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BP to set aside $20 billion in escrow to pay oil spill damage claims

By Sarah Miley

[JURIST] US President Barack Obama [official website] announced Wednesday that BP will subsidize a $20 billion compensation fund [transcript] to indemnify the workers and business owners harmed as a result of the BP oil spill [BBC backgrounder, JURIST news archive] in the Gulf of Mexico. The announcement follows a meeting with BP chairman Carl-Henric Svanberg [professional profile] to discuss containment strategies and the timeline and resources that will be utilized to pay legitimate damage claims. Under federal law, there is a $75 million cap on on how much oil companies could be required to pay for economic damages resulting from oil spills. The newly-established escrow fund [government backgrounder] will not have a liability cap and "will provide substantial assurance that the claims people and businesses have will be honored." Washington lawyer and special master for compensation Ken Feinberg [Who Runs Gov profile] has been tapped to be the independent administrator of the oil spill escrow fund. All claims turned down by Feinberg will be adjudicated by a three-person panel. BP will pay $3 billion into the fund in the third quarter of this year and another $2 billion in the fourth quarter. BP will then continue to pay quarterly payments of $1.25 billion until the full $20 billion has been paid. BP also agreed to establish a $100 million fund to compensate unemployed oil rig workers affected by the closure of the deepwater rigs. Whether the escrow fund will cover all legitimate claims remains uncertain, as the total cost of damages resulting from the ongoing oil spill cannot yet be estimated.

The compensation fund meeting followed an announcement from Obama on Tuesday outlining the government's latest plan of action [JURIST report], which included the escrow fund, a long-term restoration plan and prevention of future disasters through stronger regulation. Obama has appointed Secretary of the Navy Ray Mabus [official website] to develop a long-term Gulf Coast Restoration Plan, which will be designed by states, local communities, tribes, fishermen, businesses, conservationists and other Gulf residents. BP will also be responsible for funding the restoration projects. Obama reiterated the prevention goals of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling established last month [JURIST report]. The bipartisan commission members, which were announced on Monday [press release], are charged with identifying the causes of the BP oil spill and developing options to mitigate future occurrences through laws, regulations and agency reform. Obama also announced the appointment of Micheal Bromwich [press release], a former federal prosecutor and Inspector General for the Justice Department, as head of the Minerals Management Service, which has been plagued with corruption and notorious for its cozy relationship with oil companies. The president stated that "[Bromwich's] charge over the next few months is to build an organization that acts as the oil industry's watchdog - not its partner."

Full post as published by JURIST - The Paper Chase on June 16, 2010 (boomark / email).