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Five Questions About the BP Compensation Fund

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.