It takes a certain “My Cousin Vinny”-style boldness for a team of highfalutin lawyers from Chicago to try a case in South Carolina state court—and convince 12 Florence County jurors to side with oil and gas giant BP and against their own local government.
But that’s exactly what Kirkland & Ellis partners David Zott, Martin Roth and Dan Siegfried did last week (with a little help from local counsel Nelson Mullins Riley & Scarborough).
BP was sued by the state of South Carolina—which tapped outside counsel from Methvin Terrell; Wiggins Childs Pantazis Fisher Goldfarb; and Wilcox, Buyck & Williams—for “double dipping” from a state fund for cleaning up pollution from leaking underground gasoline storage tanks. The state said BP’s cleanup costs were covered by its insurance, which the company allegedly failed to disclose.
Or as Matt Stephens from Methvin Terrell for the state of South Carolina put it in his closing, “You ripped us off. You had insurance. You didn’t tell us about it …You deceived us. We paid money, $5.2 million for this, and we want our money back. That’s fraud, okay,” he said, according to a transcript.
BP isn’t the only one to be hit with such allegations. Multiple oil companies including ExxonMobil, Chevron, ConocoPhillips and Shell since 2004 have faced similar claims by state attorneys general around the country.
According to a 2014 Reuters investigation, nine states have won settlements worth more than $105 million from those four companies for taking payments from state cleanup funds while also being secretly reimbursed by their insurance companies.
BP alone opted to take the matter before a jury.
A little background: Leaky underground gasoline tanks are a widespread problem. According to the EPA, until the mid-1980s, most underground gas tanks were made of bare steel, which corrodes over time. The resulting leaks contaminate the groundwater—the source of drinking water for half of the country.
Everyone agrees this is bad. So bad that states created funds—in South Carolina it’s called the State Underground Petroleum Environmental Response Bank (or “SUPERB”—kudos on the acronym) which the state in court papers describes as “a financial resource of last resort for the clean-up of gasoline and diesel spills from underground storage tanks.”
The fund is supposed to help out owners of the contaminated sites (typically gas stations) who have exhausted available insurance coverage to pay for remediation—because no one wants to leave the things just leaking in the ground.
BP has collected about $5 million in reimbursement for cleaning up 45 sites in South Carolina.
The program—which is funded by a tax on oil companies when they bring gasoline into the state, and also by fees on every underground storage tank—does not require its recipients be impoverished mom-and-pop operations. What’s key is the lack of insurance.
According to the state’s complaint, BP “never told the SUPERB that it owned insurance policies with the potential for coverage of these releases. That was a critical omission.”
But the Kirkland team mounted a full-throated defense.
BP is self-insured for smaller claims like these, they said. And that makes all the difference.
“For big companies, it doesn’t make any sense to go and pay insurance companies a lot of money for lower-level risks when you can afford that yourself,” Zott said in his closing, according to a transcript. “If the captive [insurance company] has a loss, it’s in effect a loss for the parent because all those losses flow right up to the parents.”
Plus the state form makes it clear: “If you’re self-insured, that is if at the end of the day you have to pay for the cleanup out of your own money, then you’re still eligible,” Zott said.
But it gets even more complicated. Because BP’s big London-based insurers “wanted to enter into global releases and buy back all of their coverage,” Zott admitted. And they paid BP $319 million to do so.
The way South Carolina saw it, that $319 million included coverage of claims for leaky underground tanks.
No, no, no, the Kirkland team countered. That coverage was for things like “refineries and chemical plants and mines … They had pipelines that carried millions of barrels of gasoline and oil and if anything goes wrong, you’re talking about the potential for massive exposure, not a million or $2 million, but hundreds of millions or even billions,” Zott said.
(Cough – Deepwater Horizon – cough).
These are fairly nuanced arguments—and perhaps a tough sell against the state’s narrative: “You took money from the state. You had insurance. You settled it. Give it back. It’s wrong,” Stephens said.
In the end, the result was a little anticlimactic. BP won on the statute of limitations.
The state first started investigating BP’s insurance coverage in January of 1994, Zott said. They followed up in 2004, then sat on the file until 2007. “They just didn’t pursue the claim. And time went by, and the clock ticked.”
And as Judge Clifton Newman told the jury, “If you find that the plaintiffs’ claims are barred by the statute of limitations and you answer yes to that, then that’s the only finding that you need to make.”
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