Details Faulted in Plan to Pay Oil Spill Claims


NEW ORLEANS — The details of exactly how the $20 billion fund set up by BP will be distributed to those affected by the oil spill in the Gulf of Mexico, which were made public on Friday, did little to allay worries and suspicions here, drawing instead sharp criticism from several quarters.

Small-business owners, shrimpers, state officials and others affected complained that the rules were too restrictive and were inconsistent with federal law.

At the same time, an internal government study emerged on the potentially high costs of the moratorium on most oil drilling in the gulf. The study, by the Interior Department, estimated a loss of as many as 23,000 jobs if the moratorium continued as planned through Nov. 30.

The study, submitted to a federal court in New Orleans that is considering a legal challenge to the moratorium, also estimated that it would cost more than $10 billion in reduced economic activity and would reduce oil and gas production in the gulf by more than 4 percent over the next three years. Federal royalty revenue would fall by $522 million next year, the report stated.

The potential damages and how BP and the government intend to compensate those affected brought widespread complaints.

Shrimpers complained about a plan to deduct whatever they earned cleaning up the spill from their final settlement, which they asserted means that the oil company was trying to escape paying them for dangerous cleanup work. Lawyers representing businesses hurt by the spill said their clients should not have to forgo claims against other subcontractors involved in the spill just because they had reached a settlement with BP.

Florida’s attorney general, Bill McCollum, called the protocol for short-term emergency payments “completely unacceptable” and said it fell short of the requirements under the federal Oil Pollution Act. In Mississippi, the attorney general, Jim Hood, also raised questions about the framework, saying the protocol for emergency payments was vague and could be implemented in a way that would limit the oil company’s liability.

And some small-business owners worried about a decision by the fund’s administrator, Kenneth R. Feinberg, a prominent Washington lawyer, to weigh a business’s proximity to the affected shore in awarding compensation.

That rule, which BP lobbied for, might be used to exclude businesses farther inland whose bottom lines were hit by the drop in tourism and fishing, among them tackle shops, beer distributors, curio shops, seafood distributors, and gas stations and restaurants along the major highways to the beach.

In an interview, however, Mr. Feinberg said the guideline contained plenty of wiggle room and still gave him broad discretion to direct payments to businesses far from the shore if they could make the case that their trade was affected directly by the spill.

“Just because you aren’t on the gulf,” Mr. Feinberg said, “that doesn’t mean you are barred from receiving compensation.”

Defending the costs of the moratorium, Matt Lee-Ashley, an Interior Department spokesman, said the government had secured pledges from BP to help compensate workers, and asserted that the moratorium was necessary to ensure the safety of offshore drilling.

“The reality on the ground suggests that the impacts are less than we initially projected as a potential worst-case scenario,” Mr. Lee-Ashley said of estimates made three months ago.

The most common complaint about the compensation protocols, was that people and businesses seeking a lump-sum settlement would have to reach a final agreement with the fund before the full effects of the spill on fish, wildlife and tourism become evident.

“The concern is you’re going to have people essentially being taken advantage of because they have economic straits — they get quick, low settlements and out of economic necessity take them, but in the long run they are not better off,” said Stephen J. Herman, a New Orleans lawyer who serves as a liaison between plaintiffs’ lawyers and the federal judge handling cases against BP.

Ryan Lambert, who operates a large charter fishing business out of Buras, La., said he was reluctant to negotiate a settlement with Mr. Feinberg because the redfish and speckled trout populations he depends on may be affected for two decades.

“How can anyone take a settlement when they don’t know what’s going to happen?” he said. “It’s going to take three years for us to get a feeling for what damage these fish have suffered.”

Also provoking ire among gulf residents and their lawyers is the clause that says that money people earned during the period for which they claim their businesses lost earnings will be deducted from the final settlement. BP pushed hard for the clause to be included, according to documents from lawyers involved in drafting the rules.

But many of the very people who are most eligible to apply for a settlement — out-of-work shrimpers, fishermen and dock workers — are also the people who were hired to do cleanup work for BP. The consequence of the deduction clause in the protocol, critics say, is that BP will end up getting that work free.

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

Mr. Nacio and other critics pointed out that had they simply stayed home, BP would have to pay their full claim while also paying contractors to perform the cleanup work.

Mr. Feinberg defended the proposal, arguing that the oil company had in effect eased the economic woes of the fishermen with the offer of employment and shrunk their net losses.

Details of the protocols were published by The New York Times on Thursday night, based on internal documents from a team of lawyers handling the fund. Actually, there are two sets of rules, one covering emergency claims to be filed between Monday and Nov. 23 and the other governing the final settlements, for which claims must be submitted before August 2013.

Mr. Feinberg, who also handled a similar fund for victims of the Sept. 11 attacks, will take over the administration of the payments from BP on Monday. On Friday, he published the protocol for the emergency payments; the rules for the final payments will be published sometime in the fall.

The documents obtained by The Times described the terms of the emergency payments protocol, as well as the likely terms of the final settlement protocol. Claimants do not give up their right to sue BP and other companies in return for the emergency payments, though they do under the likely terms of the final payments.

But those final settlements will be much larger and, according to the documents, people seeking a lump sum will likely have to sign a release saying they will not sue any of the companies involved — BP, Cameron, Halliburton, Transocean and possibly others. There is likely to be a much more intense political fight about that provision and the other proposed guidelines for the final settlements, officials said.

“The big battle is going to be fought over intermediate and final claims,” said Mr. Hood, the Mississippi attorney general.

Mr. Feinberg said the question of whether people who receive payments from the fund could still sue other companies involved in the spill was far from settled, even though proposed drafts of the rules for final settlements say they will must waive those rights. “There has been no determination made whatsoever at this time about the scope of the waiver,” he said.

For both the emergency and final claims, however, the documents make clear that the fund, known as the Gulf Coast Claims Facility, will only pay for damages “proximately caused by the spill” and will “take into account, among other things, geographic proximity, nature of industry and dependence upon injured natural resources.”

Gov. Bobby Jindal of Louisiana raised concerns that the rules for final settlements would give claimants shakier legal footing than they currently have under the Oil Pollution Act, which has no geographic limitation on claims and allows them to be made for three years from the time the damage is discovered and six years after cleanup is completed.

Lawyers say the final settlement rules will force clients to make an impossible choice: take the cash or hold out for a larger award after a long court battle. Many smaller businesses will not have the resources to wait.

“A lot of people are desperate,” said Jere Beasley, a lawyer in Montgomery, Ala., who represents more than 1,000 people seeking damages. “BP realizes that they can take advantage of a person’s desperation to pay the bills and feed a family. It’s a callous approach.”

One of those businessmen who cannot afford a court fight is Wayde Bonvillian, who buys crabs from fishermen and softens their shells at a small plant in Montegut, La. Mr. Bonvillian said he was loath to accept any sort of settlement until he saw what the oil did to the blue crab population over the next several years. Yet he is bankrupt after losing what he estimates to be $500,000 in gross sales this year.

“I don’t know if I will ever open again,” he said. “I’m completely out of business.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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