| 16.2°C Belfast

BP wins oil spill payout battle


BP said its bill for phony claims could have topped one billion dollars

BP said its bill for phony claims could have topped one billion dollars

BP said its bill for phony claims could have topped one billion dollars

BP has secured a victory in its legal battle to limit compensation payouts for the 2010 Gulf of Mexico oil spill after a US court ordered tighter rules on dubious claims.

A federal appeals court said the terms of a compensation agreement struck with BP last year should be reviewed to help stem bogus or inflated claims for damage by businesses.

It has now approved an injunction against payments made to businesses that have not suffered actual loss from the spill - a move that could save BP hundreds of millions of dollars.

BP recently said it believed the group had paid out more than a billion dollars (£616 million) of phony claims and vowed to stand up for shareholders against a flood of "absurd" compensation payments.

It originally put aside 7.8 billion US dollars (£4.8 billion), but this has already risen to 9.6 billion US dollars (£5.9 billion) and BP warned in July that a vast trust fund set up to cover the bill was about to run out, leaving additional costs to come from profits.

An explosion on the Deepwater Horizon oil platform in 2010 killed 11 men and sparked the worst spill in US history.

It led to devastating damage to fishing and tourism businesses along the Gulf of Mexico coast, as well as marine and wildlife habitats, forcing the company to sign a multibillion-dollar compensation deal in April last year.

Weekly Business Digest

Margaret Canning’s selection of the must-read business stories straight to your inbox every Tuesday morning

This field is required

BP's total estimated bill following the disaster stands at 42.4 billion US dollars (£26.1 billion) - a sum which also takes into account clean-up costs and fines.

But BP has aggressively challenged the way claims are being handled by a court-appointed administrator and judge, saying the compensation calculation formula is too generous.

Its complaint centres on the way businesses are allowed to compare earnings before and after the spill in favourable ways which appear to inflate losses.

The group recently cited one example of a 9.7 million US dollar (£6 million) pay-out to a construction company based 200 miles off the coast of Alabama, even though 2010 was its best year on record.

The appeals court has now ordered Judge Barbier at the lower district court to review the wording of the deal to draw up a narrower set of definitions that will exclude unfair claims.

Appeals court judge Edith Brown Clement said BP and its shareholders should not be punished with " hundreds of millions of dollars of unrecoverable awards" paid for dubious claims.

A BP spokesman said the company was "extremely pleased" with the ruling.

He added that it "affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses".