BP Agrees To Creation Of $ 20 Billion Escrow Fund

One of the few concrete ideas to come out of President Obama’s speech last night appears to be a done deal:

WASHINGTON — The White House and BP tentatively agreed on Wednesday that the oil giant would create a $20 billion fund to pay claims for the worst oil spill in American history. The fund will be independently run by Kenneth Feinberg, the mediator who oversaw the 9/11 victims compensation fund, according to two people familiar with the deliberations.

The agreement was not final and was still being negotiated when President Obama and his top advisers met Wednesday morning with BP’s top executives and lawyers. The preliminary terms would give BP several years to deposit the full amount into the fund so it could better manage cash flow, maintain its financial viability and not scare off investors.

The talks have been complicated by the fact that BP’s ultimate liabilities for the cleanup and lost business are unknowable since the two-month-old leak of its well in the Gulf of Mexico could be spewing oil for months more. To date, BP has spent more than $1 billion on containment, cleanup and claims from the Coast Guard, fishermen, oil workers and other businesses from Louisiana to Florida.

Notwithstanding the fact that BP is agreeing to this — just how voluntary that agreement might be is left for the reader to ponder — one has to wonder where the legal authority for the fund will come from. The 9/11 fund that Mr. Feinberg oversaw was established by an Act of Congress, for example, and there does not appear to be any independent statutory authority for the President to establish this fund on his own.

Also unanswered is the question of what claims will be covered by the fund:

BP officials are adamant that the company should not be liable for the lost wages of oil workers laid off because of the six-month moratorium that the Obama administration imposed on deepwater offshore drilling after the Deepwater Horizon explosion and fire. But Interior Secretary Ken Salazar and other administration officials repeatedly have cited idled oil workers as among those who could press claims.

It may turn out that some claims will have to be litigated before recovery is possible, especially since the idea that BP should be responsible for a losses like the lost wages of oil workers idled by a government-imposed drilling moratorium, which only seem to be tangentially related to the explosion of the Deepwater Horizon.

In any event, this news is likely to be well-received by Gulf Coast residents who have been harmed by the oil spill. What remains to be seen is how it will be implemented.

FILED UNDER: Barack Obama, Environment, Oil Spill, Politicians, US Politics,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Dave Schuler says:

    Yah, I posted on the subject of liability this morning. Despite the amount of rhetorical attention that compensation for lost income is getting, BP’s legal responsibility for that would appear to be an open issue. It’s not completely clear, for example, if the Oil Pollution Act of 1990 specifically exempts them from that. Further, remunerating people, e.g. fishermen, for income lost from assets that they don’t own would not appear to be something they would be allowed to recover for under the common law.

  2. Great, as someone over at NRO noted, once again we have the government acting as a third party wealth redistribution agent, when this is properly handled between BP and the claimants, and the courts if necessary. It will be interesting to see whether some claimants are more equal than others once the government starts doling out the dollars.

  3. Dave,

    I’ll admit to being unfamiliar with the environmental laws and how they measure damages (not my area of practice by any means) but looking at the issue from the perspective of traditional damages law I think the case for making BP liable for lost wages resulting from a decision by the President to halt offshore drilling for six months is pretty weak. If their liability can extend that far, then why couldn’t it also extend to the grocery stores where the oil workers and their families would have shopped if they’d had the wages that they lost during that six month period.

    If BP agrees to all this, the question is moot but I honestly have to wonder how voluntary that agreement actually is.

  4. PD Shaw says:

    There is an Oil Spill Liability Trust Fund which is intended pay out damages and government response costs. It’s got $2.7 billion, but can only pay out $1 billion per incident.

    Aside from potentially insufficient funds, it doesn’t seem to have interim payments in mind. The examples of documentation to prove lost profits include tax returns, p&l sheets or other proofs of income for the loss year and the three preceding years. My impression is that our concerns are more urgent than proving damages that probably take over a year to quantify and they more reflect immediate concerns of the welfare of people along the coast.

    http://www.uscg.mil/npfc/Claims/damages_lost_profits.asp

    I don’t know if this is the fund Obama wants to use, but it would still seem necessary to change the law to use it in this way.

