Kenneth Feinberg (Pic by Pete Marovich/ZUMApress.com)

Kenneth Feinberg knew what he was in for. The independent administrator of BP’s $20 billion oil spill compensation fund has put himself in charge of seemingly impossible situations before — as special master of the September 11th Victim Compensation Fund and as “pay czar” overseeing executive compensation at companies that got bailouts from the U.S. government.

But, in an interview with The Washington Independent this week, Feinberg says there were some surprises this time around. When he took over in August as administrator of the Gulf Coast Claims Facility, he expected a smooth transition because BP had already been processing claims for months. But what he got was a massive backlog of claims and thousands of angry gulf residents.

Feinberg now says he “oversold” his ability to process claims quickly. And he admits, despite a marathon series of public meetings all around the gulf, that he did not communicate clearly enough with claimants, leading many to believe that they would receive payments within 48 hours of submitting their applications.

Reacting to criticism from the Department of Justice and many Gulf Coast residents and officials, Feinberg has instituted a number of changes in recent weeks, adding more staff to process claims, grouping similar claims together to speed up the review process and no longer determining eligibility of claims based on a claimant’s geographic proximity to the spill.

Come Thanksgiving, the claims process will enter a new phase in which those affected by the spill will have to file for final payments. The final payment period will last for three years. If a claimant accepts a final payment, he or she must agree not to sue BP. Feinberg, in the interview with TWI, says that the agreement will likely also require claimants to waive their rights to sue other parties involved in the spill, like Transocean, the owner of the Deepwater Horizon rig, or Halliburton, which cemented the well.

As of Oct. 4, the claims facility has received more than 104,000 claims. Of those, more than 49,000 have been paid or approved for payment. But more than 39,000 claims require more documentation, an issue that Feinberg addressed in the interview. About 10,000 claims are still under review. In total, the facility has paid out more than $963 million in compensation.

Here is the full Feinberg interview:

Can you tell me what was behind your decision to no longer determine the eligibility of claims based on a claimant’s geographic proximity to the oil spill?
The views expressed to me by the attorney general of Florida, Bill McCollum, the governor of Florida, Charlie Crist, Chief Financial Officer Alex Sink, the Florida Restaurant and Lodging Association Chairman Keith Overton and the general view in Florida that it would be terribly unfair to automatically exclude a motel, a hotel a restaurant far from the spill if the perception among the public was that the spill was close by and therefore there was damage suffered. So I decided, “Look, I ought to at least give these tourism-related industries a chance to demonstrate their damage.” I’m not saying that the damage is proven, but I don’t think proximity alone should bar the claims.

And so, in other words, you wouldn’t necessarily take the claim out of consideration because of proximity to the spill, but a claimant still has to prove damages.
That’s right. Unlike last week when I was on the fence, I’ll agree to process the claim. Whether you can demonstrate that your damage was sufficiently causally connected to the spill, as opposed to the recession or a hurricane or a rainy weekend, that is something that you’re going to have to demonstrate to my satisfaction.

There’s been a lot of talk about documentation. And you’ve mentioned that there have been quite a few claims that don’t have adequate documentation.
Adequate? There are probably 5,000 claims with no documentation. None.

These people filed claims to you with nothing to back it up?
That’s right, with nothing to back it up. Or a statement that says, “I run a cash business. Thank you.” Or a fisherman will attach his fishing license, but no documentation about the loss. So, I mean, nothing will undercut the credibility of this program more than undocumented claims. I can’t just pay on a wish, thereby undercutting the availability of funds and the processing of claims for those truly eligible.

How many have some documentation, but not enough?
I’d say probably between 15,000 and 20,000. And they’ve all received deficiency notices saying, “Give me more.”

If you don’t have adequate documentation, you get a letter saying you need more. But how specific are those letters?
Oh, those letters are pretty specific. Please provide us some documentation that will prove the allegation of your damage, e.g., tax return, profit and loss statement, checkbook, etc.

How different is the process now than it will be under the final claims process?
It’s the same process.

How different will the level of proof be?
I think for a final payment we’ll want a little bit more proof. But that remains to be seen.

Are you going to be releasing a protocol outlining the final payment structure soon?
I think that final protocol should be released within the next couple of weeks.

When does the final payment process start?

The end of the emergency period is Nov. 23.

At the end of that period, from that point on, nobody can file for emergency payments. Am I right?

That’s right, you can file a final payment. And if you file on Nov. 22 or Nov. 23 for an emergency payment, you can get six months worth of compensation into the spring of 2011. But there will be no more emergency applications received after that date.

How are you protecting against fraud? You’ve mentioned these 5,000 claims without documentation, but are those considered fraudulent?
No, no, no. Fraud is an intent to deceive. We’ve got an internal audit consultant internally. We’re working internally to spot-check suspicious looking claims. Then we’ve got the complete support of the criminal fraud division of the Department of Justice, Lanny Breuer.

