Business Law

Lost Business or Income after an Oil Spill

An oil spill can have a devastating impact on businesses and workers. For instance, many businesses were hit hard by the 2010 disaster in the Gulf of Mexico, with businesses owners and workers losing income - for some on a daily basis. If you've lost income because of a spill, you may be able to recover some of those losses.

Lost Income or Profit

Under the Oil Pollution Act of 1990 (OPA), "lost income or earning capacity" is when a business loses profits, or a worker makes less money in wages or salary, because of injury, destruction, or loss of property or natural resources caused by an oil spill. For example, you be entitled to file a claim if, because of the oil spill:

  • You own a boat tourism business and you're unable to run tours, or can't run the number of tours you'd normally run absent the spill
  • You own a fishing boat and your daily catches are greatly reduced or you can't work at all in waters where you normally make your catches
  • Your work hours as a boat hand on a shrimp boat have been cut-back or temporarily eliminated
  • No one's renting your beachfront property or renters have canceled their contracts or leases
  • Your seafood restaurant is almost always empty of patrons, either because tourism is down or local fish boats can't supply the food you need

Don't confuse a claim for lost profit or income with a claim for damages to your real or personal property. You may be entitled to both claims. For example, as the owner of fishing boat, you may be able to file a claim for costs of cleaning your boat and nets and a claim for lost profits in selling your fish.

Claims Process

There's a special claims process under the Oil Pollution Act of 1990 (OPA) for lost profits or income caused by an oil spill in US "navigable waters" - such as major rivers and coastal waters.

If the spill happened on land or on inland waters, like rivers or lakes, the US Environmental Protection Agency (EPA) is in charge of the spill and claims for damages. If the spill happened in US coastal waters, like the Gulf of Mexico, or deep sea areas under US control, the US Coast Guard is in charge.

Shortly after the 2010 oil spill in the Gulf of Mexico, British Petroleum (BP) created a claims process for damages to personal and real property, business losses, and other damages. In mid-June 2010, BP put $20 billion into an escrow fund and gave up control over deciding what claims to pay and how much to pay. Instead, an Independent Claims Facility handles all claims - but you should still use BP's forms and filing process.

File a single claim for all of your lost income or profits. File a separate claim for damage to real property, like your beachfront rental property, even if you're claiming loss profits from that property.

As a general rule, you have to file a claim within three years from the date you discovered, or reasonably should have discovered, the lost profits or income.

Proving a Claim

You have to show you're entitled to damages under the OPA, which means your claim has to include documents or other proof that:

  • Particular property (like your beachfront rental home) or natural resources (like fish- or shrimp-rich coastal waters) was damaged, destroyed, or lost and it caused your loss
  • Show how much profit or income you lost because of the spill
  • Show the amount of profits and earnings you had in similar time periods before the spill

There are many types of documents and other materials you can use to prove your claim, such as:

  • Photographs of the damaged property
  • Business or personal income tax returns for current year (the year you lost income or profits) and tax returns from the past three years
  • Income statements, balance sheets, or other accounting records for the current year (the year you lost income or profits) and tax returns from the past three years
  • Payroll records showing each employee's gross wages for each pay period at least six months from the date of the spill
  • Statements from business checking accounts for the year before the spill
  • IRS 1099 Forms for self-employed workers or independent contractors
  • For rental property, daily and monthly occupancy reports and rates you charged for the current and last three years
  • State sales and lodging tax returns for at least the past year

How Much?

An adjuster examines your claim and supporting documents and information to determine the amount of your loss. For workers, your claim is based on the wages or salary you've lost because of the spill. If you were able to find different work during the spill, your claim is reduced about the amount you made doing that work. Or, you may get the difference between what you made in the alternative work and what you would have made at your regular job.

For business owners, your claim is based on your lost profits - the income or money that's left over after you deduct business expenses. For instance, if normally you sell your daily fish catch for $1,000, but you pay $300 per day for gas and other expenses, your claim is for the $700 in lost profits.

Also, businesses and workers alike need to list any savings they had because of the lost work or business stoppage. For example, workers may save money by not having to drive to and from work, and business owners may save money by not having to pay utilities or other expenses as a result of the oil spill.

You can file an appeal if you think your claim was underpaid. A special three-judge panel will hear these cases. However, as of mid-June 2010, details about this appeals process aren't available yet. Also, it's unclear if claims paid before the $20 billion escrow account was created may be appealed.

Questions for Your Attorney

  • Do I have to look for a different job if my regular job on a fishing boat is unavailable until a spill is cleaned up?
  • Is the money I get on my claim for lost income or profits taxable?
  • The spill is forcing me to sell my fishing business. Can I file a claim if I don't get top dollar for my boat because of damage caused by the spill?
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