Last updated: July 14, 2013 9:36 pm

BP says US law firms reaping a ‘bonanza’

An illuminated sign stands on the forecourt of a BP gas station, operated by BP Plc, in Upminster, UK©Bloomberg

US law firms in the Gulf of Mexico area have won some of the biggest compensation awards for themselves under BP’s settlement for the Deepwater Horizon disaster, reaping a “bonanza” caused by a misinterpretation of the deal, according to the oil company.

Analysis of data from the court-sponsored claims programme shows that the average offer made to law firms for losses caused by the spill has been $812,000, BP says, more than three times the average for all businesses.

Payments to law firms have been rising rapidly, roughly doubling during May and June to $1.5m per claim, versus an average of $756,000 in the previous two months.

BP said the “perverse and outrageous results” were evidence that a misinterpretation of the settlement by Patrick Juneau, claims administrator, was opening the door to “absurd” awards that violated the aim of the agreement to compensate legitimate victims of the spill.

In court last week, lawyers representing claimants argued that Mr Juneau was interpreting the agreement properly, and that BP was suffering “buyer’s remorse” after signing up to a deal that was likely to cost more than it had expected.

It is not known how many firms representing parties in the case have also filed for compensation for their own losses.

Mr Juneau has been allowing companies to make claims using records of their cash inflows and outflows, meaning that businesses with a lumpy pattern of payments can cherry-pick comparisons to maximise the apparent losses they suffered.

The company said that these claims, which were allowed by Mr Juneau and upheld by the US district court, could cost it billions of dollars and is fighting those decisions in the appeal court.

The compensation payments for business losses are separate from the fees that many firms are earning for representing either victims of the spill or BP and the other companies involved in the disaster.

Firms representing claimants are allowed to take up to 25 per cent of the compensation paid, which has already reached $2.8bn. Lawyers on the plaintiffs’ steering committee, which is leading the case in court and in negotiations with BP, are also allowed to share fees of up to $600m.

However, many other law firms have been able to file compensation claims, because they can show interruptions to their revenues in 2010, the year of the disaster.

BP said in 2012 it expected to spend $1.73bn on its lawyers and other administrative costs associated with the spill, and that figure is likely to have risen.

Law firms had received 10 per cent of the total awarded in compensation, BP said, but a disproportionate 27.3 per cent of the value of business loss awards over $3m in the past two months.

Construction companies have received the most of those large awards recently, followed by law firms.

In a worrying sign for BP, the number of new claims for business losses coming in each week has been rising since last year. There are now about 42,000 business loss claims outstanding, and new claims are coming in at about 1,250 per week. Businesses have until April next year to claim.

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