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Frustrated Oil Spill Claimants Consider Alternative Compensation Fund

Some claimants, frustrated by the wait in their applications for funds in the Gulf Coast to be adjudicated by claims czar Kenneth Feinberg, are turning to a little-known alternative fund administered by the Coast Guard.

Sept. 24: This post has been corrected.

One month after independent paymaster Kenneth Feinberg took control of managing Gulf spill damage claims, many claimants at his Gulf Coast Claims Facility are still awaiting a response to their applications. As these delays cause increasing frustration and financial hardship, interest is growing in a little-known alternative fund that handles oil spill claims -- the Coast Guard's National Pollution Funds Center.

Claimants who have applied to the Coast Guard's fund have reported swift intake of their claims and direct contact with their adjusters. But the fund is available only to applicants whose claims have been rejected or who have waited at least 90 days after applying without a decision, and has narrower eligibility guidelines and less money available than Feinberg's operation.

"If someone's not happy, they can submit a claim to us," said Tom Morrison, the chief of the Claims Adjudication Division at the Coast Guard's fund. But he cautioned that his decisions would not necessarily be any more generous than those reached by Feinberg, and that certain types of claims considered by Feinberg, such as physical injuries and health problems, will not be accepted by his office.

The Coast Guard's fund was created by a 1990 federal law passed in the wake of Exxon Valdez disaster, which established new regulations and liabilities for oil companies that cause spills. The law says that a spill victim with a damage claim first must approach the responsible party -- in this case, BP, which since Aug. 23 has been represented by Feinberg's operation. A claimant can file with the Coast Guard's fund only if the claim is denied, underpaid, or if no decision is made for at least 90 days. Here's more about how the process works (PDF).

Once the 90 days have passed, a claimant can then apply to the Coast Guard and have the application considered simultaneously by both funds. The claimant can also apply for the Coast Guard’s fund to pay the balance of partially paid requests, although claims cannot be paid double. The Coast Guard's fund pays claims from its own reserves, which are supported by a 5-cent-a-barrel tax on the U.S. oil industry, but then sends the bill for what it paid out to the company that caused the spill. In this case, BP may pay this bill from the $20 billion escrow account that it has agreed to set up to pay claims, lawsuits and cleanup costs.

The fund did not provide information on how many claims it had received or paid out for the Gulf oil spill.

Richard Reynolds, who filed a claim with BP in June for losses on real estate investments in the Florida Keys, did not get a decision from BP. He re-filed on Aug. 23 with Feinberg's fund, but has been told for weeks that his claim is "under review."

On Sept. 6, when 90 days had elapsed after his initial submission, Reynolds filed his claim with the Coast Guard's fund. Though he hasn't gotten a decision, Reynolds says he is encouraged by his interactions with the fund.

"I have a specific claims adjuster," Reynolds said. "I can call them up any time and talk to them about my claim."

Although Reynolds and another claimant who has filed with the Coast Guard's fund report better service, there are other aspects of the fund that raise concerns for potential applicants.

One is its small staff. According to the chief of its programs branch, John Baker, the fund has only 11 full-time employees handling claims. Baker said the organization was expecting more claims from the Gulf spill and was hiring contractors to help, but the number indicates an operation with a small fraction of Feinberg's capacity.

"If a significant number of people present claims they're going to be overwhelmed," said Mike Dekema, a claims management consultant with 30 years of experience in the industry.

Another concern is the cap of $1 billion that the fund will pay out for any single spill -- which again leaves it with a small proportion of the capacity of Feinberg's operation. Projections indicate the fund should currently have $1.35 billion available in reserves (PDF). Feinberg draws from BP's $20 billion escrow account, and has no cap on the amount of damage payments that he can award.

Dekema said that if the Coast Guard's fund paid certain classes of claimants differently from Feinberg, applicants in those groups should strategically decide where to apply. Tom Morrison, the fund's chief claims adjuster, said only that his office is guided strictly by the 1990 federal law; Feinberg's operation has its own protocol, which in some areas goes beyond this law. Feinberg's organization did not respond to requests for comment on this issue.

Outside any differences in judgments, Dekema said that response time would largely be determined by capacity. "What it's really going to come down to is who's got the resources to handle this huge volume of claims," he said.

Correction, Sept. 23, 2010: This post incorrectly stated that claimants could not receive payments from both Kenneth Feinberg’s operation and the Coast Guard’s National Pollution Funds Center. While claims cannot be paid double, a claimant can seek additional payment from the Coast Guard’s fund if they feel they have been underpaid by Feinberg.

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