Academic journal article Journal of Corporation Law

BP's Compensation Fund: A Buoy for Both Claimants and BP

Academic journal article Journal of Corporation Law

BP's Compensation Fund: A Buoy for Both Claimants and BP

Article excerpt

I.  Introduction
II. Background
    A. Devastation of the Deepwater Horizon Spill and Portents of
    Disaster
    B. Exxon Valdez Disaster Lays the Groundwork for Future
    Recovery Efforts
    C. Composition of BP's Compensation Fund.
       1. Feinberg's 9/11 Victims Compensation Fund as a Point
       of Reference for the BP Compensation Fund
       2. Limitations on Compensation
III. Analysis

    A. Will the Compensation Fund Buoy or Sink BP's Reputation?.
       1. Exxon's Reaction to the Exxon Valdez Disaster as a Model
       for Recovery.
       2. Uncertainties and Modifications Cause Confusion and
       Undermine Confidence
    B. Financial Implications of the Compensation Fund
       1. Bankruptcy as a BP Bailout
       2. Effects of Shareholders' Shaken Confidence.
    C. Costs and Consequences of Litigation.
IV. Recommendation.
    A. Effective Plan Administration Requires Flexibility
    B. Bridging the Gap Between Judicial Economy and Adequate
    Compensation: Complexities of Estimating Damages.
    C. Increased Communication Between BP and Claimants Facilitates
    Understanding.
V. Conclusion

I. INTRODUCTION

Crude oil has proven to be the fuel for human ingenuity in the twenty-first century. Powering our factories, automobiles, and homes, oil in its many forms is essential to the well-being of our society. Yet for all its beneficial properties, oil in its crude form is inherently incompatible with life. At no time is this incompatibility more apparent than when, through human negligence, oil is introduced to our ecosystem.

Until recently, the 1989 Exxon Valdez tanker spill was considered to be the worst oil-related disaster on American territory. (1) Though Exxon invested nearly $2.1 billion to clean up the 11 million gallons of oil spilled in Alaska's Prince William Sound, the effects of the spill are still felt today. (2) In terms of quantity, however, the recent Deepwater Horizon explosion and pipeline leak has vastly eclipsed the Exxon Valdez spill. (3) Before BP capped the leak, an estimated 4.9 million barrels of oil were released into Gulf waters. (4) Under pressure from the Obama Administration and affected residents, BP unveiled a $20 billion plan to compensate victims. (5)

The BP compensation fund, administered by Kenneth Feinberg and modeled after his highly-regarded 9/11 plan, (6) is promising. Part II of this Note examines the provisions of the plan, as well as the context in which it arose. It also includes a history of the Exxon Valdez disaster and recovery as a point of comparison. Part III analyzes the plan's potential as a reputational recovery tool for BP, examines the financial implications of the plan, and includes a general investigation into the high costs of litigation. Part IV offers a recommendation for BP's successful execution of the plan. Through administrative flexibility, adequate compensation estimates, and increased communication, BP may be able to use the compensation fund as a tool for firm recovery and fair victim compensation.

II. BACKGROUND

The BP compensation fund is a unique mechanism, drawing on former compensation schemes to address the economic devastation created by the Deepwater Horizon spill. An understanding of the severity of the spill and BP's shoddy safety record help to contextualize the fund. Examining the framework of the fund in comparison to the 9/11 Victim's Compensation Fund and in light of the Exxon Valdez disaster provides insight into the effectiveness of the plan's compensation methods.

A. Devastation of the Deepwater Horizon Spill and Portents of Disaster

On April 20, 2010, an offshore drilling rig operated by Transocean exploded off the coast of Louisiana, killing 11 workers and resulting in the largest oil spill in American history. (7) Operators lost control of an underwater well, "allowing hydrocarbons to enter the drilling riser and reach the Deepwater Horizon [rig], resulting in explosions and subsequent fires. …

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