THE OIL SPILL SETTLEMENT
FORGIVE me for repeating myself, but I’m going to start this column with an anecdote about Ken Feinberg that I’ve told before.
It was November 2010, a few months after Feinberg had been named the administrator of the $20 billion fund that British Petroleum had established to compensate victims of the Deepwater Horizon disaster.
He and I were having breakfast, and he was recounting some of the more ludicrous claims that had already begun streaming in. The restaurant in Las Vegas that said it had lost business because its shrimp scampi wasn’t as good without shrimp from the Gulf Coast.
The Florida dentist who wanted to be compensated because fewer patients were getting cavities filled in the wake of the oil spill. The guy in Norway – Norway! – who slipped and fell while going to the post office to mail his claim – and then added his medical bill to the amount BP “owed” him.
Two tables over, another diner, overhearing the conversation, looked up at Feinberg.
“Just pay them,” he said angrily.
A year and a half later, that is exactly what is about to happen.
Earlier this week, Feinberg stepped down from the Gulf Coast Claims Facility (as it is officially called), having doled out $6.1 billion to some 220,000 claimants. It is in the process of being replaced by a new claims facility, the result of the recent settlement between BP and the plaintiffs’ lawyers who had been suing the company in federal court in New Orleans.
That settlement has been estimated as being worth $7.8 billion, but, since it is uncapped, it could actually wind up costing BP a lot more than that. And even though the vast majority of legitimate claims have already been paid by Feinberg, the settlement will generate hundreds of thousands of new claims, many of which are likely to be bogus.
The two lawyers who spearheaded the settlement, Stephen J Herman and James P Roy, issued a statement last week claiming that the settlement “does the greatest amount of good for the greatest number of people.” What it really does is ensure that hundreds of millions of dollars will wind up in the pockets of lawyers whose cases were evaporating, thanks to Feinberg.
They might as well erect billboards along the Gulf Coast proclaiming “Free Money for All!” Let me repeat something else I’ve said before about the Gulf Coast Claims Facility. It could – and should – serve as a model for how to compensate victims after a big industrial disaster.
It was vastly more efficient than using lawsuits to extract money from companies. It was fairer, too; in lawsuits, some victims get rich while others are left empty-handed, even though their cases are virtually the same. That didn’t happen with the claims facility. In fact, the lawyers who took their clients to Feinberg said that, most of the time, he was more generous than the legal system would likely have been.
What the BP claims process couldn’t do, it turns out, is overcome lawyers’ greed. For those lawyers who helped clients go through Feinberg’s process, their fees were relatively low – as they should have been. But that’s also why, despite the clear appeal of the claims process, other lawyers continued to press on with their lawsuits, which they settled just before BP was about to go on trial to establish the extent of its liability. Yet with the number of legitimate cases dwindling, they still weren’t guaranteed a big pay day – unless they could find a way to gin up new categories of claimants. That is precisely what this settlement does.
Take, for example, the health claims that will now be allowed.
The plaintiffs’ press release says that the settlement will “potentially benefit hundreds of thousands” of gulf residents who “suffered acute or chronic illnesses” as a result of the spill. In truth, only around 700 people sought compensation for health reasons from Feinberg.
Why? Because there is no evidence that the spill caused serious health problems for Gulf Coast residents.
The only health claims Feinberg accepted came from rig workers who were truly injured. Thanks to the settlement, anybody in the gulf with a runny nose can now seek compensation from the new facility.
Meanwhile, injured rig workers are specifically excluded from the settlement.
Back when we had breakfast that morning, I asked Feinberg why he didn’t just do what the man had suggested: Pay them all. BP, after all, was the clear villain, and nobody would care if he gave its money to undeserving claimants.
“If the process lacks credibility,” he replied, “people will begin to question the legitimacy of this alternative to the court system. The idea that I’m Santa Claus undercuts the integrity of the process.” As Feinberg steps down, no one can say he didn’t handle the process with integrity. The tragedy is that the legal system hasn’t followed suit.