser is a managing director at BDO Consulting, a division of BDO Seidman, LLP, in the New York office. Mr. Glasser is a certified public accountant, a certified fraud examiner and a certified insolvency and reorganization accountant, with more than thirty years of diverse financial management and accounting experience at public and private companies.

Mr. Glasser, who is also known as “B.I. Bob,” leads the firm’s New York Insurance Claim Services practice, assisting insured businesses—including hotels, manufacturers, distributors and service organizations throughout the world—to prepare and substantiate business interruption and property damage claims resulting from physical damage due to hurricanes, floods and other perils. Mr. Glasser has also been involved in forensic investigations of employee theft in the hospitality and retail industries.

EDO hold a variety of certifications, including CPA, CFE, MAI, ASA and MRICS and can be accessed at www.bdo.com
.
Robert Glasser, Managing Director
(212) 885-8173
rglasser@bdo.com

Less than 24 hours later, as BP’s second containment box is moved into place in an effort that Gulf Coast residents pray will help stop the seemingly endless pouring of oil from the ocean’s floor, the beginning of the “cascade of failures” which led to this disaster has been revealed.

Many have questioned what BP and others knew about the failed blowout preventer and when it knew. This was a focus during the House hearings this morning. According to Representative Henry Waxman, D-CA., the Committee had uncovered documentation that showed BP and others knew that the blowout preventer on the Deepwater Horizon had a leak in a crucial hydraulic system. This leak is likely one of the predominate causes of the blowout preventer’s failure to stop the oil leak.

BP records also show that the oil well had failed negative pressure tests less than 20 hours before the explosion which sank the mobile offshore drilling unit, killing 11 people, and caused more than four million gallons of oil to be spilled into the Gulf of Mexico. Records show that there was a breach in the well integrity which allowed methane gas and other hydrocarbons to enter the well and likely caused the explosion.

Unfortunately, BP and others did not take these failures seriously, and its neglect has ultimately led to a disaster which threatens the way of life for individuals in more than four states.

While everyone along the Gulf Coast scrambles to find a way to protect his livelihood and property, BP and the others involved continue to “promise” to “pay all legitimate claims.” While this sounds good in a five-second sound bite on the national news channels, many are wondering when this payment will come and whether it will be sufficient to keep their businesses open and their employees on the payroll.

Unfortunately, nobody can answer these crucial questions except for BP and the others involved, and they will not be giving clear answers any time soon. One thing that is clear, however, is that the effects of the Deepwater Horizon oil spill will be felt for years to come.

Business Insurance indicated in part the following:

BP will bear the cost of the cleanup, which could top $3 billion, experts say. In addition, at least 70 liability lawsuits have already been filed seeking damages from BP; Zug, Switzerland-based Transocean Ltd., which owns the rig; Houston-based Halliburton Co., which cemented the oil well; and Houston-based Cameron International Corp., which manufactured the wellhead equipment.

Of those firms, legal experts said BP likely would foot much of the bill. But it's also possible that a government fund, financed through taxes on energy companies, could pay some of those damages, because U.S. law currently limits energy companies' liability to $75 million per spill.

Companies exposed in the accident are insured for $1.4 billion in losses under business interruption, general liability, pollution liability, control-of-well, property and workers compensation coverage, according to the New York-based Insurance Information Institute.

The spill likely will generate extensive claims from downstream entities affected by the pollution, including fishing and tourism operations. In addition to damages sought in litigation, many also may file claims under their own business interruption, contingent business interruption and similar policies, legal experts said. Generally, claimants are entitled to liability damages only if pollution touches their property, said Richard Hobbie III, president of New York-based underwriter Water Quality Insurance Syndicate. Business interruption claims might not have such a restriction and could arise further downstream, such as a New England restaurant that imports seafood from the Gulf Coast, he said.

The Gulf of Mexico produces more seafood than the entire East Coast from Maine to Florida, according to the Corpus Christi, Texas-based Harte Research Institute for Gulf of Mexico Studies. The institute estimated conservatively that the oil spill endangers $1.6 billion of tourism, recreational and commercial fishing, and economic benefits from coastal wetlands.

