BP plc still faces legal hurdles, but it jumped a big one after clinching a hard-fought settlement earlier this month with the Plaintiff’s Steering Committee (PSC) to resolve a “substantial majority of legitimate economic loss and medical claims” from the Macondo well blowout two years ago in the deepwater Gulf of Mexico. The PSC acts on behalf of thousands of individuals and businesses in the multi-district litigation (MDL) proceedings pending in New Orleans (MDL 2179).

The agreement effectively halted the nonjury trial that was scheduled to begin last Monday before Judge Carl Barbier, who had delayed the proceedings to allow the parties to continue to negotiate. Barbier said the settlement “would likely result in a realignment of the parties in this litigation and require substantial changes” to the phased MDL plan.

The cost of the proposed settlement, expected to be paid from BP’s $20 billion trust, is estimated at about $7.8 billion, including a commitment by BP to pay $2.3 billion to help resolve economic loss claims related to the Gulf Coast seafood industry. The trust fund was set up after the Macondo well exploded, killing 11 men and destroying the Deepwater Horizon drilling rig. An estimated 4.9 million bbl of oil spilled into the GOM over a period of more than four months.

“From the beginning, BP stepped up to meet our obligations to the communities in the Gulf Coast region, and we’ve worked hard to deliver on that commitment for nearly two years,” said BP CEO Bob Dudley. “The proposed settlement represents significant progress toward resolving issues from the Deepwater Horizon accident and contributing further to economic and environmental restoration efforts along the Gulf Coast.”

Lawyers for the PSC, Stephen Herman and James Roy, said the settlement would speed up compensation for hundreds of thousands of people affected by the tragic events on April 20, 2010. “This settlement will provide a full measure of compensation to hundreds of thousands — in a transparent and expeditious manner under rigorous judicial oversight,” they stated. “It does the greatest amount of good for the greatest number of people.”

The proposed settlement doesn’t include claims against BP made by the U.S. Department of Justice or other federal agencies — including under the Clean Water Act (CWA) or for natural resource damages under the Oil Pollution Act — or by state and local governments. The proposed settlement also excludes other claims against BP, including securities and shareholder claims pending, including MDL 2185, and claims based solely on the deepwater drilling moratorium and the related permitting process.

BP already has spent more than $22 billion for its commitments in the Gulf Coast. The company has paid out more than $8.1 billion to individuals, businesses and government entities, and spent close to $14 billion on operational response. The proposed settlement, which has to be approved by Barbier, is not expected to result in any increase to the company’s $37.2 billion financial charges, which it previously recorded in financial statements.

The proposed settlement is comprised of two separate agreements, one to resolve economic loss claims and another to resolve medical claims. Each agreement would provide that class members would be compensated for their claims on a claims-made basis, according to agreed compensation protocols in separate court-supervised claims processes. The proposed agreement to resolve economic loss claims includes the financial commitment for the Gulf seafood industry and a fund to support continued advertising that promotes Gulf Coast tourism.

“BP’s current expectation is that the provision for litigation and claims, which includes the claims covered by this proposed settlement, will increase by approximately $2.1 billion with no net impact to either the income or cash flow statements, because this is a settlement that is expected to be payable from the trust,” the London-based producer stated. “The amount that can be further provided with no net impact to the income statement therefore is expected to be reduced from approximately $5.5 billion to approximately $3.4 billion.”

The proposed agreement to resolve medical claims involves payments based on a matrix for some “currently manifested physical conditions, as well as a 21-year medical consultation program for qualifying class members,” BP noted. “It also provides that class members claiming later-manifested physical conditions may pursue their claims through a mediation/litigation process. Consistent with its commitment to the Gulf, BP would also provide $105 million to improve the availability, scope and quality of health care in Gulf communities. This health care outreach program would be available to all individuals in those communities, regardless of whether they are class members. It would include expanding capacity to address community health needs, including primary care, mental health services and access to environmental health specialists, as well as enhanced training and education related to Gulf Coast health issues.”

Class members would release and dismiss their claims against BP under the settlement, which is not an admission of liability by BP. The proposed settlement also provides that, to the extent permitted by law, BP would assign to the PSC some of its claims, rights and recoveries against Transocean Ltd., which owned the Deepwater Horizon rig, and Halliburton Co., the well cementing contractor, for damages not recoverable from BP.

Either party has the right to terminate the proposed settlement within 45 days of the agreement (March 2) if final agreements are not reached. Once definitive agreements are on the table, BP and the PSC would seek the court’s preliminary settlement approval. Subject to the court granting preliminary approval of both agreements, “there would be extensive outreach to the public, including through advertisements and direct mail, to explain the settlement agreements, class members’ rights, including the right to ‘opt out’ of the classes, and the processes for making claims,” BP noted. “The court would then conduct fairness hearings at which class members and various other parties would have an opportunity to be heard and present evidence.”

The proposed economic loss settlement provides for a transition from the Gulf Coast Claims Facility (GCCF) administered by Kenneth Feinberg, who had overseen the facility since it began operating in August 2010. During his tenure, BP noted that it has paid close to $6.1 billion “to resolve more than 220,000 claims from individuals and businesses.” A court-supervised transitional claims process for economic loss claims would be in operation while the infrastructure for the new settlement claims process is put in place. During this transitional period, the processing of claims that have been submitted to the GCCF would continue, and new claimants may submit their claims.

Payments in class action settlements typically are not made until after final approval of a settlement, but BP has agreed not to wait for final approval of the economic loss settlement before claims are paid. The economic loss claims process would continue under court supervision before final approval of the settlement, first under the transitional claims process, and then through the settlement claims process established by the proposed economic loss agreement.

“This settlement reflects our commitment not only to the Gulf region, but also to the United States as a whole,” said Dudley. “BP has operated in America for more than 100 years, employs nearly 23,000 people in the U.S., and invests more in the U.S. than in any other country.”

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