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While Judge Barbier’s late 2013 reversal of his earlier position that the BP Settlement Agreement did not require “matching” was certainly a disappointment, the devastating ramifications of that decision and its progeny are only now becoming apparent. While the statistics provided by the Claims Administration are difficult, if not impossible, to interpret, another data point, the decisions of the appeal panelists, offer insight into a disturbing trend – the decimation of claim compensation values following the application of Policy 495’s matching constructs.

Analyzing the first 100 business economic loss (BEL) appeals decided by the appeal panelists during the program’s early days in 2013, one finds the average claim compensation value to be approximately $451,000. In contrast, the most recent 100 BEL appeal panel decisions, post implementation of Policy 495, indicate an average compensation value of $115,00 – a nearly 75% reduction.

Why the nosedive?

While at first glance this trend is deeply troubling, there may be a reasonable explanation (let’s hope). To be sure, Policy 495 does reduce claim values. The question is whether claimants are getting a trim or a buzz cut.

It’s possible that we are not dealing with an apples-to-apples comparison of the first 100 appeals to the most recent 100. Those early appeal results included claims filed on behalf of construction, agricultural, and professional services concerns – none of which are currently in the mix. That could account for a portion of the global claim value decrease.

In addition, the processing of claims pursuant to Policy 495 is a complex matter. Perhaps Claims Administration accounting vendors have chosen the lower hanging fruit – deciding to first tackle smaller claims filed by less sophisticated entities, temporarily skewing claim values down. But how many such claims could there be? Judge Clement insinuated – not many: “Typically, only very small and fledgling businesses keep their primary financial records in accordance with cash accounting principles.” Maybe the vendors are simply working through those “very small and fledgling businesses” first?

Perhaps BP’s billion dollar PR machine, the company’s insatiable appetite for filing appeals of the most frivolous kind, or its largely unfounded accusations of “fraud” and other imagined misdeeds have spooked the vendors. After all, accountants by nature are risk averse. Are they gun shy to the point that they are consciously putting larger, more complex claims on the back burner for another day?

But what if the trend indicates a substantive 75% devaluation of all claims as a result of Policy 495, not otherwise explainable as per above? I’ve previously expressed concern that vendors are improperly applying AVM to many sufficiently matched accrual claims. Do these latest drastically lower appeal panel compensation values support that doomsday scenario?

Duty to maximize claim value

Claims Administration vendors should only wield the heavy hand of Policy 495’s AVM when it is clearly called for. Sufficient, not perfect matching, is required. The vendors’ duty to maximize claim value is paramount:

“The Claims Administration Vendors shall evaluate and process the information in the completed Claim Form and all supporting documentation under the terms in the Economic Damage Claim Process to produce the greatest economic damage compensation amount that such information and supporting documentation allows under the terms of the economic damage claim framework.” Settlement Agreement, Section 4.3.8 (emphasis added)

Here’s hoping these recent appeal panel decisions do not indicate a dereliction of same.

 

Pre v Post 495 Claim Value Chart
In the first 100 appeal panel decisions in 2013, the average claim value was $452,000 (left). In the most recent 100 appeal decisions in 2015, the average claim value was $115,000 (right).

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