Business interruption policies typically appear within a commercial property policy, so such claims will depend on the definition of property, which often excludes land, such as a beach at a coastal hotel, said Marshall Gilinsky, a New York-based attorney and shareholder at Anderson Kill & Olick L.L.P. “If the only thing damaged at the resort is the waterfront, I won't be surprised if the insurance company argues, "We don't insure the water offshore of your property and therefore...your property insurance policy is not triggered, including business interruption,'” Mr. Gilinsky said. (emphasis added)

I think the losses will be far in excess of this figure unless BP figures out how to stop the flow of oil immediately. Over the weekend, the containment dome failed. In addition, while it has not been determined where they came from, tar balls started washing up on Alabama's Dauphine Island. Here is a YouTube video:

I also agree with Gilinsky. I noted in First Party Property Coverage for the Oil Spill to Shoreline Owners that:

A second major issue will be whether "physical damage" to "insured property" has occurred. Many policies define "property not covered" to include "roadways, other paved surfaces, land, and foundations." Direct damage to "insured" or "covered" property is generally a requirement to trigger coverage. So, even if the property policy may provide some limited coverage for the extraction of the oil, most can anticipate litigation over whether the property and economic loss is covered under the property and business income forms and whether the oil damage to property is not covered because it was uncovered "land."

Still, a number of attorneys in our firm are questioning whether the oil, spilling from the oil well, is a "polluntant," as defined under various property insurance policies. The FC&S has an excellent article, Homeowners Pollution Exclusions: The ISO and AAIS Forms. I suggest that coverage counsel subscribe to this service and carefully read the entirety of it. The policies define "pollutants:"

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

I imagine many will argue that unrefined oil is not a "pollutant," as defined in the policy. The article does not say whether oil is or is not a "pollutant." Instead, its conclusion tends to indicate exactly what the title to this post implies:

Pollution, how it’s defined and how courtsview the policy exclusions are still large issues for the insurance industry. Many of the cases referred to in this article have been disagreed with by other cases, but the net result is that the courts are still divided on the definition of pollution and the application of the exclusion in homeowners policies. The definitions of pollution and the exclusions have changed over time; but the issue remains unresolved.

This insurance coverage issue is going to be a messy and a very costly one.

Based on most news reports, the oil rig had an "explosion" and a "fire" and "oil" is spewing into the sea. The Insurance Service Office (ISO) has standard forms that do not provide coverage for property damage caused by release of "pollutants" unless the discharge, dispersal, migration, release, or escape is from a "specified cause of loss."

"Oil" may fall under the definition of a "pollutant," which is generally defined as:

"any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

So, what are the "specified causes of loss?" "Specified Cause of Loss" is limited to the named perils of fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles; riot or civil commotion, vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects, weight of snow, ice, or sleet; and water damage.

I can imagine a number of policyholder readers exclaiming, "Eureka!! We have explosion and a fire. And, if a hurricane drives the oil into the insured property, we have a windstorm as well. The oil damage is covered!" Whether insurers will agree that an explosion released the oil and caused the damage will probably determine whether coverage payments are promptly made.

The ISO CP 00 10 form also provides coverage of $10,000 for expenses to extract "pollutants" from land or water at the insured premises, if the discharge, dispersal, seepage, migration, release or escape was caused by a "covered cause of loss." "Oil" may be a "pollutant," although it has not touched or damaged any "insured" coastal property that I am aware. Forms should be reviewed to determine if greater amounts above the automatic $10,000 were purchased by endorsement. BP should expect subrogation from insurers paying on these claims under this form. Insurers should remind their agents of this standard language and prepare for adjustment.

A second major issue will be whether "physical damage" to "insured property" has occurred. Many policies define "property not covered" to include "roadways, other paved surfaces, land, and foundations." Direct damage to "insured" or "covered" property is generally a requirement to trigger coverage. So, even if the property policy may provide some limited coverage for the extraction of the oil, most can anticipate litigation over whether the property and economic loss is covered under the property and business income forms and whether the oil damage to property is not covered because it was uncovered "land."

I can also imagine a number of policyholders wondering how a "property" insurance policy can exclude "land" as "covered property" since most think of "land" as the ultimate form of "property." Welcome to my world. 

Most of you who read this blog picked up on the qualifying term in the foregoing paragraph immediately. “We will pay all legitimate claims.” To the average person, this does not sound like a problem. After all, nobody should take advantage of the system and obtain relief that they are not entitled to after a disaster. Unfortunately, as most people who have dealt with these types of situations already know, the word legitimate is used as an escape hatch for large companies who want to boost their public perception while at the same time minimizing the damages that they pay to those who are affected by a disaster.

BP’s stance on what damages it will pay for the disaster caused by its oil varies, depending on what time of day you watch the news. One broadcast on the 5:00 p.m. news shows a BP spokesman saying that the company will take full responsibility for the damages caused by the oil; at 11:00 p.m. the same day, another spokesman says that the disaster was not BP’s fault.

