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

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."8 The rig sank on April 22, 2010, but the underwater pipeline continued to leak oil.9 Estimates indicate that nearly 62,000 barrels of oil were leaking from the well daily.10 BP did not successfully cap the well until July 15, 2010,11 and it was "permanently plugged with cement and 'killed' on September 19, 2010."12 While "containment activities conducted by BP under U.S. direction captured approximately 800,000 barrels of oil" during the 87 days of leakage, an estimated 4.9 million barrels of oil were ultimately released from the well.13

The spill continues to have devastating environmental, economic, and social consequences.14 While current body counts of fish and wildlife are high,15 scientists warn that "what we see has a strong multiplier affect [sic]" and that the effects of the spill on marine wildlife will be felt long into the future.16 However, Gulf residents felt some impacts immediately.17 The region has seen a sharp decline in tourism.18 In response to plummeting property values, coastal residents filed a class action suit.19 On June 16, 2010, under pressure from families of those killed or injured in the disaster, affected Gulf residents, and the U. …

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