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Article on BP Compensation Fund

July 22nd, 2010 No comments

Over on Slate, I have an article today on the BP compensation fund, administered by Ken Feinberg (he of 9/11 Compensation Fund and Executive Compensation overseer fame). I explore how the law that Feinberg says he’ll rely on actually isn’t good for most claimants, but that I expect him to compensate most of them anyway. I’m a fan of his, but I hope this isn’t a “puff piece.”

A shameless plea: If you read it and like it, please “like” it by sharing to Facebook. It matters how well the piece is received.

The Only Real Story

June 30th, 2010 1 comment

If you’ve been wondering why I’ve been blogging lately about such weighty matters as Idina Menzel, Wonder Woman, and the fate of Federer, here’s one explanation: I can’t bear to spend too much time thinking about the only real story, the one that threatens to compromise my (and all) kids’ futures —  the BP Oil Spill. Here’s an especially disturbing video, lavishly narrated, that chronicles the sickness and death of dolphins and whales and the deep, organic wound to our ecosystem. Warning: it’s hard to watch.

If you want to stay on top of the eco-consequences of this unfolding horror, this blog is a good pick.

Five Questions About the BP Compensation Fund

June 17th, 2010 No comments

A timeline of the disastrous BP oil spill in the Gulf of Mexico

Under withering pressure from the White House and an enraged public, BP has agreed to establish a compensation fund for those affected by the oil spill. (We need a new name for this disaster. “Oil spill” doesn’t quite capture the magnitude of what happened.) For now, BP has committed to a cool $20 billion for the fund (to be paid into the fund in four yearly installments). That’s welcome news, as is the announcement that Ken Feinberg will be the Fund’s administrator. I’ve had a couple of brief conversations with Feinberg in connection with his administration of the September 11 Victim Compensation Fund. Although the Fund itself was open to criticism for using government money to pay up to $8 million for the best-compensated vicitms, Feinberg himself was fair and compassionate. He also oversaw executive compensation in the wake of the financial bailout, and somehow managed to do that well, too.

The Fund is just now being set up, but here are a few key questions I have:

1.  Will the money, once in the Fund, be shielded from creditors if BP goes into bankruptcy? That’s vital.

2.  Who will be eligible for recovery? The talk has been about compensating fishermen for economic losses, but what about, say, restaurant owners whose businesses are affected or even destroyed by the inability to get fresh fish? How about hotels that accommodate sun-seeking tourists? Under the prevailing tort law, they’d have a tough time recovering. What about under the Fund? How heavily will it lean on tort law?

3. Will recovery be limited to provable economic loss? What about those who suffer personal injury, possibly as a result of inhaling the vapors? Is the fund intended to compensate them, too?

4. What kind of evidence will count? How flexible will Feinberg be?

5. If a party loses, or doesn’t like the amount of compensation Feinberg awards, by what standard will the appellate panel (of three judges) review his decision? And if the case goes to court, do we start all over again.

Assuming the above questions can be worked out in a satisfactory way, I like this Fund. It takes worker compensation law as a rough model. Both allow quicker and more certain compensation than would be available under the slow, maddening, and unpredictable tort law. And both are funded by the very entities that are presumed to have caused the injury.

This already important story will become an increasing subject of focus as the months go by, and attention shifts from the on-going spill to the tragic and long-legged stories of clean-up and compensation.

9/11, Katrina, and the BP Oil Spill: The Inconsistency of Compensation

May 29th, 2010 2 comments

The by-now predictable, tedious, and irresponsible Republican bulwark against raising or eliminating the criminally low liability cap that would leave claimant against BP out in the cold really has me frosted. And it’s gotten me thinking about how we compensate people for loss in front-page cases: September 11; Katrina; and this BP oil “spill.”

Let’s talk about who was responsible for these tragedies, and how the victims have (or haven’t been) compensated for their losses.

September 11 was, of course, a terrorist act, but under established principles of tort law, other actors could be liable: airport security, airlines, and — further down the chain — the federal government, for missing the warning signs. But the government, to bail out the struggling airline industry, and in an effort to pile sandbags full of money at the border, created the Victim Compensation Fund. At taxpayer expense, the Fund (not really a “fund” at all) paid out more than seven billion dollars, mostly to surviving family members of those killed when the Towers fell. Some received millions, because payment was largely based on a tort model. I’ve criticized this approach, noting that government should not be compensating people as though they’re tort victims, and that doing so reflects a confusion between the principles of corrective justice (righting an imbalance between two parties caused by one party’s negligence) and distributive justice (deciding how best to allocate the resources across society).