Thankfully, some officials are not fooled by the warm and fuzzy reassurances of BP and others involved in the recent oil spill. “We don't know what is a legitimate claim. That's lawyer speak at a time when we need straight talk and clear answers,” said Alabama Attorney General Troy King.

Florida Senator Bill Nelson has also filed federal legislation to raise the 75 million dollar cap to 10 billion dollars to make sure that those responsible for the current crisis are not off the hook. He follows Attorney General King’s position that “[w]e will do whatever is necessary to make the people of Alabama [and Florida] whole.”

While the current public sentiment is that BP and others responsible for the drilling should be held accountable for the damages their oil spill has created, those companies also know that the tendency is for the public to quit paying attention to these types of stories after a few months. The longer those responsible hold out, dodge tough questions, and avoid answering whether or not they will pay ALL of the economic damages incurred as a result of this spill, the more likely it is that BP and others will avoid full responsibility. Attorney General King is right, this is a time for “straight talk and clear answers,” which can’t come soon enough.

My Hurricane Ike clients may understandably wonder why I am not in Houston, but as I stated this morning in the Northwest Daily News article, "Local resident, condominium group sue over oil spill," -- "This spill could be epic." Our law firm is helping provide some guidance regarding this catastrophe that is occurring even before the spill hits.

After September 11, the outpouring of support by Americans doing anything they could to help others was touching. This tragedy is similar with some amusing anecdotes. I have the honor of representing a renowned engineer, Monzer Hourani, in his corporation's Hurricane Ike insurance dispute against Safeco and Liberty Mutual. Monzer is a brilliant and rather eccentric structural engineer. Apparently, he quickly devised an oil spill device and was on CNN explaining it last night. Monzer is no stranger to personal disaster growing up in Lebanon and losing his mother at an early age to war. He was educated and worked his way to becoming a successful businessman and respected professional in Houston. His efforts are being repeated by thousands as we band together and protect ourselves the best we can from the calamity. We are truly all in this together.

I am sometimes not the biggest fan of class action lawsuits because some of my colleagues are more interested in making money than maximizing their clients’ recoveries. We filed a class action lawsuit yesterday. I am proud of it and of our class representatives. Dewey Destin is a fifth generation fisherman and Destinite. His business and two restaurants face ruin if the oil hits as bad as it might. He has asked us to provide leadership and do what we can to convince political leaders of the need for creative and quick solutions. I believe the legal bar can play a role advocating for these and still require those responsible to pay the entire cost of damage. The issues are the speed of the action and the financial creativity to soften the impact now.

Our oil litigation website is Oilcatastrophelawyers.com. We will post news, developments and helpful information for all those involved there. My Fox News interview gives some glimpse into my thoughts regarding that litigation.

Insurance adjusters will have to be hired to help review and approve the claims that will be submitted. My current demand is that we obtain an agreement and decision from BP whether it will pay all claims as they are incurred without releases and that it will pay all such legitimate claims without limitations of liability. I asked that question last night to a BP representative at a meeting in Ft. Walton Beach, Florida. The BP representative said that my question was "good" and would have to find the answer for me.

That question has certainly been asked before. Our political leaders should demand a direct response in writing and take whatever steps are needed depending on the response. The Gulf Coast is suffering financially right now and "right now" is the time for BP to step up and clearly explain how much it will agree to be held financially accountable.

This area of Florida is extremely vulnerable to natural disasters like hurricanes and the current oil spill. In areas like Destin, Fort Walton Beach, and Panama City, economies are largely based on tourism. Because of the oil spill, the phones at local hotels have been ringing off the hook with tourists cancelling reservations for the upcoming months due to the uncertainty that looms. While sitting in one office this morning, I heard more than five calls from concerned renters requesting that their reservations be cancelled and their deposits be refunded.

The consequences of the current oil spill will continue long after the spill is stopped or contained and will affect almost every aspect of life in this area. It seems inevitable that the oil slick will reach this area at some point, and the timing could not be worse. A decline in tourism during the summer months will almost surely cripple the condominiums, hotels, restaurants, beach services, retail shops, and many others who depend on the influx of vacationers during this time of year to make a living.

The question I have been asked most often during the numerous phone calls and meetings today is “what can we do to protect our business and our employees?” First, it is important to realize that even though the oil has not made landfall, its effects are far from small. From day one, the spill has created documented damages to businesses and homeowners, and these losses will grow exponentially.

Second, it is crucial that condominiums and other business diligently document the losses that are incurred. If a renter calls to cancel a reservation, the reservationist should specifically ask whether the cancellation is due to the oil spill. If so, the potential renter’s information should recorded and saved in order to document the lost income.

