Five Years On: A Look Back at the September 11th Victim Compensation Fund (Mealeys)

Friday, September 15, 2006

By: Mark G. Boyko, Esq.

[Editor’s Note: Mark G. Boyko, an attorney at Sandberg, Phoenix and von Gontard, P.C., in St. Louis, is deputy reporter for the CPR: International Institutes for Conflict Prevention and Resolution’s Commission on Facilities for the Resolution of Mass Claims. The commission, headed by Kenneth Feinberg and Deborah Greenspan, is charged with creating a guide for designing claims administration procedures in mass tort and other large scale litigation. Mr. Boyko earned his J.D. from the University of Missouri — Columbia in 2004 and his LL.M. from New York University in 2005. This article is the second in a series of columns by Mr. Boyko for Mealey’s Emerging Toxic Torts. Mr. Boyko can be reached at mboyko@spvg.com. Responses are welcome. Copyright 2006 by the author.]

The September 11th Victim Compensation Fund of 2001 was, at its beginning, an 11th hour addition to the Air Transportation Safety and System Stabilization Act signed by President Bush eleven days after the terrorist attacks.1 The Act, whose primary purpose was to support the airline industry in the wake of the attacks, offered the airlines, among other things, protection from September 11th related civil lawsuits. Specifically, it limited the airlines’ liability to the limits of their insurance policies.

While discouraging lawsuits by victims and their families,the Act provided for the creation of a Fund in order “to provide compensation to any individual (or relatives of a deceased individual) who was physically injured or killed as a result of [the September 11th attacks].”2 Not really a “fund” at all, the money paid to claimants came directly out of the federal treasury. Victims and their families were left with the choice to opt-in to the Fund, or litigate for a capped award in the U.S. District Court for the Southern District of New York. In this way, the Fund represented both a manifestation of American charity and patriotism and a bail-out organized to protect the airline industry.

Five years on, the Fund’s work is complete and each of the 5,560 eligible claims has been paid.3 Meanwhile,litigation continues. Although fewer than 100 families chose to litigate rather than file a claim with the Fund, only one-third of these would-be claimants have settled with the airlines. The rest are still being litigated, as are cases against government actors and the Port Authority. Meanwhile, victims and victims’ families continue to pursue claims against the terrorists themselves and Al Qaeda, which have thus far yielded token victories, such as default judgments against Islamic terrorists responsible for the attacks, including Osama Bin Laden, Mohammad Omar, and Zacarias Moussaoui, but no real compensation.

The Fund

The Act provided for a Special Master to create and administer the Fund, a duty which fell upon Kenneth R. Feinberg, a highly regarded neutral4 for The International Institute for Conflict Prevention & Resolution (CPR Institute) and Special Master whose credentials included serving as a neutral for the Agent Orange litigation and arbitrating the value of the Zapruder Film. Having been appointed Special Master by Attorney General Ashcroft, Feinberg’s first challenge was gaining the trust of the victims without compromising the good faith of the American taxpayers. Both groups demanded a voice in the formation of the Fund’s Regulations on issues such as the definition of eligible claimants, the use and magnitude of presumed awards, the assessment and deduction of collateral source payments, and the procedures for the submission and presentation of claims. By December 21, 2001, the Fund published Interim Final Regulations and opened its doors to claimants seeking immediate emergency relief. Feinberg then considered nearly 2,700 public comments to the Interim Final Regulations before issuing Final Regulations in March of 2002.

If there is some lesson in the Fund’s success for future claims facility administrators, it comes in the balance struck by the Final Regulations. Aware that the Fund was an unknown system for claimants and the public, Feinberg settled on publication of presumed awards based on objectively verifiable factors. Because claimants had to waive their right to sue the airlines before knowing their final award from the Fund, these presumptive awards were invaluable in giving claimants an understanding of the likely outcome of their claim before opting in. Meanwhile, the use of presumed awards reassured vigilant taxpayers that claimants were not being allowed free access to the treasury.

At the same time, observes attorney Marc Moller, who represented over 300 victims’ families, claimants had to understand that their individual circumstances were being considered. This required the Fund to provide some substitute for the classic “day-in-court” as well as a mechanism for departing from strict presumed award methodology for extraordinary circumstances.

Citing the speculative and unpredictable nature of some high wage earners, such as bond traders, Feinberg believed that appropriate awards should rarely be as favorable to high wage earners as a pure economic damage calculation based on income and bonus from 2000, the height of the dot-com bubble. He therefore limited the application of presumed awards to income levels up to the 98th percentile of individual income in the United States ($231,000), although evidence of sustainable income above that level was one extraordinary circumstance taken into account. The propriety of this decision would be litigated for two years before the Second Circuit affirmed Feinberg’s power to use presumptive awards in Schneider v. Feinberg, 345 F.3d 135.