Have you found any fraudulent claims yet?
Yes, we think we have and we’ll be sending them, once we’re certain in our mind that they’re fraudulent, to the Department of Justice.

Do you have a sense of how many you think may be fraudulent so far?
There may be as many as 1,000.

It’s all about intent to deceive. And you think that in all of these cases there’s a deliberate attempt to deceive?

Yes, I don’t worry too much about creative scams. We catch those and just throw them away. Like the 4,000 people who submitted a claim on the same Xeroxed paper just filling in their name and saying, “Pay us because we can’t eat fish anymore. Now we’ve got to go buy fish. Give us $1,800 a month,” or whatever it is. We just throw those away. The problematic scams involve intent to deceive.

Can you give me an example of a fraudulent claim?

Somebody who files eight or nine times using just a different name and different claims offices.

How many people do you have actually going through these applications, on the ground looking at applications?

We’ve got about 2,000. We’ve got 1,500 people in the gulf in 35 claims offices. And then we’ve got 500 people in Ohio, Richmond and Washington going over the claims as they’re sent to them from the 35 claims offices in the gulf.

If you had to give advice to people who were preparing to file a claim, what would that be?
File an emergency claim. You’re not waiving any rights. Document it as best you can and we’ll work with you on this.

Is there any specific advice that you can give people in terms of identifying common mistakes people make?

Yeah, the common mistake is singular. People don’t document their claims. Don’t say you want $30,000 in lost wages and then attach a tax return that says you only reported $20,000. It’s a problem.

You’ve mentioned that you’re going to start to group some of these claims by industry. Can you explain that?
It makes it easier. It means if you take all of the shrimpers from Louisiana and you group them together and you notice that their documentation is all basically the same and their assumptions about damages are the same, you can much more quickly assess their claim collectively than you would if you had to use an accountant to go assumption by assumption and claim by claim.

Are some of these changes in response to this letter from the Department of Justice criticizing the pace of the claims process?
That’s part of it. Sure.

What else have you done in terms of addressing those concerns?

Well, we’ve accelerated the claims by clustering the assumptions of shrimpers as to why they have an emergency claim. We’re putting more people on the ground in the gulf to deal with individual complaints and the lack of transparency in getting answers. We’re dealing with all of that now.

Do you still expect the $20 billion set aside by BP to pay the claims to be enough?
I’ve never said it’s enough or not enough. We’ll see. I hope it’s enough and we shall see over the next several months.

Because the final claims are obviously going to be much larger.
You’ve got to be careful — when you say, “Obviously, they’ll be larger,” that may be true. On the other hand, it may be that for a final claim there is no damage because you can now fish and the fish is saleable or you can oyster harvest. It is not clear to me yet the magnitude of these final claims or how large they will be. That remains to be seen.

And doesn’t that remain to be seen because we don’t know how long the damages and impacts of the spill will last?
Well, I think there’s something to that. Although we’re trying to get information now from independent sources like the states and the [Environmental Protection Agency] and the Department of Interior and others.

What’s been the most surprising thing that’s come out of this process for you?
The most surprising thing I think has been the difficulty we had transitioning from BP. I thought that it would be a tremendous plus that BP has already paid out $400 million and begun this process. But as it turned out I think that it proved to be problematic in terms of the transition to the new [claims facility].

There was some criticism of the 48-hour response period. How do explain that? Did people misinterpret what that meant?

They did, but that doesn’t matter, it’s still my fault. They misinterpreted it. They thought 48 hours from the time of filing, and I made it pretty clear it’s 48 hours from the time the claim is completed or seven days if it’s a business.

What does “completed” mean?
That we can process the claim and pay it because it’s proven. But I think that I oversold my ability to do it in 48 hours or seven days. Now we are current. I want to emphasize that. I don’t think if you call around down there now, I don’t think you’re going to find out that there are people who haven’t had their claim processed if they’ve given us the documentation. We’re moving pretty fast now. I think now people are sort of comfortable with the process. Now, the question is, can we complete the task with the final payments?

How many people are there that have full documentation now and haven’t yet been paid?

There are about 5,000 that have full documentation and are waiting in the queue. But those 5,000 are people that just filed. It’s not like they’ve been sitting there for a month. Those are people that have all come in in the last four or five days. So, we’re catching up.

One of the big questions going forward is this: In final payments, when a claimant accepts a final claim and they sign a waiver saying they can’t sue BP, are they also waiving their right to sue other companies involved in the spill?
That remains to be seen. I’m inclined to do that. Total peace. Let’s end the litigation. But I haven’t made a decision yet on that.

There’s been some talk of legislation in the Senate to address this.
I’m totally unaware of that. But I’m also inclined, if people don’t want to give a final payment, to give them interim payments so they can wait until they decide whether the fishing is safe, etc.

How long would those interim payments last?
As long as they want. Three months, six months. They could come back again and again if they want.

What’s the difference between emergency and interim payments?

There’s none really, except that emergency payments weren’t required by the law. I just set that up. But there’s no real difference.

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