Also, everyone should be proactive in protecting the financial security of the association and the other businesses that are being adversely affected by this disaster. Many condominium associations and other businesses have already contacted the Merlin Law Group and we are in the process of filing a class action lawsuit in order to protect the livelihoods of the hundreds of thousands of people in this part of the country who depend on tourism to survive.

This Tuesday, May 4, 2010, we will be hosting an informational seminar at the San Destin Hilton in Destin, Florida. Beginning at 1:00 pm, a select group of attorneys, accountants, and other professionals will be on hand to answer questions about the steps that are being taken to protect this fragile economy and environment. So far, we have had over 100 businesses, associations, and individuals express interest in this event and we hope that you will be able to join us as well.

In order to deal with the current crisis, we have started a new website to keep the public informed. If you have any questions or wishes to speak to us about representation, you can contact us at the number listed on the website, or you can contact me directly at 813-373-9598.

“We have already been retained for business losses because customers of clients are now canceling plans for travel to the Gulf Coast,” said William F. “Chip” Merlin, Jr., president of Merlin Law Group. “If something does not change soon, this disaster has the potential to be much worse than most hurricanes. Of course, although we all earnestly hope that this catastrophic spill does not continue to make its way towards other areas of the Gulf Coast and Florida, our clients want to be prepared with a plan of action. Prompt and full accountability for those responsible for this tragedy is important. A class action lawsuit will be filed on Monday morning by the Merlin Law Group in conjunction with our co-counsel Keefe, Anchors, Gordon and Moyle, P.A.

We have a great deal of experience with widespread catastrophe claims and have retained others with experience in these oil spill disasters that understand the proof required to make claims that will be paid by the oil industry and those responsible for the harm."

Attorneys with the Merlin Law Group have been speaking with clients about what they need to do now in order to prepare their property against damage and in the unfortunate event that a claim will have to be filed. Many of those calling are condominium associations, restaurants and hotels anticipating and already experiencing major interruption in their business as people who had considered vacationing in along the Gulf Coast and Florida are cancelling plans in face of the real possibility of the destruction of beaches by the spill. Also of great concern for the law firm’s clients is possible evacuation should the oil cause the presence of toxins in the air and in the water. As the law firm prepares for litigation on behalf of its client, attorneys are taking a close look at the liability and negligence issues with the event.

In addition to offering legal advice and representation, Merlin Law Group will be hosting an educational town hall meeting, along with Keefe, Anchors, Gordon and Moyle, P.A (KAGM). to help those who may be affected from what is being described as the worst environmental calamity in US history, in understanding what they need to know about the oil spill and how it may affect their bottom-line. Gulf Coast Oil Spill Catastrophe: An Educational Town Hall Meeting is expected to be heavily attended by those unsure as to what this catastrophe can mean to their lives, will be held on Tuesday, May 4th at 1:00 PM in the Emerald Ballroom at the Hilton at Sandestin, 4400 South Sandestin Boulevard, Destin, Florida 32550.

The Merlin Law Group and KAGM are strongly encouraging property owners, business owners, government entities, and residents to attend the town hall meeting on Tuesday in Destin to learn such things as what to do in advance to protect their property and any potential claims filed against their insurance policy as well as explaining the federal legislation the Oil Pollution Act of 1990. Other experts and those with experience from prior oil spills will be on hand to offer insight into the potential effects of the spill and what is being done to assist those in the areas that are and will be affected.

In the meantime, those with legal concerns about the ramification of the Gulf Oil Spill should call Merlin Law Group at 1.877.449.4700.

Yesterday, Time Magazine reported in an article, Gulf Oil Spill Swiftly Balloons, Could Move East, that:

The Coast Guard conceded Saturday that it's nearly impossible to know how much oil has gushed since the April 20 rig explosion, after saying earlier it was at least 1.6 million gallons....Even at that rate, the spill should eclipse the 1989 Exxon Valdez incident as the worst U.S. oil disaster in history within about a week. But a growing number of experts warned that the situation may already be much worse.

The oil slick over the water's surface appeared to triple in size over the past two days, which could indicate an increase in the rate that oil is spewing from the well, according to one analysis of images collected from satellites and reviewed by the University of Miami. While it's hard to judge the volume of oil by satellite because of depth, it does show an indication of change in growth, experts said.

"The spill and the spreading is getting so much faster and expanding much quicker than they estimated," said Hans Graber, executive director of the university's Center for Southeastern Tropical Advanced Remote Sensing. "Clearly, in the last couple of days, there was a big change in the size." Florida State University oceanography professor Ian R. MacDonald said his examination of Coast Guard charts and satellite images indicated that 8 million to 9 million gallons had already spilled by April 28.

