By MARY CAFFREY, a former statehouse reporter and municipal township manager who has covered public issues for more than 20 years
In late August along the Gulf Coast, officials from Plaquemines, La., to Panama City Beach, Fla., were taking stock of the summer that wasn't. Children returned to schools that suddenly had fewer dollars to get by, while some of their fathers flocked to reopened fishing waters, salvaging what remained of shrimp season.
Days after President Barack Obama swam off her coast, Panama City Beach Mayor Gayle Oberst expressed hope for an uptick of visitors on Labor Day. But the mayor's Southern charm did not mask her point: BP's oil spill had wiped out what would have been a banner season for the Northwest Florida coast. Now, it's up to Panama City Beach to figure out if there is a claim, based on what might have been.
"People did not understand that the beach was not covered with oil," said Oberst, whose town helped open a $300 million airport on May 23. "Our opportunity was just totally missed."
For a region that learned plenty from 2005's Hurricane Katrina, the oil offered more lessons. Hurricanes are the devil they know; the property damage, while heavy, is tabulated and carted away. Storms last days, not months. A four-month oil event requires a whole different playbook, officials say.
BP's promise to pay "all reasonable claims" from the April 20 explosion at the Deepwater Horizon means there is little dispute where most claims will go. Not a single government entity reached by Risk & Insurance® had plans to file against an existing insurance policy, and Louisiana Insurance Commissioner Jim Donelon questioned whether business-interruption insurance coverage would pay before claims against BP were exhausted.
Unlike the familiar, quantifiable nature of property claims, this time
Claims will be based on shrimp that were not caught, tourists who did not come, and, for the white-sand beach towns in Alabama and Florida, sales and occupancy-based taxes that never materialized.
The first hurdle to filing a traditional business interruption claim would be having an insurable event. Business interruption coverage in the area, where it exists, is typically tied to a policy that starts with property coverage, said Jeff Albright, CEO of the Independent Insurance Agents and Brokers of Louisiana.
Unless oil actually seeped into the property, losses due to tourists who canceled their plans or closed fishing waters are claims that must be made against BP, Albright and others explained.
At that point, small business owners must look at prior year's receipts, canceled bookings, and make an estimate on what income they lost. That can be difficult for fishermen, who do so much business in cash, Nungesser said. But it's also tricky for restaurants, which take in tips.
As the claims process was transferred from BP to Kenneth Feinberg on Aug. 23, the federal mediator who previously handled claims from the Sept. 11, 2001, attacks, no one wanted to predict an ugly process. But officials across the Gulf noted that every indicator had pointed to a record-breaking year for both seafood and sun. As of mid-August, the hot, hurricane-free weather added fuel to their frustration.
Challenges in the spill-affected states--Louisiana, Mississippi, Alabama and Florida--vary with geography, tax structure, the makeup of the local economy and, especially in Plaquemines Parish in Louisiana, the culture.
Plaquemines, a vanishing finger of land that reaches into the Gulf, is personified by its larger-than-life Parish President Billy Nungesser, who battled with the federal government to halt the oil by adding sand to the underwater ridges off Louisiana's coast. On June 24, the day Risk & Insurance® reached him, he had harsh words for an Interior Department official blocking his berm.
"If the oil reaches (a) nesting area," Nungesser bellowed, in the voice of a voo-doo curse, "the blood of those pelicans will be on her hands."
Ultimately, he won. The show of force aimed to save not only the marshes that produce Louisiana's seafood but also the reputation of the catch. Complaints from seafood distributors about a drop-off in demand will make this a major issue going forward. On Aug. 19, Louisiana reached a deal with BP so that if tests continue to show the catch is safe, BP will have to foot the bill to keep Louisiana seafood in restaurants and supermarkets. Louisiana officials say the state produces one-third of the domestic seafood served in the continental United States.
BP has agreed to a testing and marketing program that will be evaluated every three years; if testing shows damage or if markets are not restored, the program must continue, possibly as long as 20 years.
Nungesser said that neither BP nor the federal government grasped the interdependent nature of the fishing and oil industries, or how hard it is to quantify the area's way of life on a claim form. In one town hall meeting, BP officials had no answer for the Grand Isle, La., woman who asked, "How do I verify income if I get my dinner with a casting net and a fishing rod?" Or the father who asked how he would be compensated "for not being able to teach my boy to fish," a query that spoke not of missed pleasure trips, but of a lost year's apprenticeship in a future career.