Meanwhile, in an attempt to avoid measuring one person’s suffering against another, the Fund presumed that each decedent suffered non-economic damages of $250,000 plus $100,000 for each spouse and dependent of the decedent. Feinberg departed from that methodology in extraordinary circumstances, however, such as where the victim lived for days, weeks, or months after the attack. In other circumstances, the Fund increased awards after securing consent from qualified dependants and beneficiaries to share some of the award with others, such as, fiancées, same-sex partners, and parents of newly married victims who were legally not entitled to file a claim.

Central to determining individual circumstances, the Fund allowed claimants an opportunity to be heard at individual hearings, most of which were presided over by Feinberg himself. These hearings served another purpose as well. “In order for people to believe they have been dealt with fairly,” notes Moller, “they have to be heard.” Often, these hearings included an ‘opening statement’ of sorts by the family’s attorney, followed by an opportunity for the family to tell Feinberg or his deputy about the life of the victim and their lives since the attack.5 These hearings, averaging about 30 minutes, but not limited in duration, allowed families the opportunity both to present their loss in personal terms, and also to present special circumstances that may have made the presumed compensation inadequate.

In the end, such hearings were a major reason the Fund was a success. According to Kenneth Nolan, a claimant’s attorney from the firm Speiser, Krause, Nolan & Granito, this success stemmed as much from their role in providing claimants a ‘day in court’ as it did in allowing the Fund to apply some flexibility to its presumed award methodology.

The September 11th Fund was not simply about providing a safety net for those harmed. Rather, its express purpose was to provide compensation based on both economic and non-economic factors. The Fund modeled tort-based compensation in its terminology and magnitude, and any differences were sharply criticized.

Two differences in particular aggravated claimants. The first was the collateral offset provision written into the Act. The Act obligated the Special Master to reduce compensation paid to claimants “by the amount of collateral source compensation the claimant has received or is entitled to receive as a result of the terrorist-related aircraft crashes of September 11, 2001.”6 It also defined “collateral source” to include “all collateral sources, including life insurance, pension funds, death benefit programs, and payments by Federal, State or local governments related to the terrorist-related aircraft crashes of September 11, 2001.”7 Such collateral sources included life insurance proceeds and other benefits. As a result, claimants argued, the provision unjustly penalized people for sound financial planning. In the end, the collateral offsets represented 29.25 percent of the total economic and non-economic loss suffered by claimants, saving the Fund $2.9 billion.

The other problem dealt with the Act’s requirement that the Fund compensate claimants for their economic loss, including “any pecuniary loss resulting from harm (including the loss of earnings or other benefits related to employment, medial expense loss, replacement services loss, loss due to death, burial costs, and loss of business or employment opportunities) to the extent recovery for such loss is allowed under applicable State law.”8 With some victims working as busboys and others making millions each year as bond traders, the Fund, particularly as a government program, had to walk a fine line. Awards based solely on economic loss would yield huge differences between claimants, but the Act’s requirement that economic damages be calculated meant that Feinberg could not simply award the same amount for each loss. Instead, Feinberg set out to acknowledge the economic losses while bringing awards for the highest and lowest paid victims closer together by, for example, not calculating presumed awards for extremely high wage earners.

A Brief History Of Victim Compensation Funds

Certainly, the September 11th Fund did not represent the first time Congress appropriated direct federal relief for the victims of catastrophic events. In addition to natural disasters, federal money has gone to victims of noteworthy events dating back to the Whiskey Rebellion where, as in the September 11th Fund, money was distributed through a centralized federal compensation bureaucracy headed by a commissioner appointed by the executive branch.9 In modern times, some analogy can be drawn to the federal Vaccine Injury Compensation Program, which provides, interestingly enough, $250,000 for each vaccine related death, the same amount as Feinberg presumed for non-economic loss.10 Although administered by the federal government, the program is funded by a surcharge on vaccinations.

But in terms of historical perspective, the only compensation scheme comparable to Feinberg’s September 11th Fund is the Claims Commission formed in the wake of the War of 1812. In response to the overwhelming suffering brought by that war, Congress appropriated federal funds to repay citizens “for property lost, captured, or destroyed by the enemy, while in the military service of the United States.”11 Granting vast discretionary powers to its Commissioner, Richard Bland Lee, the Commission was widely criticized for paying claims too generously and failing to demand sufficient proof that claimants qualified under the act.12 In publishing his regulations and presumed methodology, Feinberg assured that the September 11th Fund would be remembered more favorably.

International Perspectives On Victim Compensation

In the wake of September 11th and the formation of the Fund, the international community came to recognize a state obligation to compensate victims of terror. The Council of Europe’s non-binding “Guidelines on Human Rights and the Fight against Terrorism”, adopted on July 11, 2002, provided that “when compensation is not fully available from other sources . . . the State must contribute to the compensation of the victims of attacks that took place on its territory.” A 2005 revision of Guidelines, adopted after the Madrid Train Bombings, adds that “victims of terrorist acts should receive fair, appropriate and timely compensation for the damages which they suffered” and “compensation should be easily accessible to victims, irrespective of their nationality.”13

These aspirational guidelines have found real force in countries like Spain, France, and Norway, which provide statutory compensation schemes for victims of terror. And victims of the London Train Bombings also received compensation from the state. In this way, the true uniqueness of the September 11th Fund does not come from the principle of government payments to victims of terror but, rather, from the magnitude of individual awards.

