BLOG: Capitol Alert:Shell Oil could lose millions over false California environmental cleanup claims

Sept. 23--Nailed by a private whistleblower over false claims, Shell Oil Co. has forfeited a chance to collect up to $150 million from a state-run fund that reimburses oil companies for cleaning up leaking underground storage tanks.

Besides losing out on the potential reimbursements, Shell will pay $20 million in penalties under a settlement announced Friday by California officials, bringing the total cost to as much as $170 million. The whistleblower will collect a portion of the $20 million.

Shell and its Equilon Enterprises LLC subsidiary were essentially accused of double billing -- collecting insurance proceeds and then submitting claims to a mammoth cleanup fund run by the State Water Resources Control Board.

"They were getting reimbursement for cleanup costs from an insurer," said Andrew DiLuccia, spokesman for the water board. Under the settlement announced Friday, the state is disallowing claims by Shell covering 100 underground tanks, worth up to $150 million in potential total reimbursements.

Shell is the third oil company in the past two years to settle with the state over false claims allegedly submitted to the storage tank fund. The Shell settlement is by far the largest.

Based in the Netherlands, Shell said "we feel this settlement is an amicable resolution to this issue" even though it denies doing anything wrong.

"Shell maintains that it did not submit claims for the same costs to both the cleanup fund and to insurers, that it did not 'double-bill' and that it did not benefit from a 'double-recovery,' " the company said in a statement from its U.S. headquarters in Houston.

Filed in Sacramento Superior Court, the settlement revolves around a cleanup fund created by the Legislature in 1989 to deal with the leaks from the thousands of storage tanks found beneath gas stations, truck stops and other facilities. The program takes in about $300 million a year from the station owners, via a fee of 2 cents per gallon sold.

"It is a polluter-pay program," said Lisa Babcock, a water board employee who manages the cleanup fund.

Property owners are eligible to collect up to $1.5 million per leaking tank, whether the leak occurred during their ownership or they inherited the problem from a prior owner. Since its inception the fund has paid out more than $3.5 billion in claims, Babcock said.

Officials with the water board had challenged Shell's claims starting in 2007. Then in 2010 a whistleblower sued Shell in Sacramento Superior Court, charging that the oil giant had been seeking reimbursement for costs that were already covered by insurance companies, litigation and other sources.

The company is still obligated to clean up the leaks even though the reimbursement claims have been denied, Babcock said. Shell pledged to perform the cleanups, calling them a matter "of the utmost priority."

Even with the 100 claims that have been disallowed, Shell still has about 900 claims pending with the state cleanup fund, Babcock said.

As part of the settlement of the lawsuit, Shell and Equilon will pay the water board around $11.4 million and the California attorney general's office about $4.9 million in penalties.

The rest of the settlement, around $3.4 million, will go to the whistleblower, a two-man company in Florida called American Cost Recovery Management LLC. An additional $300,000 will go to American Cost Recovery's lawyers in Alabama.

"We're just two guys that know the industry well and figured out what was going on," said Thomas Schruben, one of the partners in American Cost Recovery and a consultant in the underground tank industry.

By comparing insurance payouts with cleanup claims, Schruben said he and his partner in American Cost Recovery have discovered similar problems in multiple states.

Last year, after a similar lawsuit filed by Schruben's company, BP Products North America Inc. settled with California officials. Under the settlement, $135 million in claims were rejected and BP paid $7.9 million in penalties. A smaller case was settled against Chevron Corp. a year earlier, with the oil company paying a $1.3 million penalty. No claims were disallowed in the Chevron settlement.

Dale Kasler: 916-321-1066, @dakasler

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