Yesterday, the White House and BP struck a deal for the oil giant to put $20 billion in an escrow account that will be used to pay damage claims resulting from the disastrous Gulf Coast oil leak. But how exactly will the fund work?
It’ll be administered by Kenneth Feinberg, the pay czar charged with overseeing top Wall Street salaries under TARP. Feinberg also oversaw the 9/11 victims compensation fund.
As independent claims administrator, Feinberg will implement and adjudicate a claims process that the White House says will be “fairer, faster, and more transparent in paying damage claims by individuals and businesses.” The standards for what constitutes a recoverable claim haven’t been announced yet — but the White House says they’ll be published at some point.
If Feinberg’s decisions are appealed, a panel of three judges will adjudicate. It’s not clear yet who the judges will be, or how and when they’ll be appointed.
The $20 billion fund is only for individuals and businesses — government agencies must still make their claims directly to BP.
Claimants can still sue BP if they’re not happy with Feinberg’s decision.
The $20 billion will be deposited into the escrow account over the next three and a half years. The first contribution will come in the third quarter of this year, when BP will pay $3 billion. BP will put up another $2 billion in the fourth quarter, and than $1.25 billion every quarter in 2011, 2012 and 2013 until the entire $20 billion has been deposited.
In the meantime, BP will put up $20 billion in U.S. assets as a sort of collateral to assure its financial commitment. It’s not clear what these assets might be, but BP announced that “the intention is that this level of assets will decline as cash contributions are made to the fund.”
And if there’s leftover cash in the fund? BP says it gets it back: “Any money left in the fund once all legitimate claims have been resolved and paid will revert to BP.”
Which isn’t to say that $20 billion will be the end of it. The fund isn’t a cap — and BP may very well end up paying out much more for spill damages.
