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BP Oil Spill Compensation Fund Won't Cover All Losses

Jul 1, 2010 | Parker Waichman LLP The administrator of the $20 billion BP oil spill compensation fund said yesterday that he would soon be making emergency payments to affected business that would enable them to survive for the next six months. However, it seems that not every business and individual impacted by the disaster will benefit from the fund.

The compensation fund was announced with much fanfare two weeks ago by the Obama administration. The fund is being administered by Kenneth Feinberg, of the Feinberg Rozen law firm, who oversaw a similar fund for victims of the Sept. 11 terror attacks. The White House has maintained that the $20 billion doesn’t represent a ceiling of what BP will pay, and has said the oil company will replenish the fund when and if the money runs out.

So far, few details about how the fund would work have been released. Yesterday, at a hearing before the House Small Business Committee, Feinberg said he plans to take over the claims process from BP within the next 30 days, according to a report in The Wall Street Journal. He also said he was still trying to sort out who would be eligible for payments.

According to Feinberg, it does not appear that all tourism-related businesses suffering because of the spill will be able to benefit from the fund.

“Under Florida law,” Feinberg “if there’s no physical damage to the beaches and it’s a public perception, I venture to say that it is not compensable.”

Basically, if a beach is not polluted with oil, hotels, restaurants and other businesses that depend on it may not be able to collect from the BP fund. It apparently will not matter if vacationers cancel plans over fears that oil will spoil the beach.

That’s a problem, because such fears are driving down tourism all along the Gulf Coast, even in areas not affected by the spill. Tourism-related business in Florida and other states along the Gulf Coast have lost billions of dollars as a result.

According to a report in USA Today, another group who may not benefit from the fund are real estate owners whose property has lost value as a result of the spill. Those with property not directly on the beach are most likely among those who will not see compensation from the fund.

“Property value has diminished as a result of the spill,” Feinberg said. “Let’s assume that’s right. That doesn’t mean that every property is entitled to compensation.”

After the hearing, Feinberg told reporters that the issue of property values was a “thorny” one, USA Today said.

According to The Wall Street Journal, Feinberg also shed some light on who will have control of the fund. There was a perception that Feinberg would have final say over how the $20 billion is distributed. But he told the panel that his authority applied only to claims from individuals and businesses, while all claims from local, state and federal authorities would be decided by BP itself.

So far, BP has paid out almost $130 million on 41,000 claims. But according to a CNN report, more than 80,000 claims have been submitted. Feinberg said yesterday that BP’s process so far has not been efficient, and he hoped to do a better job.

Rather than sending businesses smaller checks on a month-to-month basis, Feinberg said it was his goal to have his new entity, the Gulf Spill Independent Claims Fund, send out six-month lump sum payments “to give small businesses more certainty,” CNN reported.

Feinberg also promised the claims process will be transparent, and it will be locally staffed, CNN said. Appeals will be fielded by local officials who have credibility with Gulf residents. However, Feinberg said he would maintain a frequent presence in the region, and did not plan to administer the fund from his office in Washington, D.C.

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