How will the BP Gulf Oil Spill Compensation Fund disburse funds, and to who?

“There’s not enough money in the world to pay every single small business that claims injury no matter where or when,” Kenneth Feinberg told the House of Representatives Committee on Small Business.

Feinberg is head of the Gulf Spill Independent Claims Fund which will replace BP’s existing claims system. Hope is that the creation of this escrow account will avoid the situation created by the 1989 Exxon Valdez oil spill in Alaska (Nydia M. Velázquez). In bridging this, Feinberg’s initial role will be to determine parameters for payment for businesses and individuals, directly and indirectly impacted, define reasonable and legitimate compensation, improve efficiency in the processing of claims and establish the infrastructure.

  1. Defining legitimate and reasonable:
    1. Feinberg’s needs to concretize the meaning of repeated references by BP and Obama that all “legitimate” claims will be met by the fund (WSWS).
    2. Feinberg’s confirm that the escrow fund will operate with extremely rigid parameters based on the ability to prove, with paperwork, financial losses caused by physical contact with oil—and most likely heavy, visible, and permanent damage, as the comments on “perception” in the tourism industry suggest. Will resort owners and tourism workers, for example, be able to claim damages after beaches have supposedly been cleaned? (WSWS).
  2. Compensate or not:
    1. Who to compensate:

                 i.      Six million businesses. Economists estimate that over 7 million businesses will be impacted by the oil spill, of which 6 million will be small businesses with less than 10 employees (Nydia M. Velázquez).

B. Who not to compensate:

           i.      House price fall: The fund was not meant to pay out to all home owners whose properties had declined in value.”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 (AFP).

                  ii.      Fraudulent claims. Feinberg told the House Small Business Committee that he has asked the Justice Department — and possibly a private vendor — to help ensure claims are legitimate “because fraud could really undercut the credibility of this program” (Associated Press).

                 iii.      Indirect claims (1): Feinberg provided the following analogy “I use that famous example of a restaurant in Boston that says, ‘I can’t get shrimp from Louisiana, and my menu suffers and my business is off.’” Well, no law is going to recognize that claim.” (AFP).

                 iv.      Indirect claims (2): “If there is no physical damages, I venture to say it is not payable.” (MSNBC). Further, calculating indirect payments may be complicated as long as the leak continues, said Feinberg (USA Today).

                  v.      Illegal immigrants: will not be eligible to claim said Feinberg opposing precedents set when he administered the 9/11 fund, when 11 illegal immigrants’ families were treated as equal and awarded between $0.88-4.1million compensation. When Congress created the $7bn victims’ fund, it explicitly incorporated foreigners, including illegal immigrants. (Financial Times (UK)). On the back of Obama’s speech outlining the need for new laws for USA’s 11 million illegal immigrants (BBC News), expect Feinberg’s announcement to be retracted soon.

               vi.      Informal economy operators: It is well known that much of the gulf fishing industry is part of what economists refer to as “the informal economy.” Feinberg said that he could not grant cash-based fishermen tax amnesty outside of Congressional action, and all but ruled out assistance. Citing the law on NPR. Fishermen who operated on a partial or total cash basis may actually comprise the majority of Louisiana and Gulf Coast fishermen. This holds true for independent shrimping operators—many of them Vietnamese immigrants—and also a sizable share of the industry’s hourly-labour force, which is paid in large measure on a cash basis (WSWS).

                vii.      Health. There has been little discussion of compensation for damages to human health, which is in keeping with BP’s and the Obama administration’s shared posture that the massive spill poses no serious health risk to either cleanup workers or to the region’s population (WSWS).

3. Speedier claim processing: So far, BP reports it has paid out $132 million on 41,000 claims – but more than 80,000 claims have been submitted (CNN Money) to its 35 claims offices (PNJ). In Florida, BP has cut about 6,000 checks and paid out $20 million in claims, 15 percent of the $132 million written by BP across the five Gulf states. There are 11 claims offices open in Florida. The company has processed 201 claims from companies that have experienced losses of more than $5,000, for a total of $1.4 million, and another $6 million is expected to be paid next week. (Miami Herald). Allegations of the slow process have been countered by BP spokesperson Mark Salt says that the average wait time from submitting a claim to receiving a check is four days (CNN Money). Step in Darryl Willis, BP’s PR man for the spill – raised in Louisiana, he is now the public face of BP on the ground. He identified early on that speedy processing is crucial to keeping businesses afloat. Willis says: “It’s the large-loss business claims, which make up 5 percent of the total claims BP has received, where the greatest delays have occurred …those claims account for 20 percent of the payouts so far. (PNJ). In Florida, the top 10 checks written for claims have ranged from $270,000 to up to $1 million, Willis said. We have had 206 large loss claims in the last week or so associated with about $6.1 million in losses … most of those should be paid over the next seven days or less.” (PNJ).

4. Infrastructure: Feinberg made two more pledges about his still-evolving transition to a fund-based process: it will be transparent, and it will be locally staffed. Appeals will be fielded by local officials who have credibility with Gulf residents, he said. And Feinberg himself plans to be a frequent presence in the Gulf (CNN Money). It remains unclear if this will be based on the 35 claims offices or replace, and how and when this transition will start or finish. Equally, who will pay for the administration of the fund: currently BP has 800 people (mostly consultants from oil and gas consultancy agencies – i.e. non-BP staff) working in its 35 claims offices. Will this be paid for from the fund? Will the fund be saving BP even more money by reducing its exposure to relatively expensive external consultants?

 Print by Greenpeace UK.From Greenpeace logo competition on flickr.

5. BP costs:

    1. It is reported the Obama administration has expressly allowed BP to count the cost of cleanup against the escrow, “as well as judgments and settlements, natural resource damage costs, and state and local response costs,” according to a White House statement. (WSWS)
    2. Reduced transaction costs: Feinberg also said that receiving any money from the claims facility would act as a legal waiver against future lawsuits, “that’s only fair.” (WSWS) Should we worry about desperate people being exploited? Accepting small payouts. A situation which could save BP the costs of litigating tens of thousands of cases.
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2 Responses to How will the BP Gulf Oil Spill Compensation Fund disburse funds, and to who?

  1. Oil_on_my_goatee says:

    Thanks for these insights, really surprised about how complicated this is — we all thought that 20billion dolars, was exactly that! Offsetting ongoing costs in the fund by the BP should be the fourth installment … we are going to end up paying them to clean up there mess at this rate! keep up the good investigations.

  2. Pingback: Fishy but slick economics: costs update, from one red herring to another | Slick Economist

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