High-Profile Fund Administrator Feinberg Discusses Victim Compensation, Lessons Learned

Having administered several high profile compensation funds over the course of 30 years, Kenneth Feinberg is no stranger to controversy.

In an interview with Claims Journal, the attorney, author and adjunct law professor at several prominent East Coast universities, details the careful navigation required when administering victim compensation funds as outlined in his new book, Who Gets What: Fair Compensation after Tragedy and Financial Upheaval.

Feinberg has managed the Gulf Coast Claims Facility after the 2010 Gulf oil spill, the 9/11 Victim Compensation Fund, the executive compensation fund after the 2008 financial crisis, the Hokie Spirit Memorial Fund after the Virginia Tech shootings in 2007 and successfully mediated the Agent Orange class action lawsuit settlement hours before trial was to begin in 1984.

According to Feinberg, prior to the 2010 oil spill, all of the victim compensation funds he administered were funded by the government. The 9/11 Victim Compensation Fund, in particular, was unique in that it was put into place just 11 days after the terrorist attack.

“Congress passed a law…anybody who wants to give up their right to sue can instead, voluntarily, come into a no fault compensation program funded entirely by the taxpayers, public money,” Feinberg explained.

Though 9/11 victims were not required to file a claim through the fund, it provided an alternative to allow them to obtain money immediately. According to Feinberg, a little over 7000 claims were processed by the fund.

The BP oil spill fund, on the other hand, resulted from a handshake between President Obama and BP executives where they voluntarily agreed to put up $20 million upfront, he said.

“Compensation was paid to…over 200,000 people who gave up their right to sue in order to be compensated now,” said Feinberg, who described the fund as a very generous alternative to traditional litigation.

According to the experienced fund administrator, well over 1 million claims from 50 states and 35 foreign countries were filed through the Gulf Coast Claims Facility.

While all of the funds he’s administered could be considered similar in that each provided special compensation for special people, Feinberg said the volume was much more problematic in the BP situation than in 9/11. Another huge difference – all but BP were funded by public money.

There was no way the airline industry could have provided the 9/11 fund, Feinberg said.

“Congress was very concerned that the airline industry couldn’t survive the 9/11 attacks and so Congress was looking to alleviate the financial pressure that would otherwise be on the airlines,” he said.

Congress established the 9/11 fund to recognize the importance of demonstrating solidarity of the American people behind the victims, said Feinberg.

“[The fund] served the purpose of aligning the American people with the victims of 9/11,” he said.

BP Fund Scrutiny

When Feinberg, an alternative dispute resolution specialist, became administrator of the BP fund, he inherited the already operational Gulf Coast Claims Facility and an already developed claims process. As a result, he met with dissatisfaction almost immediately.

Acknowledging the mistake, he eventually hired “credible claims processors” from Mississippi and New Orleans with no ties to the prior independent adjusting firm initially hired to administer the fund.

Feinberg said the decision was based on the fact that there was already a negative view of that company, as well as recognition that Gulf Coast residents would respond positively to local Gulf Coast residents adjusting their claims.

“It became apparent to me in the course of designing and administering the BP situation that the more I could put local people in the field to assist individual claimants who happened to be their neighbors, rather than some sort of bureaucratic claims adjusting process, I thought that would inure to the benefit of the program; giving local claimants the feeling that they were being treated fairly by local people who understood their plight,” Feinberg said.

Though recent news articles suggested Feinberg was removed from administering the BP fund, he said he was replaced following the successful completion of phase one of the program, after 18 months of handling under his leadership. During that time, the fund distributed approximately $6.5 billion dollars and processed 220,000 litigation releases, he said.

“It was a perfect time to pass the baton to phase two of the claims process, overseen by the U.S. District Court,” he said.

Despite Feinberg’s contention that the BP fund administration was indeed transparent, he doesn’t think any new attempt to make it more transparent will be effective. That’s because it is hard to satisfy claimants who are in desperate straits, he said.

“It’s a natural human condition not to be satisfied with compensation which many times, as you know, is a pretty poor surrogate for life as it used to be,” said Feinberg. “I’ve learned over the years in all of these compensation programs, satisfaction, at least 100 percent satisfaction, is rarely achieved.”