"I don't know that it can be quantified," said John J. Bullock, president, Willis of Mississippi. Bullock, of Pascagoula, Miss., is an insurance broker who still maintains and operates a commercial fishing vessel.
Amid the complaints about paltry early awards paid by BP, Commissioner Donelon took heart in a claims process that showed great improvement since Katrina. Donelon said the failures exposed by the 2005 hurricanes brought long-needed reforms, including adjuster licensing. His staff traveled to BP claims offices to monitor operations.
"Compared to Katrina and Rita, this time complaints about the process are minimal," he said. "It's dozens rather than hundreds."
A string of barrier islands and the calmness of the Mississippi Sound protects Biloxi and Gulfport, Miss., from the harshness of the Gulf. This time that protection kept most of the oil at bay. But geography wasn't destiny for Biloxi, reported Mayor A.J. Holloway. What really helped was the flow of cleanup workers who stayed in hotels, ate and maybe gambled, providing revenue to replace what was lost from the tourists.
"Our sales taxes for June and July are just about where they were last year," Holloway said.
Bullock, whose clients include casinos, confirmed that cleanup revenues may offset some tourism losses for some businesses. An oil spill will not stop all gamblers, he said, making the Mississippi Coast less vulnerable than beaches further east, which rely more exclusively on their aesthetic appeal. Bullock suspects that the casinos will start their claim process with a comparison of revenue figures for the same period in 2009. But, he said, casino claims against insurers might be difficult due to pollution exclusions. "There's no physical damage, there's no denial of access to the property. That's why at this juncture it appears their first remedy is against BP," he said.
Jeff Albright, CEO at the Independent Insurance Agents and Brokers of Louisiana, said that the smallest businesses would be less likely, not more, to have business-interruption coverage due to the hard property market that followed Katrina. He agreed that, without an accompanying property loss, most businesses will have to rely on BP for compensation. Almost no one would have bothered to buy coverage for an oil spill. "Environmental liability policies are not broadly available, and they are very expensive," he said.
Bullock kept busy all summer helping implement the Vessels of Opportunity program and setting up coverage for the contractors employing cleanup crews. Municipalities across the Coast praised BP for hiring all the cleanup contractors directly, alleviating them of any liability for this task. (Most towns have sought reimbursement for police overtime and additional trash collection however.)
"It's all BP's fault."
That was Jimmy Buffett's verdict to 35,000 tourists--none of them covered in oil--who gathered on the white sand in Gulf Shores, Ala., for a free concert July 11 to give a boost to local businesses, including one owned by Buffett's sister.
As in Northwest Florida, "the beach drives the economy," said Gulf Shores Administrator Steve Garman. What makes Gulf resorts cost-effective for Southern vacationers--the lack of property taxes--also spells trouble when tourism-based revenues are threatened. Sales- and occupancy-based taxes make up 50 percent of the Gulf Shores budget, and Garman even had to suspend summer parking fees to get people back to the beach once the tar slicks appeared on national television.
"Gulf Shores was the first white sand beach they had to deal with," Garman said of BP, and the cleanup involved a steep learning curve. From his standpoint there are "two BPs," the cleanup operation, which has been largely effective, and the claims side, which is a work in progress. Putting in claims for police overtime and sanitation is the easy part. The hard part will be looking at the pre-April 20 sales and occupancy revenues, which were up from the prior year, and projecting a fair claim of what Gulf Shores would have experienced in a sunny, spill-free season. The normal 80 percent room occupancy rate was seen only the week of the Buffett concert and has not been repeated, Garman said. While Gulf Shores contemplates its own losses, he said, it must assist the small, nonchain businesses that make the resort unique, so those owners survive.
Mayor Oberst said that Panama City Beach's claim will rely on economic modeling by the University of West Florida, which will take into account the new airport and a $2 million marketing campaign that was planned before the spill.
Gulf leaders said they will count on the long-term loyalty of their crowds to recover. "Over the years we have dealt with many hurricanes and other conditions," said Richard Jackson, manager for Panama City Beach. "The difference in this crisis is we don't know the long-range effects on our tourism industry."
October 1, 2010
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