Claims fund designed to limit payouts, shield BP from lawsuits

The escrow claims fund to compensate victims of the BP Gulf oil disaster requires that claimants waive their right to sue BP and any of the other firms implicated in the Deepwater Horizon blowout, according to documents acquired by the New York Times.

The latest revelations regarding the “independent” claims facility overseen by Washington lawyer Kenneth Feinberg make clear that its purpose is not to make whole the victims of the worst ecological disaster in US history, but to defend the financial well-being of BP and other major oil industry players.

In an article published Friday, (“BP Settlements Likely to Shield Top Defendants”), the Times reported it had obtained a number of documents, including e-mails, legal notes from claims facility lawyers, and draft and final versions of claims policy protocols, that together reveal the escrow will be even more stringent than had previously been indicated. Feinberg, while refusing comment, confirmed the documents’ authenticity.

Not only will those who receive lump sum payments through the claims facility waive their right to sue BP, they will also give up the right to sue rig owner and operator Transocean, contractor Halliburton, and blowout preventer manufacturer Cameron International. This provision will directly benefit BP, according to a legal analyst interviewed by the Times, because these concerns would likely sue the oil giant for any blowout-related litigation they may face.

The revelations also make clear the purpose of Feinberg’s public relations campaign up and down the Gulf Coast, in which he attempted to convince residents that, in his words, they “would be crazy” not to sign up for the fund.

Feinberg is preying on residents’ desperation. As a number of legal experts have pointed out, telling victims to waive the right to sue when the actual impact of the disaster is not yet clear is, at best, dubious legal advice. It is not known, for example, if fisheries will ever recover, and the long-term health effects of the massive contamination could be enormous.

Feinberg presents victims with a dilemma. As the Times notes, “If [victims] decide to sue instead of accepting a settlement, they could face years of litigation; and if they decide to accept the settlement, it could come before the full damage from the spill is known.”

“How can anyone take a settlement when they don’t know what’s going to happen?’ asked Ryan Lambert, who owns a charter fishing boat service in Buras, Louisana. “It’s going to take three years for us to get a feeling for what damage these fish have suffered.”

The possibility to appeal for claims through Feinberg’s fund expires in November 2013.

The legal notes also confirm what Feinberg has hinted at for weeks—that those who cannot demonstrate damages caused by the direct impact of oil on beaches and fisheries will be ineligible for money. By all indications, small businesses that have seen their revenue fall sharply as a result of the spill, but which are not located directly on soiled beaches, will not be able to receive compensation through the fund.

“An ice cream parlor or a golf course miles from the affected shore but along the main highway headed to the beach will probably not be eligible, the documents indicate,” the Times reports.

In establishing geographical proximity as the primary factor in determining payments, Feinberg, acting “under pressure from BP,” according to the Times, actually departed from established federal law under the Oil Pollution Act, which does not geographically limit damage claims.

Lawyers representing Gulf restaurant owners issued a federal filing charging that the protocol will “arbitrarily exclude large swaths of claimants from covertly predetermined ‘zones of eligibility’ based on restrictive state law concepts as opposed to following” the Oil Pollution Act.

Also blocked from compensation will be property owners who have seen their home and business values plummet and the tens of thousands of Gulf coast residents and cleanup workers who are likely to suffer mental illness as a result of the catastrophe. In previous statements, Feinberg has indicated that fishermen who operated on a largely cash basis will also not be eligible.

Feinberg has also determined that money displaced fishermen and others earned while doing cleanup work will be deducted from any compensation they might receive through the fund. In other words, the cleanup work they did, from the perspective of BP, will be free of cost.

“It’s a real sore spot,” shrimp boat owner Lance Nacio, of Dulac, Louisiana, told the Times. “We went out and risked our lives and put our boats and equipment and health on the line, and here they are penalizing us.”

Separately, BP has asserted that Deepwater Horizon survivors and families of the 11 deceased workers who have launched lawsuits will not be able to receive money through the claims facility.

“To be clear, it is BP’s position, consistent with this indemnification, that any settlement between Transocean and any of its injured or deceased employees must include a full release of all BP entities from any and all claims or liability in connection with the Deepwater Horizon incident,” wrote BP lawyer John T. Hickey to attorney Steve Gordon, who is representing some rig workers and their families. “This full release of all BP entities would indeed bar any subsequent claims against the fund being established by BP and the claims facility that will be administered by Mr. Feinberg.”

Feinberg, who will be paid an undisclosed sum by BP through interest earned on the money placed in the escrow account, has never hidden his intention of defending the oil giant’s top shareholders. “Investors in BP should know that there’s now an alternative to the litigation system in place,” he told CNBC in June. “I think that’s a really helpful sign if you’re an investor.”

Given the size of the catastrophe, the financial damages facing BP are slight. It has already announced its intention to write off $10 billion in taxes owed the US government based on costs associated with the spill, and it similarly will write off an undisclosed sum in Great Britain, where it is headquartered. In addition, the Obama administration allows BP to discount most costs associated with clean-up and response from the $20 billion fund, which it is to supply over four years.

The Gulf, meanwhile, will be left in ruins. The leaking of the stringent guidelines for the escrow fund to the press comes on the heels of a White House media campaign that has sought to convince the public that the vast majority of the oil spilled has simply vanished from the Gulf.

Scientists have flatly contradicted the White House claims, while a number of independent economic studies have already established that the financial burden of the disaster will far exceed $20 billion. The consequences to human health related to the dumping of hundreds of millions of gallons of highly carcinogenic oil as well vast amounts of chemical dispersant into the Gulf are unknown, but the effects will linger for decades among cleanup workers and very likely tens of thousands more.

The role of defending BP and other industry interests was entrusted to Feinberg based on his long record of defending the government and corporate criminals by keeping victims’ lawsuits out of the court system.

Feinberg negotiated the settlement for victims of the 9/11 terrorist attacks with the express intent of blocking civil lawsuits that might reveal information related to the government’s role in the attacks. He settled lawsuits in similar fashion related to hundreds of thousands of victims of the chemical defoliant Agent Orange in the Vietnam war, asbestos poisoning of factory workers, and the Dalkon Shield birth control device that injured tens of thousands of women and killed 20.

His last role before taking over the BP claims facility was as the Obama administration “pay czar.” In this capacity he authorized seven-figure salaries to the very Wall Street executives whose reckless speculation triggered the financial collapse of 2008.

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