What will happen to BP’s $20b pledge?

Opinion: June 18, 2010 at 12:00a.m.

By Carl Tobias

McClatchy Newspapers

RICHMOND, Va.

Since Sunday, White House officials have sketched out a process to expedite BP’s payment of damage claims arising from the Deepwater Horizon oil spill in the Gulf of Mexico.

At a White House meeting Wednesday, President Barack Obama and BP Chairman Carl-Henric Svanberg reached a tentative agreement under which the company would create an independent $20 billion fund to pay claims for the spill, which would be administered by Kenneth Feinberg, the administration’s “pay czar.”

Before the meeting, the president had insisted that BP’s chairman must “set aside whatever resources are necessary to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.” A White House official said that Obama would “instruct” the oil company to set up an escrow account that would be “paid out under fair, efficient and transparent procedures administered by an independent third-party panel established just for this purpose.”

The tentative agreement raises myriad issues of authority and practical implementation, however, and before the agreement can be finalized, numerous questions must be answered.

Criteria

BP may be unwilling to enter an agreement without answers to many of these questions, such as how much it must place in escrow and ultimately pay, Feinberg’s authority, the criteria governing claims payments and the damages for which BP will be responsible. BP has promised to pay all “legitimate claims” by those harmed, but that term still hasn’t been defined.

All these and numerous other issues remain unclear, and a number, such as what constitutes a “legitimate claim,” might not be susceptible to precise definition or calculation. Indeed, someone knowledgeable about senior BP executives’ views said that BP wouldn’t give a “blank check to anyone, (including) the administration or an independent mediator,” but the company would “constructively engage” in a claims oversight process with “transparent and pre-agreed rules.”

If BP is reluctant to finalize the agreement, a White House official said earlier this week, Obama “if necessary will exercise his full legal authority to ensure that BP sets aside the funds required to pay individuals and businesses damaged by this massive spill.”

On Tuesday, White House press secretary Robert Gibbs said: “We have legal authorities ... to deal with disasters such as this, and the president intends to use those authorities to ensure that the claims process, for those damaged economically in the Gulf, is taken care (of). BP is the responsible party.”

The president has certain authority derived from disaster relief and oil spill legislation. The U.S. also has considerable leverage, such as the possible rejection of BP applications for future oil leases.

Moreover, BP already has pledged to pay legitimate claims and wants to preserve its reputation and as much goodwill as possible. The accord’s terms, such as the definition of claims and the escrow amount, may also be subjects for further negotiation between Obama and BP, so that a final agreement is more palatable to the company.

Because the president’s power to order BP’s compliance remains unclear, authorizing the escrow account and independent claims panel through legislation might be preferable.

Fair responses

Using the legislative process would put the full force of executive and legislative branch authority and political support behind the action. It also would utilize the congressional expertise and institutional memory that have been gained from investigating this and related incidents in fashioning creative, thorough and fair responses.

No identical precedents exist, but there are a few analogues, such as the 1980s Superfund legislation, which prescribes a fund to pay for cleaning up hazardous waste disposal sites. The most recent similar concept is the 9/11 Victims Compensation Fund. For example, lawmakers could adopt legislation that would prescribe the escrow amount, the panel’s structure, the standards that it would apply, the types of claims that would be eligible, and the proof that claimants must provide.

Because time is of the essence, Congress should expeditiously draft and pass a bill that addresses the major issues and delegates the implementation of numerous details to the independent claims panel.

Carl Tobias is the Williams Professor at the University of Richmond Law School.