To call what happened in New Orleans “Katrina” is really a misnomer, because the hurricane isn’t what caused the widespread and continuing destruction of large sections of the city: the government did so, through the negligence of the Army Corps of Engineers in connection with the building and maintenance of the levee system, and of untold bureaucrats in designing the Mississippi River-Gulf Outlet (“MR-GO”). The government is immune from suit for the levee failure (but not for MR-GO related negligence), so those injured, financially wrecked, or rendered homeless in the wake of Katrina had to content themselves with the meager assistance afforded by the Federal Emergency Management Agency. (Criticisms of FEMA’s response are legion and some, like this one from Kevin Drum in Mother Jones, are devastating; but they miss the more central issue.) I’ve criticized this approach in several places, including the documentary film “America Betrayed,” and this article.

Now comes the BP disaster, which threatens to swamp the rest. Yet because of an ill-considered federal law that I discussed here, BP will be liable for clean-up, but for only a relative pittance ($75 million) for liability to those economically or otherwise ruined. Unless this cap is lifted — and the legal change is made to apply retroactively — or unless there’s a government “fund” created, many of those destroyed by BP’s probable criminal acts will be entitled to…nothing.

How can our different responses to these tragedies be explained? Only by thinking about politics and power, not by looking at justice. But there might be a limit: Expect the law to change, and for BP to be held accountable. (Please!) If not, President Obama has suggested that the taxpayers will be on the hook. If we are (and I wouldn’t object), let’s spend more time thinking about a better model of compensation when we’re all left holding the bag.

And we must demand more comprehensive regulation: As Rachel Maddow pointed out this week (with her outrage well-justified by the facts), a similar spill went on for months about thirty years ago, and the same useless efforts were made then, as now, to stop it. She concludes, correctly, that Big Oil has gotten much better about drilling deeper and deeper (200 feet v. 5,000 feet), with correspondingly higher risks, but not any better at all about stopping it once it happens. Enough.

BP and the Undercompensation Follies

May 3rd, 2010 1 comment

A television reporter stands beside oil booms at the coast of South Pass, south of Venice, Louisiana, as oil leaking from the Deepwater Horizon wellhead continues to spread in the Gulf of Mexico, May 2, 2010. A huge wind-driven oil slick bore down on the U.S. Gulf coast on Sunday, threatening an environmental catastrophe, and the Obama administration heaped pressure on BP Plc to halt the uncontrolled spill from its ruptured Gulf of Mexico well. Since the explosion and sinking last week of the Deepwater Horizon rig, a disaster scenario has emerged with hundreds of thousands of gallons of crude oil spewing unchecked into the Gulf and moving inexorably northward to the coast.

I was appalled but not shocked to read today that legislation passed in 1990 (that created the “Oil Spill Liability Trust Fund”) limits the liability of BP in connection with this incident to $75 million. That’s right: a tiny fraction of the total amount of damages this disaster, which may prove to be unprecedented, will ultimately cause. In addition, BP is responsible to pay for the cost of containment and clean-up — good, but no help to those economically or physically injured.

That liability limit was part of a 1990 law that created a trust fund to cover more substantial liabilities, and that is funded by a very miniscule tax on each barrel of oil paid by the companies (who will then naturally pass it off to consumers). That tax will fund an additional $1 billion to be used as a compensation fund for each incident, no matter how enormous. And disasters don’t get any more enormous than this one.

Today, NJ Senator Bob Menendez introduced a much-needed bill that would raise the cap on oil companies from $75 million to, oh, $10 billion. Even this might not be enough, given that the sea fishing business is a $6 billion dollar industry per year in the Gulf alone. Menendez intends for his bill, called (I love this) the “Big Oil Bailout Prevention Act” to apply retroactively and thereby force BP to pay. This could be a political fight worth watching. Who’s going to stand up for oil in this case, and what will happen to their careers if they do?

In general, I favor deals limiting liability in exchange to paying into a compensation fund. But this particular fund doesn’t meet my minimum fairness requirements. First, the amount the companies have to pay in is so teensy, and therefore so easy to pass along to the consumer, that it doesn’t seem like much of a fair exchange — and in any case doesn’t force anyone to consider the true environmental costs of oil drilling. Second, if the government is going to get involved in a compensation fund, it has the responsibility to make sure that people are adequately compensated from that fund. The $1 billion dollar limit doesn’t do that.

It’s easy to blame BP for actions that likely could have resulted from any big oil company’s actions. But the company does deserve blame for moving so slowly, for underestimating the extent of the damage, and for trying to shift blame to the contractor that actually operated the rig.(The legal contribution and indemnity issues here are fascinating in a perverse kind of way.) Yet one wouldn’t expect them to win a safety award after this — wait, they might? (The company is a finalist for this award. Apparently, just like baseball’s MVP award, this prize is given so far ahead of time that it can be embarrassing: players can win them even if they fail miserably in the playoffs, and BP could win based on its actions before this gusher started.)

It’s time for someone to stop this and tilt the playing field back towards level. Right now, oil is sitting its heavy butt on one end of the see-saw, and the Gulf Coast, the environment, and the rest of us are flying off the other end.