Will BP Spill Victims Be Made Whole? New Report Exposes a Raft of Problems Inside the Gulf Coast Claims Facility


Over a year into the Gulf nightmare, who’s advocating for the victims of BP’s massive oil spill? Who’s going to ensure they’re made whole? Claims czar Kenneth Feinberg tried, rather unconvincingly, to assume the role of independent “victim champion” when he became administer of BP’s $20 billion compensation fund back in August 2010. But the “neutral arbiter” act didn’t fly – some little detail about BP paying Mr. Feinberg a fat $850,000 monthly retainer (subsequently raised to $1.25 million). In February, the federal judge overseeing the oil spill litigation, Carl Barbier, ruled that Feinberg was not in fact independent from BP, and ordered him to stop presenting himself as such to claimants.

Since Mr. Feinberg took over the claims process at the end of last summer, the Gulf Coast Claims Facility (GCCF) has paid roughly $4 billion in claims to more than 175,000 individuals and businesses. But is justice being served? Are victims really being fairly compensated by BP as mandated by law (i.e., the Oil Pollution Act of 1990)?

One group fighting for spill victims is the Alliance for Justice (AFJ), a D.C.-based national association committed to “increased access to justice for all Americans.” A worthy cause if ever there was one. The Alliance – with over 100 member organizations “dedicated to advancing justice and democracy” – is seeking “to ensure that victims of the BP oil spill receive meaningful compensation for their losses.”

To that end, the AFJ has released a thorough and highly critical study, One Year After the Gulf Oil Spill – Is Justice Being Served?, that reveals a raft of problem areas inside the claims facility that must be resolved before spill victims can truly be made whole. The AFJ also produced a short documentary film Crude Justice (see link below) that I urge you all to watch – particularly if you’ve sustained damages from the spill. The 18-minute short offers a hard look at the human toll of the BP disaster and the legal issues surrounding the losses and suffering.

Here is what the AFJ has done:

We have explored the damage done by this calamity and its effects on the lives and livelihoods of residents of the Gulf by interviewing scores of people, producing reports, hosting panel discussions, and producing the short film Crude Justice. Now, one year later, Alliance for Justice is publishing this report to assess whether the legal system is working to provide adequate compensation for victims. In short, at the one-year anniversary of the BP spill: Is justice being served?

The AFJ report focuses on the many different aspects of the human toll:

While the environmental effects have been devastating, the human toll has been just as catastrophic. The primary economic engines of the Gulf – seafood, tourism, and energy production – have all been directly affected, disrupting lives, careers, and families. The commercial fishing industry has been devastated by government closure of fisheries, decreased marine populations, and public concern over the safety of seafood. Fear of oiled beaches has led to a decrease in tourism. And the temporary moratorium on deepwater drilling cost oil and gas industry workers until it was lifted.

And the AFJ makes the important point that the suffering is not confined to financial issues. The spill’s impact has seeped into every aspect of people’s lives. From the report’s Executive Summary:

The disaster is hurting more than peoples’ pocketbooks. Surveys of residents show that depression is up 25%, and domestic violence has increased. Many of those exposed to the oil have reported physical ailments, with the longer-term health effects still unknown.

The spill’s impact on families and coastal communities has been absolutely devastating – so it’s hard for me to watch as seemingly legitimate claims go unpaid or are denied outright, or they settle for mere pennies on the dollar. Not fairly compensating the many segments of the Gulf population that have sustained huge losses due to the spill could leave our unique culture irreparably damaged.

Early on, BP accepted at least partial responsibility for the disaster and agreed to pay “all legitimate claims” and waived the laughably inadequate $75 million liability cap. At the insistence of President Obama, and to meet requirements established by the Oil Pollution Act of 1990 (OPA), BP put $20 billion into compensation fund and created the GCCF to administer the claims process. President Obama and BP jointly decided that Kenneth Feinberg would head the fund, which was “unprecedented in size and scope.”

As many of you know, I’ve been an outspoken critic of the claims process from the early days of its existence, and I haven’t been alone in my frustration and disappointment. From the AFJ report:

There has been widespread criticism of GCCF’s administration of the claims process, primarily focusing on the ways in which the GCCF has failed to provide fair and timely compensation for claimants, and the limitations it has imposed on claims.

