BP falling behind on compensation pledge

As part of the $20 billion claims fund, BP announced it would make payments of $5 billion by the end of the year – a rate of more than $800 million per month and almost $30 million every day. However, almost a month has passed since the June 16 pledge, and still the Deepwater Horizon Disaster Victim Compensation Fund (VCF) is yet to make its first payment.

Since the initial explosion, BP has paid out $162.7 million. These payments, however, are not part of the VCF. With $5 billion set aside for this year and another $15 billion for the next three years, BP and VCF administrator Kenneth Feinberg have a vast bridge to gap. Feinberg does not expect the VCF to write any checks until August.

BP says it has a 1,400 member team and 35 field offices set up to process claims. BP spokesman, Max Macgahan, explained that the current, rate of compensation is due to the company “transitioning to and establishing the details of a new process for claims,” and they still “intend to cover all legitimate claims, without limit.”

Local husband-and-wife commercial fishers, on condition of anonymity, defended BP and their experience with the claims process. While the claims process may take time, they say, “BP is not the enemy,” and both have received compensation checks. They see rampant fraudulence, though, particularly from part-time residents or those from out-of-state. They fear that a quickened process would only encourage more dishonest behavior.

Even if the rate of compensation increases, the significance of the $20 billion remains cryptic, because total claims could go higher or lower. At best, it is a time-delayed supply of funds for compensation. While willing to declare unlimited liability for damages, Mr. Macgahan did not know of any BP contingency plan for claims beyond $20 billion, and he did not wish to speculate regarding the fate of any unspent money. “[The quantity of compensation] is a great unknown at this stage… let’s just get the program up and running, and then we’ll see about left over funds.”

BP and the White House describe the fund as an independent arbiter that will accelerate the claims process and allow both BP and victims to avoid the courts. Feinberg has stated that individuals will get a better deal and save costs by dealing with his new organization. But for now the VCF’s structure and process remain unclear. Once the process gets underway the $20 billion question will be whether the fund can deliver quickly on deserving claims while screening out fraudulent ones.

Fergus Hodgson is the capitol bureau reporter with the Pelican Institute for Public Policy. He can be contacted at fhodgson@pelicanpolicy.org, and one can follow him on twitter.