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Oil Spill Compensation Fund Up and Running

Aug 23, 2010 | Parker Waichman LLP

Some Gulf of Mexico residents will be able to receive compensation for the historic BP oil spill that ravaged a number of Gulf States, said American Public Media Marketplace (The Marketplace). BP’s $20 billion fund is now open; however, some feel the rules are not all that fair, added the Marketplace.

Effective immediately, 35 offices located across the Gulf States will begin accepting claims from people and businesses that experienced financial loss as a result of the historic spill, said The Marketplace. While many find the compensation unfair, Kenneth Feinberg, fund head, claims ethical and generous compensation will be made versus what might be received if lawsuits are pursued, explained The Marketplace.

It seems that those filing a claim within the next six months still have the right to sue BP; however, that right is lost after the six-month limit, said The Marketplace. Meanwhile, hundreds of lawsuits have been filed in connection to the oil spill and BP has paid some $375 million in compensation not connected to the new fund, said The Marketplace.

According to Feinberg, he came up with the idea for the fund saying, in a media conference call that, “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative,” quoted The Marketplace. Feinberg, the so-called “pay czar,” managed executive compensation for recently bailed-out banks as well as the 9/11 victims fund, said The Marketplace, noting that Feinberg also placed restrictions on the 9/11 pay-outs. Despite the time frame, victims might still be able to sue others—the owner of the rig, some contractors—once the imposed time frame is over, wrote The Marketplace.

We recently wrote that BP might use revenues from its oil and gas drilling operations here in the US as collateral for its $20 billion fund. Some critics are bashing the proposed agreement between BP and the Obama administration, saying it gives the government incentive to allow the company responsible for the worst oil spill in US history to continue drilling offshore.

According to a fact sheet detailing the 40-page-agreement released by the White House, the fund will be used to pay damage claims filed by businesses and individuals who suffered economically because of the spill through the Gulf Coast Claims Facility, as well as judgments and settlements reached with those who decide to file damage claims with the courts. It will also be used cover natural resource damage costs and state and local response reimbursement. BP will not be able to use the fund to pay any fines the federal government assesses to it over the spill.

According to a prior report on, some critics raised concerns that the fund would be diminished quickly because it will cover natural resource damage and response reimbursement, as well as economic loss claims. Many feel that payments compensating Gulf Coast families and small businesses should be made from monies that are separate from the fund. The Obama administration has said that if the fund is depleted before all claims are paid, BP would add to it.

BP’s largest single-producing region in the US is the Gulf of Mexico, the site of its massive oil spill. BP operates 89 producing wells there and has a share in 60 others. Since the disaster began, some have questioned if BP should be allowed to drill in the Gulf at all. But for this collateral agreement to work, it would seem the US government would have no choice but to allow BP to continue operations in the Gulf.

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