The AFJ reminds us of the slow-motion legal disaster surrounding the Exxon Valdez spill – a case study in how the legal system can fail victims. That’s a situation we cannot afford to revisit. From the AFJ report:

After the Exxon Valdez oil spill disaster in Prince William Sound, Alaska in 1989, our legal system did not come close to realizing the goal of making injured victims whole. The litigation to compensate victims dragged on for nearly 20 years, and one out of five plaintiffs died before they could be compensated.

The AFJ’s important analysis of the claims process will go a long way toward preventing a repeat of the Exxon Valdez legal nightmare. The AFJ’s first-year review of the GCCF produced a comprehensive list of the problems and deficiencies that the Alliance believes must be resolved before victims can truly be made whole.

The list is too long (imagine that) for me to address each problem here, but I have pulled from the report what I feel are the top-10 most important issues. If you are a claimant, one of these problem areas probably applies to your situation:

1. Documentation standards and award calculations are unclear. Early on, claimants who were denied were simply notified that they did not provide adequate documentation, with no further explanation as to what should have been provided, and claimants whose claims were underpaid received no explanation as to how GCCF arrived at the award amount. …It appears that GCCF is taking steps to address this problem. After Alliance for Justice and others called for clearer documentation standards and explanations of how those standards were applied to individual claims, GCCF included in its Final Methodology a sample form letter that claimants will receive, explaining the amount of compensation GCCF is offering, a breakdown of the way in which the figure was calculated, and an explanation of information that was missing.

2. Claimants do not receive adequate information while their claim is processed. There has also been widespread frustration over the inability to access information about pending claims, though GCCF has made various improvements to the process and increased information available to claimants. Firsthand complaints regarding the lack of access to information about pending claims include:

George Barisich, an oysterman from Louisiana explained his frustration over the inability of claims adjusters in the St. Bernard Parish office to answer his questions about his claim: “All they do is take information, they don’t have any authority. When you get a denial letter or are shortchanged, no one can tell you why you’ve been denied. The whole process was a joke.”53 He went on to suggest that the process could be improved by having “local people to deal with people and explain and deal with the problems that you’re not seeing.”

3. There is insufficient transparency in the administration of GCCF. GCCF has been called upon to allow more public involvement in developing its policies, and to be more transparent in sharing information about its operation. GCCF deserves credit for involving key stakeholders and the public in the development of its practices and policies. For instance, a draft of the claims protocol was shared with federal officials, governors, state attorneys general, and other key stakeholders so they could provide feedback. … However, while GCCF adopted many of the recommendations made by interested parties; some stakeholders felt that the process was inadequate. For instance, Florida Attorney General Bill McCollum complained that the state’s input had been “completely disregarded.”

4. Claims may be limited through a heightened causation standard. One area of dispute has been whether or not OPA contains a proximate cause requirement – a heightened legal standard that limits liability to those injuries that were foreseeable and primarily attributable to the defendant. The OPA does not explicitly use a “proximate cause” standard in setting liability, and instead holds the responsible party liable for damages that “result from” or are “due to” the incident. There have been complaints that by using a proximate cause standard, GCCF is forcing claimants to prove more than OPA requires and thereby not paying legitimate claims.

5. Claims may be limited based on geographic proximity. Proximity to oiled or damaged property has been one of the most controversial standards used by GCCF. Initially, the Protocol for Emergency Advance Payments contained a provision that “GCCF will take into account, among other things, geographic proximity…” The Mississippi Attorney General’s Office criticized this provision as determining claims based on “a random distance in relation to the shoreline” and recommended that “[a]ll claims incurred as a result of the oil spill should be paid regardless of the claimant’s physical location.”

6. Claims may be limited based on industry type. While many of the people most impacted by the spill are in the tourism and seafood industries, claimants range from hairdressers, to dentists, grocers, veterinarians, all of whom claim their business has suffered as a result of the spill. There have been complaints that certain industries unconnected to seafood or tourism have been unfairly treated as automatically ineligible by GCCF. Alabama Representative Jo Bonner believes that GCCF has treated certain industries, such as titling companies, as categorically ineligible for compensation from GCCF. Similarly, Mississippi Attorney General Jim Hood noted that “claims filed by Mississippi casino workers… were arbitrarily and categorically denied solely on the basis of these claimants’ place of employment.”