Debating Tort-Based Victim Compensation Funds

To be sure, well-reasoned arguments can be raised regarding whether the government should take on the roll of paying compensation to victims of terrorism. Without a doubt, compensation funds are not the norm for victims of everyday crime. Families of victims of the first World Trade Center bombings and soldiers killed fighting in Afghanistan were not entitled to participate in the Fund or eligible for comparable payouts. While some have rightly argued that soldiers take on these risks as an occupational hazard, the same can also be said for the brave first responders who climbed stair after stair to help others to safety five years ago. Even if these first responders did not know the full extent of their sacrifice, surely those who reported to Ground Zero in the hours that followed, and were therefore eligible for the Fund, knew more of their risks than the young soldiers and reservists mobilized to fight the Taliban weeks later.

And yet, in some sense, the Fund arose not simply from a duty to compensate the victims’ families or shelter the airlines, but, rather, as an overwhelming sign of American solidarity. At a total price tag of $7,136,288,848, the Fund cost $23.87 per American. While significant, this pales in comparison to the estimated $248 billion Americans gave to charities in 2004, the year the Fund paid most claimants.14 With administrative expenses of $86,873,312, the Fund’s expenses represented 1.2 percent of total awards, making it 46 times more efficient than the average tort case, and 12 times more efficient than the federal Vaccine Injury Compensation Program. Less than 3 years after the Air Transportation Safety and System Stabilization Act was passed establishing the Fund from scratch, it had processed 7,403 claims and ended operation. (No small feat considering that 3,503 claims were filed in December, 2003, the deadline for the Fund).

Closing Comments

Perhaps the best way to remember the Fund, five years on, is to recall the various attributes that can be used as learning experiences for future mass claims facilities of all types. All the while, history should remember that, as Moller points out, “the most important thing about the Fund was Ken Feinberg.” Without a uniquely qualified Special Master, willing to sacrifice to assure that the Fund succeeded, the Act would likely have failed to balance the interests of victims, victims’ families, and the public, and therefore jeopardized the protections Congress intended to give to the airlines. That determination and skill have served Feinberg well since closing the Fund, as he has continued to practice as a member of his own firm, The Feinberg Group, as well as serving on the faculties of prominent law schools and as Chair of the CPR Institute’s Commission on Facilities for the Resolution of Mass Claims.

While there is some temptation to use the Fund’s apparent success to justify applying the September 11th model to other mass claim situations, we should remember Feinberg’s words in his Special Master’s Final Report: “it is unlikely — and probably unwise — to establish a similar program of future implementation absent the profound condition which existed immediately after the September 11th attacks . . . and there will be no need to cite the September 11th Victim Compensation Fund of 2001 as precedent for establishing a similar program.”

Endnotes

1. Pub. L. No. 107-42, 115 Stat. 230 (codified at 49 U.S.C. § 40101).

2. Id. § 403.

3. Statistics on the Fund used in this article were collected from the Final Report of the Special Master of the September 11th Victim Compensation Fund of 2001, available at: www.usdoj.gov/final_report.pdf.

4. Mr. Feinberg is an active member of The CPR 1,000: 1,000 of the world’s highest quality neutrals, with specialization in 17 practice areas and industries. In addition, he has recently been named Chair of CPR’s Commission on Facilities for the Resolution of Mass Claims.

5. Not all claimants chose to hire attorneys, but 90 percent of death claimants and 62 percent of injury claimants were represented.

6. Act § 405(6).

7. Id. at §402(4).

8. Id. at §402(5).

9. For a detailed discussion of victim compensation through history, see Michele Landis Dauber, The War of 1812, September 11th, and the Politics of Compensation, 53 DEPAUL L. REV. 289 (2003).

10. For more information about the National Vaccine Injury Compensation Program, see http://www.hrsa.gov/vaccinecompensation/.

11. An Act to Authorize the Payment for Property Lost, Captured, or Destroyed by the Enemy, While in the Military Service of the United States, and for Other Purposes, ch. 40, 9, 3 Stat. 261 (1816).

12. Interestingly, the Commission was also criticized for being too narrow in scope in that it included compensation for damage from the War of 1812 but not for damage caused during the American Revolution. See, Zanesville Mess, Letter to the Editor, The Soldiers of the Revolution, Nat’l Intelligencer, Jan. 20, 1817, at 3.

13. Both the 2002 and 2005 Guidelines are discussed at length in: Emmanual Roucounas, Compensation for Victims of Terrorism: The Council of Europe’s 2005 Guidelines on the Protection of Victims of Terrorist Acts, printed in REDRESSING INJUSTICES THROUGH MASS CLAIMS PROCESSES: INNOVATIVE RESPONSES TO UNIQUE CHALLENGES, Permanent Court of Arbitration,2006.

14. Giving USA Annual Report of Philanthropy 2005.

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