Doug Suttles, BP's chief operating officer for exploration and production, said it was impossible to know just how much oil was gushing from the well, but said the company and federal officials were preparing for the worst-case scenario. Oil industry experts and officials are reluctant to describe what, exactly, a worst-case scenario would look like — but if the oil gets into the Gulf Stream and carries it to the beaches of Florida, it stands to be an environmental and economic disaster of epic proportions.

The Deepwater Horizon well is at the end of one branch of the Gulf Stream, the famed warm-water current that flows from the Gulf of Mexico to the North Atlantic. Several experts said that if the oil enters the stream, it would flow around the southern tip of Florida and up the eastern seaboard.

"It will be on the East Coast of Florida in almost no time," Graber said. "I don't think we can prevent that. It's more of a question of when rather than if."

Our firm will file our first BP Oil spill lawsuit tomorrow morning. We will do so with our long term co-counsel in the panhandle of Florida, Keefe, Anchors, Gordon & Moyle, P.A. Michelle Anchors is proudly a fervent environmentalist, and she wrote the following in her Blog:

Those of us who grew up on the Emerald Coast have been around the block a few times watching the Weather Channel and waiting to see where the hurricane would land. Most of us have never watched an oil slick to see whether and when it would land. Waiting for a hurricane seemed to be a lot more fun. Maybe we would get out of school. Maybe the electricity would go out. Maybe the wind would bring good waves for the surfers. And now that I represent clients who have to fight their insurance companies after a hurricane, maybe I would even get some business. But waiting for the oil spill of the Deepwater Horizon to reach our coast is gut wrenching. I don’t want the business.

During the last few days, I have received calls from some of my clients asking if we can help them prepare for this potential disaster. Not to be unnecessarily alarmist, but the potential consequences are grave. Emotionally, environmentally, and economically, Northwest Florida has everything to lose. So we have mustered our troops and our resources and we are going to fight BP, who could have and should have taken more actions to prevent this devastating event. This is not like a hurricane that the forces of Mother Nature unleashes without any human or corporate control. This is an oil company that apparently did not take the precautions necessary to protect us all – this is an underwater Chernobyl.

With oil coming ashore, there will be massive income and loss of use claims. Those have already started and will only increase as the oil permeates a community. As a result, Merlin Law Group hired an environmental attorney who has extensive experience with pollution litigation. We also retained a consultant who managed claims from the oil industry's side following the Exxon Valdez disaster. We also hired Trial Exhibits, which photographed and documented damage for a oil transport company following a 1993 oil spill off St. Petersburg and Clearwater. We will do our best to help and serve our clients. I look forward to working with Michelle Anchors and others as we work through this unprecedented catastrophe.

Oil spills, clean up and recovery are topics of discussion at my family gatherings. My father helped start the Marine Spill Response Corporation operations in the Gulf Coast at Lake Charles, Louisiana. After his retirement there, he has taught oil spill clean up and recovery for the State of Louisiana and throughout the Gulf Coast. I am certain that many of the people trying their hardest to stop the spread of this spill have been taught by him. There is only so much that can be done if the flow of oil is not contained.

Underwater robots failed to activate a cutoff valve on the ocean floor to stop the leak. BP is hoping a plan to cover the well with a steel cap and capture the leaking oil will avert an environmental disaster. But that will take four weeks, and by then more than 150,000 barrels could have spilled. If the steel cap does not work, BP will have to rely on stemming the flow by drilling a relief well, which would take two to three months. If it takes that long, the spill could be even larger than the 258,000 barrels leaked in 1989 by the Exxon Valdez.

Estimates of the damage are already in the billions. In BP Vows to Pay All Gulf Coast Oil Spill Damage Claims, the National Law Journal reported:

BP Plc will compensate all those affected by an oil spill from one of its wells in the Gulf of Mexico, its Chief Executive said, accepting the disaster could hit plans to open new areas off the U.S. coast to drilling.

"We are taking full responsibility for the spill and we will clean it up and where people can present legitimate claims for damages we will honour them. We are going to be very, very aggressive in all of that," Tony Hayward told Reuters in an interview on Friday.
...

The cost to the fishing industry in Louisiana could be $2.5 billion while the impact on tourism along Florida's Paradise coast could be $3 billion, Neil McMahon, analyst at investment firm Bernstein, said in a research note on Friday.

On the way to Houston on Thursday morning, I was amazed to look out the window of our plane and see the size of the oil spill. As far as I could see, oil was there. This will not end anytime soon. There will be significant claims, losses and litigation involving this tragic event.