7. Claims for subsistence use have been limited. While OPA makes the responsible party liable for “loss of subsistence use of natural resources,” to date GCCF has paid just a handful of these claims. At the one-year anniversary of the spill, only 39 subsistence use claims have been paid, with an average of $9,200 per payment. While GCCF no longer publicly releases this data, as of December 16, 2010, over 16,000 subsistence use claims in Louisiana alone were submitted but not paid.

The issue of subsistence use claims is particularly important to the Vietnamese community in the Gulf. East New Orleans has the most highly concentrated Vietnamese population outside of Vietnam, with many immigrants settling in the region because of the warm climate and lucrative fishing trade. Within this community, the loss of the ability to fish is particularly devastating because in addition to living off a portion of their catch, bartering and mutual aid have cultural importance.

8. The Tunnell Report (the “study” the GCCF is using to determine future losses) has been widely criticized. One marine expert noted that the Tunnell report does not give sufficientindividualized consideration of the spill’s effect on particular species. The report was also criticized for not being subject to peer review, and not doing any empirical analysis, instead limiting itself to a review of literature. Additionally, the reports’ independence has been called into question because Texas A&M University, the institution Dr. Tunnell works for, reportedly received $500,000 from BP.

Louisiana Senator Mary Landrieu wrote, “I recommend establishing a peer review process for any scientific studies used in the award calculation methodology and actively engaging the scientific community in a public, transparent manner” in order to “foster the kind of substantive dialogue we will need to understand the ramifications of an ecological event of this magnitude.” She noted that “Dr. Tunnel’s opinion represents one perspective, but it should not be construed nor presented as the definitive projection of recovery timelines.”

9. Claimants should not have to waive future losses when recovery in the Gulf is uncertain. Even if one were to assume that the future loss projections used by GCCF represent the best possible predictions that can be made at this time, those projections are inherently speculative and there may be long-term ramifications that are currently unforeseen. The Tunnell report acknowledges that, “realistically, true loss to the ecosystem and fisheries may not be accurately known for years, or even decades,” and points to the unexpected decline of the herring fishery five years after the Exxon Valdez spill as a “classic example” of damage to an ecosystem that can appear years later. While the analysis conducted by ARPC predicted a 2-3 year recovery timeline for the Gulf economy by comparing the effects of the oil spill with recoveries from other events affecting tourism such as 9/11 and Hurricane Katrina, ARPC’s prediction of future recovery is speculative, and as GCCF acknowledges, “[p]rediction is not an exact science.”

10. The future loss projection is speculative. The GCCF methodology states that for industries other than oyster harvesting and processing, recovery will continue in 2011 with a full recovery by 2012, and that “recovery over this time period would result in a Final Payment Offer of two times the actual documented losses in 2010.” For businesses that harvest or process oysters, the GCCF formula will offer four times the 2010 losses. These future loss assumptions will be reassessed by GCCF every four months.

An attachment to the final methodology states that the “twice the 2010 losses” formula is based on “the analysis of the economic recovery experience of individuals and businesses subjected to other unanticipated and catastrophic events. Experts have studied many of these events from the past and recorded estimated rates of economic recovery.” However, the ARPC report released by GCCF contains very limited explanation of how the estimated rate of recovery of the spill was found to compare to that of other events, and how this comparison was used to predict future recovery from the spill. Moreover, given the extreme magnitude of the BP spill – in which 200 million gallons of oil gushed from a wellhead deep underwater over a period of months, and an unprecedented amount of dispersants were used – it is not an event that can be easily compared to catastrophic events. Ten years after the Exxon Valdez spill, oil remained on rock-covered beaches.

Big kudos to the Alliance for producing this important report as it fights the good fight for the people of the Gulf. This report is a must-read for spill victims. By identifying the problem areas – and there are a lot of them – within the claims process while there is still time to take corrective action, the AFJ report will go a long way toward ensuring that victims get fairly compensated, and ultimately, that justice is served.

Here’s the full Alliance for Justice report: One Year After the Gulf Oil Spill – Is Justice Being Served

Watch the short AFJ film Crude Justice here: http://www.afj.org/resources-and-publications/films-and-programs/crude_justice/

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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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