Feinberg thinks it’s unlikely that the country will ever see another private company front money as a result of a disaster, as BP did after the 2010 Gulf of Mexico oil spill. The traditional route, according to Feinberg, is for companies to deny liability after a tragedy and to litigate the matter for decades, citing the Exxon Valdez case as an example.

“Exxon is still litigating that case over 20 years since the oil spill,” he said.

Though Feinberg met with quite a bit of negative backlash and political interference, both on the national and local level, during his handling of the BP Fund he said understood the reasoning for the criticism.

“I understand the desire of our elected officials to vigorously represent their local constituents, so I wasn’t too surprised by it,” he said.

Confronting the criticism is the only way to respond, he said.

“You have to respond forcefully, quickly and effectively to the criticism. You cannot bury your head in the sand,” Feinberg said, maintaining that it’s important to admit a mistake if one was made or defend the program when appropriate.

Having clerked for Federal District Judge Weinstein after law school, Feinberg was also influenced by the judge’s legal knowledge and involvement in politics, a factor that likely prepared him to deal with the politics that surrounded the BP fund.

Despite extensive media scrutiny and the extensive obligation of designing and managing compensation funds, Feinberg did not hesitate when asked if he would accept another high profile assignment like the BP case.

“Of course, I think millions of Americans would accept a high profile case. I’ve been asked to do it, I do it. I think what I do in designing and administering programs that are designed to compensate victims of tragedies, I think there are many, many Americans who would step up and do exactly what I’m doing in the public interest and if asked to do it again, I’ll do it again,” he said.

In his book, Feinberg explained that growing up during the Kennedy presidency influenced him a great deal. The call to help out fellow Americans in times of distress by serving the public interest was what he considered good government.

Compensation Issues

Feinberg’s latest book addresses the lessons he learned each time he was tapped to administer a fund.

He admits one of the mistakes he made during the administration of the BP fund was overpromising when it came to providing a timeline for processing claims. Careful analysis of the funds he’s overseen can provide important lessons to the insurance industry, he said.

“The most important thing the insurance industry learns from all of these funds…is the need to efficiently, effectively, quickly deliver compensation. All the talk in the world is a poor substitute for money flowing to victims,” said Feinberg.

In addition, insurers should seek creative alternatives to traditional litigation when it comes to paying claims.

“There’s a natural proclivity for the insurance industry to hold onto its money and litigate, paying claims only down the road, after sometimes years of protracted, unsuccessful litigation,” Feinberg said.

Though he met with a number of 9/11 victims and BP claimants during private meetings, which he found beneficial to reducing related litigation, he doesn’t think the idea would translate well in the insurance industry because of the sheer number of claims.

“It becomes very inefficient and very time-consuming and delay-ridden to expect to have a representative of the insurer meet with every single insured,” he said.

Despite issues that arose with the independent adjusting firm in place prior to Feinberg taking over administration of the Gulf Coast Claims Facility, he gives insurance adjusters high marks.

“I think that the insurance adjuster expertise in this country is quite high,” he said.

And while some insurers might balk, Feinberg is equally complimentary of public adjusters.

“Public adjusters fill an important role here…the fact of the matter is that in many, many of these mass cases involving mass disasters public adjusters are essential. There simply weren’t enough private adjusters in BP; there weren’t enough private adjusters after Hurricane Katrina. So, in those volume cases involving thousands of claims I think the public adjusters fill an important void just to deal with that volume,” he said.

In the end, Feinberg thinks empathy, competence and creativity are three keys to successful claims negotiations.

“Put yourselves in the shoes of the insured. Make sure that you understand exactly what the policy says, what the exclusions are, what the deductibles are, so that you can sit and explain in an empathetic way exactly what the insurer can do and cannot do,” he said.

Dubbed the ‘Pay Czar’ during his administration of the executive compensation fund after the 2008 financial crisis, Feinberg said he has no idea what tragedy will lead to the next big compensation fund.

Feinberg’s book, Who Gets What: Fair Compensation after Tragedy and Financial Upheaval, is scheduled for release on June 26. Listen to the full interview here.