Why Paying Damage Claims for the Gulf Oil Spill Won’t Be Easy

  • Share
  • Read Later

It might take King Solomon to properly decide the hundreds of thousands of damage claims on the oil spill that will likely be filed before the crude is finally cleaned up. We don’t have King Solomon, but we might have the next best thing: Kenneth Feinberg, the Washington lawyer who ran the compensation fund for victims of 9/11. Feinberg  has received plenty of praise for his performance after 9/11. “He is the man for the job without question,” says James Kreindler, a New York lawyer who worked with 9/11 victims.

But as Feinberg himself says, the Gulf spill is going to be a much, much bigger challenge. That became clear early in Feinberg’s testimony Wednesday to the House of Representative’s Committee on Small Business, his first appearance before Congress since taking on the job to run the $20 billion spill claims fund. He told the committee that even with $20 billion in the bank—and potentially more, since President Obama has said the fund doesn’t preclude further litigation against BP—there wouldn’t be enough money for every claim. It will be especially tricky to judge claims of indirect damage—like a hotel that isn’t actually hit by the oil spill, but which argues the disaster led to a drop in tourism and a reduction in revenue. Judging damage to real estate values will be difficult too, and Feinberg has signalled that property owners in the Gulf region shouldn’t expect compensation just because the value of their home drops:

“There’s no question that the property value has diminished as a result of the spill. That doesn’t mean that every property is entitled to compensation,” he said, adding: “There’s not enough money in the world to pay everybody who’d like to have money.”

He went on to add that public perception alone won’t necessarily drive claims—something that might worry businesses and residents in a state like Florida, where so far the oil hasn’t been too heavy, yet, but where just the rumor of tarred beaches could be enough to cripple the state’s $57 billion tourism industry, as Feinberg told Congress:

“I’m on the beach, but there’s no oil at all there. It’s just the public perception that drives the values down. I mean, on the one hand, those people are suffering. They — they deserve some help,” Feinberg admitted. “On the other hand, there’s not enough money in the world to pay every homeowner, wherever they live in the Gulf Coast, who says, ‘My property is down because of the oil spill.'”

Feinberg did go on to emphasize that he would try to make the fund’s claims process much more responsive than what BP has been able to offer—especially to small businesses that need a steady stream of cash to continue operating. (So far BP has paid over $128 million to nearly 41,000 claims—but another 40,000 or so remain to be covered.) Speaking to Congress, Feinberg criticized BP’s claims process for not being “sufficiently efficient. It’s not paying all the many small business claims.” Instead of sending month-to-month emergency checks, which is what BP has done so far, Feinberg plans to have his Gulf Spill Independent Claims Fund send out six-month lump sums.

That speed will be key. “It has to work fast,” says Kreindler. “It’s got to be appealing in that it can’t preclude anyone’s right to recover from BP and any other defendants under the Oil Pollution Act. If this is going to work well, everybody who has a claim should want to use this fund.” And while Feinberg had success with the 9/11 fund, Kreindler points out that this process will be very different. More than 3,000 people died during the 9/11 attacks, and the chief purpose of the fund was to compensate those victims’ families—comparatively few business, outside those near Ground Zero, would have had a claim. By contrast just 11 people died during the oil spill, but the knock-on economic effect could be vast—yet hard to pin down. “This is completely new territory,” says Kreindler.

Feinberg will need to be Solomonic to make this work—and unfortunately, cutting BP in half is not yet an option.