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BP Oil Spill: Compensation, Agency Costs, and Restitution

Table of ContentsI. Introduction 1341II. Compensation and Mass Torts: Alternatives 1346A. The Structure of the Fund 1350B. Compensation Distribution and Criteria 1351C. Terms of Release 1355D. Compensation in a Sea of Tort 1355III. Shortcomings of the Compensation Scheme 1359IV. A Model: Fiduciary Obligations 1362V. Designing a Compensation Scheme: RestitutionaryRights and Obligations 1363VI. Conclusion 1375I. IntroductionThe British Petroleum (BP) Oil Spill and Restitution are irresistible topics for exploration. Just as systems errors combined to cause the disaster in the Gulf of Mexico,1 the most human of institutions, the law, has struggled to find a proper way to respond. After the blowout, BP struggled to find a solution to an ongoing disaster of immense proportions.2 Over the next six months, before BP was finally able to seal the deepwater well, more than four million barrels of oil gushed into the Gulf of Mexico,3 coating the ocean floor with oil,4 drenching birds and other wildlife in oil,5 and depositing oil and tar balls on the beaches of Louisiana, Mississippi, and Texas.6 Responding to this unprecedented disaster, the press bayed, victims cried for relief, and the wider American public was galvanized to demand "justice," "retribution," and "accountability." The Federal government, chastened by the pinch of public opinion, as well as by the demands of the affected states who were clamoring to satisfy their citizens' demands and avoid economic imposts, was under great pressure to respond. Eventually the well was capped with impressive engineering feats at a depth challenging the limits of technology.It was in the witches' brew of fraught politics, environmental policy views, overlapping and complex laws, and uncompromising disputation, that BP and the federal government found themselves across a table attempting to cap the stream of vitriol.7 The result was the much-vaunted BP compensation fund created to compensate those damaged by the spill. Prior to creating the fund, BP had been handling claims in an ad hoc fashion, trying to deliver compensation to victims, to apply resources to spill abatement, and to assist the Coast Guard. BP had also been hemorrhaging from public reactions and missteps that inflamed public opinion, and there was a compelling need for a far-ranging response. The range of potential victims was quite large, with the explosion and leak having caused devastating human and economic losses in the Gulf region. These effects will undoubtedly ripple through the Gulf economy and the court system for years to come. Those most obviously and directly affected were the fishermen and those associated with the tourist industry (e.g., hotels, restaurants, stores) in the area closest to the spill. However, many others have been affected, including oil drillers who are precluded from working, and state and federal governments, which have incurred both clean-up costs for beaches and estuaries and lost revenue from tourism and fishing.BP and others have been heavily criticized for their lack of preparedness for a major disaster.8 Government officials, exhibiting much sturm und drang, were, in fact, caught completely flatfooted. As we describe in Part II, the parties were faced with overlapping and contradictory liability regimes. The common law mie inherited from Robins Dry Dock9 precluded a broad recovery of economic losses, and most of the losses caused by the BP oil spill were of that nature. …