Carl Tobias

The President's Proposed System for Compensating the BP Spill Victims: The Issues It May Raise

By CARL TOBIAS
Wednesday, June 23, 2010

On Wednesday, June 16, President Barack Obama crafted a procedure to speed BP's payment of damages claims arising from the Deepwater Horizon Gulf oil spill.

Previously, in the President's first Oval Office speech, delivered Tuesday evening, Obama had announced that he would make BP "set aside whatever resources are required to compensate the workers and business owners who have been harmed by BP's recklessness." Obama then expanded on this idea, noting that "to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent third party."

The White House has now supplied more specifics about the compensation regime, so that the endeavor's outline is becoming clearer. Before the effort is formalized, however, many questions need answers.

Some of the Issues the Compensation System May Raise

At a Wednesday White House meeting with President Obama, BP Chairman Carl-Henric Svanberg seemed to agree in principle with the President's suggestion. After the meeting, Svanberg apologized to the American public, observing that "We have agreed today on a framework and we care about the small people." Although the use of the phrase "small people" was widely criticized, it seems that Svanberg was trying to promise compensation for even the smallest among the claims against BP. President Obama responded that "every American wants and expects accountability."

However, numerous critical issues of power and practical effectuation remain -- and BP might resist finalizing an accord that leaves these questions untreated or unclear.

Illustrative is BP's agreement to place $20 billion in escrow, but it is not clear how much more BP might have to pay, beyond that. Obama has tapped Kenneth Feinberg -- who was praised for his administration of the 9/11 Victims Compensation Fund -- to head the "independent claims facility," but its scope and procedures are

not yet thoroughly delineated.

Moreover, other issues remain uncertain: What type of claims will BP be responsible for paying? And, what will the standards for payment and proof be? BP has specifically pledged to reimburse all "legitimate claims" by injured parties, but this term lacks clear definition.

For instance, even though BP will contribute $100 million to assist unemployed oil rig workers, a BP official remarked that it would not accept liability for the damages suffered by individuals who are out of work due to the deepwater-drilling moratorium imposed by the Obama Administration. These and a plethora of other questions are unresolved, and a few among them -- such as the questions regarding what claims count as "legitimate claims"-- may resist exact definition or calibration.

BP might be reluctant to enter a permanent agreement. However, President Obama clearly stated that he has the legal power to insure that BP creates the escrow account that will be required to compensate those whom BP has harmed. Robert Gibbs earlier stated: We have legal authorities for this type of disaster, and the president will use them to "ensure that the claims process, for those damaged economically in the Gulf, is taken care [of]. BP is the responsible party."

President Obama Has Some Power to Enforce the Compensation Scheme, But Congressional Legislation Is Also Needed

Assuming Gibbs is correct, the U.S. has not only political, but also legal leverage to compel BP's compliance -- and that, in turn, suggests that Obama and the company will probably reach some final accord. Oil-spill, outer-continental-shelf-leasing and disaster-relief legislation together accord Obama a modicum of power.

And then there is informal power, and political leverage. At issue is potential U.S. rejection of BP's future lease applications, and/or the cancellation of existing leases. BP has incentives, as well, to protect its reputation and promote goodwill. It seems likely that some of the issues raised by the compensation system -- such as the definition of legitimate claims, the escrow account's eventual magnitude and the independent claims facility's breadth and processes -- may be negotiated between the White House and BP. Such negotiation ought to make the final agreement more acceptable to BP.

To guarantee BP's compliance, the endeavor should be authorized by legislation. Documenting the agreement in a statute would stamp the imprimatur of Executive and Legislative Branch power and political will on the initiative. Congress also has expertise and institutional memory that it has derived from investigating the BP and analogous disasters and assembling creative, equitable responses. There are no exact forerunners of the BP spill, but the U.S. has some precedents. For example, the 1980s Superfund law creates a fund that reimburses for cleaning up hazardous-waste disposal sites. Another, recent similar effort is the 9/11 Fund and with Feinberg involved, that experience can easily be consulted.

Time is of the essence, for the American people, their businesses, and their environment, have all been seriously damaged, and compensation is sorely needed soon. Thus, lawmakers must swiftly pass legislation that both addresses the essential issues and assigns the panel headed by Feinberg the responsibility for the day-to-day implementation of many particulars. For instance, Congress might adopt a bill that would treat the escrow's size; establish the claims facility's scope and procedures, especially regarding the kinds of claims that warrant payment; set the standards that the claims facility would apply; and stipulate the burden of proof that claimants must satisfy.


Carl Tobias is the Williams Professor at the University of Richmond.

Ads by FindLaw