How BP compensation fund will work

The $20-billion account that President Obama and top BP executives agreed to Wednesday should save Gulf Coast residents a lot of time in court, offering a one-stop shop for people and businesses that have suffered financial harm from the ongoing oil spill.

Independently administered and arbitrated, the fund is designed, as Obama said Wednesday, to “provide substantial assurance that the claims people and businesses have will be honored.” Here’s a rundown.

Where does this fund come from?

A binding — and voluntary — agreement reached Wednesday between the White House and BP. Under the terms of the deal, BP agreed to deposit $5 billion a year into an escrow account over the next four years, and to set aside $20 billion of the company’s U.S. assets in the meantime as collateral.

How will the money be distributed?

The escrow account will be run by a third-party administrator, Kenneth Feinberg, who ran a similar fund for victims of the Sept. 11, 2001, terrorist attacks.

The basic structure will partially mimic the 9/11 compensation fund, by setting up and publishing criteria for paying out claims. Anyone suffering an economic loss from the spill can file a claim. If claimants are not satisfied with the administrator’s decision, they can appeal to a three-judge panel. Obama said the process would make “every effort” to expedite claims.

Is any group not covered by the claims process?

Governments of all levels will continue dealing with BP in court, though any damage payouts to them would also come from the escrow account.

It’s unclear whether people suffering indirect damage from the spill will succeed in making claims, particularly oil-rig workers thrown out of work by a temporary deepwater drilling moratorium imposed by the federal government after the Deepwater Horizon accident.

BP executives do not believe they’re liable for compensating those workers, though at the administration’s request they created a separate $100-million fund to help rig workers left unemployed by the accident.

Is $20 billion the most BP might have to pay for spill damages?

No. Obama stressed that the figure “is not a cap” on BP’s liability. And establishing the fund explicitly does not shield BP from potential criminal or civil penalties sought by the government for the spill, including massive fines for Clean Water Act violations.