  5. sam says:

    “Notwithstanding the fact that BP is agreeing to this — just how voluntary that agreement might be is left for the reader to ponder — one has to wonder where the legal authority for the fund will come from.”

    I don’t follow. If BP agrees to set up an escrow fund through and in its own bank, what legal authority is required? A private company is setting up a private escrow fund (to cover claims against the company). Or is the argument that the government is saying, “Under the authority of X, we order you to set up an escrow fund”? I haven’t seen any mention of that, nor of the president setting up the fund. All I’ve seen is that BP will set up the account.

  6. Sam,

    The question is where the authority for the government to administer this fund arises from regardless of whether BP’s decision is voluntary or not

  7. sam says:

    Ah, Ok, I see now what you mean. But what if Mr. Feinberg leaves the government to administer the fund? Would there still be a question of legal authority? Do we know that he’ll stay in government?

  8. Alex Knapp says:

    For the record, my guess is that the economic damages will be vastly in excess of $20 billion, and I would also guess that BP will not pay out the full $20 billion.

    You heard it here first.

  9. floyd says:

    Well, we know it’ll cost at least 20B then, or 40B if the government distributes it![lol]

  10. steve says:

    “once again we have the government acting as a third party wealth redistribution agent, when this is properly handled between BP and the claimants, and the courts if necessary.”

    The courts are not a government function? What is your plan for thousands of $30,000 a year workers to get TIMELY and fair compensation from a multi-billion dollar, international corporation? Has the honor system worked well in the past?

    Steve

  11. Steve, at least with the courts we know what the rules are and everyone gets, ahem, their day in court. Having the money distributed instead by political agents just begs for corruption and malfeasance. There is a process for hgow to deal with this that works just fine, just like there was for GM until Obama and his cronies ignored it and instead decided to steal equity from the rightful owners and give it to their friends in the unions. Really, how is this different from organized crime?

    Say, do you think we’ll ever know where the TARP money went?

  12. steve says:

    Charles- Your idealism is refreshing in a way. Having had some experience with legal issues, the side with the best legal resources is much more likely to win. Also, the courts are hardly immune to politics. The courts are well designed to handle a single incident between relatively equal parties. The courts are poorly equipped to handle thousands of these kinds of cases, especially when one side is very resource heavy.

    A litle nugget from the Wikipedia entry on Ixtoc……

    “Prevailing currents carried the oil towards the Texas coastline. The US government had two months to prepare booms to protect major inlets. Pemex spent $100 million to clean up the spill and avoided paying compensation by asserting sovereign immunity.”

    TARP? If Finreg passes there is an audit. We already got a lot of it back. I’m figuring we lose a lot of the AIG money. Unsure about the other bank money.

    Steve

  13. Alex Knapp says:

    Charles,

    Say, do you think we’ll ever know where the TARP money went?

    You can see a listing of all the TARP contracts here:

    http://www.financialstability.gov/impact/contracts_list.htm

    The transaction reports showing loans and payments are here:

    http://www.financialstability.gov/latest/reportsanddocs.html

  14. JKB says:

    On the plus side, when the claims are delayed or denied, BP is free and clear since they do not administer the mess. Thankfully, Obama let the US government relieve them of this burden. We all know how efficient government is at processing claims. Dumb ass.

  15. sam says:

    So, JKB and Charles, your preferred solution is to throw all the claims into federal and state courts where individual claimants can go up against BP and its legal resources, in the hope that after years of litigation, they, the individual claimants, can be compensated. Do I have that right? Another thing we all know, JKB, is just how brutally efficient very, very large corporations can be in protecting their financial interests in court. Do you really think that small businesses would stand a chance of being compensated if that depended on the outcome a lawsuit between the small business and BP? And even if compensation were won, do you think it would come in time to save the small business from extinction?