Kenneth Feinberg is uniquely qualified for his role as independent administrator of BP’s $20 billion compensation fund. His past experience includes sorting out claims for Agent Orange, September 11, and the financial bailout. He faces new challenges though in dealing with the massive economic fallout resulting from the BP oil spill.
One difficulty is in determining where to cut off liability for claims. For example, the September 11 compensation fund limited payments to people who were at one of the three terrorist attack sites during the attacks or shortly thereafter and who then sought medical treatment within a few days of the tragedy.
The rules on who collects from the BP $20 billion fund are less clear. BP says it’ll pay all legitimate claims for damages resulting from the oil spill, including property damage and loss of profits and earning capacity by businesses directly impacted by the spill. Feinberg says he’ll look to state law for guidance on who gets paid.
Under general maritime law, fishermen are compensated for profits they lose when oil fouls their fishing ground. Other businesses, however, must generally incur direct physical injury or property damage in order to recover for economic loss like lost profits or increased costs. That means a beachfront hotel could recover compensation to clean oil off its sand as well as pay for its lost tourist dollars. But payment might not be made for more indirect claims of lost profits, like revenue lost by an ice company that supplies the fisherman and hotel.
A travel industry trade group is demanding $500 million from BP to offset a potential loss of $23 billion in tourist spending along the Gulf Coast over the next three years. The group claims that spending $500 million on marketing and providing accurate information about travel conditions could save jobs and cut the loss by $7.5 billion.
People and businesses in the Gulf region damaged by the oil spill have claims for damages from BP and the escrow fund. But what about those who aren't in the Gulf region and claim to have spill-related damages?
Near and Far?
There's no question that many people and businesses in the Gulf region have been impacted by the oil spill. Real and personal property has been damaged or destroyed, and businesses are fighting to stay open or have already closed, just to name a few.
Not long after the spill, BP set up a claims process and made a promise to pay all reasonable and legitimate claims for damages. By mid-June 2010, more than 65,000 were filed and over $100 million paid. Also in June, BP agreed to set-up a $20 billion escrow fund to pay damages, and control over that fund is in the hands of an Independent Claims Facility, and specifically Kenneth R. Feinberg.
For those in the Gulf region and in the direct path of the spill, it's fairly easy to establish a claim for damages. Your oil-stained boat, oil-covered beachfront property, or inability to catch enough fish and seafood to keep your fishing business afloat usually is enough to satisfy the claims process.
But, you don't have to own beachfront property to feel the pain caused by Gulf oil spill. For example, a restaurant in New York claims the spill cut off its access to seafood and so it's losing business. It's not hard to imagine other claims for damages from well outside the Gulf region, such as damages related to tourism or decreased business-to-business or retail activities.
Feinberg acknowledges that these types of claims present the most challenging problem when it comes to administering the escrow fund.