The Post-September 11 Compensation of Different Victim Groups:
Comparing the RAND Corporation Study with the Special Master's Report

In my last column, I reviewed the report of the Special Master of the 9/11 Victims Compensation Fund, Kenneth Feinberg. I discussed what he did that made the program a success, and I noted that his final conclusion--that Congress, in setting up the Fund, should have decided to pay each victim the same amount--would probably have made the Fund much less successful than it was.

In this column, I will compare a recent study by the RAND Corporation's Civil Justice Institute entitled "Compensation and Losses from 9/11 Attacks" with Feinberg's report. The comparison will help reveal the moral and political assumptions that have been built into the Fund.

Three Key Differences Between the RAND Study and Feinberg Report

The RAND Study differs from Feinberg's report in three basic respects.

First, the focus of the RAND Study is much broader. In his Special Master's Report, Feinberg was asked to review just the Fund. Since the Fund was designed to provide compensation only for death and serious physical injury which occurred immediately at the site of the attacks on September 11, Feinberg's inquiry shared the same scope.

In contrast, the RAND Study was interested in more: It looked into compensation not only for personal injuries resulting from the attack, but also for a wide range of consequential injuries. These injuries arise from environmental attacks, emotional injuries, and economic losses suffered by the residents and businesses of New York. They also arise from the economic losses suffered by workers in the New York City area as a result of the attack.

Second, the RAND Study differs from the Feinberg report is that it focuses on both inputs and outputs. In assessing outputs, the RAND Study details exactly how much money was given to different categories of victims -- such as civilians killed or seriously injured, emergency responders, residents, workers, and businesses. But it also assesses inputs - that is, it details the source or sources of the money for each of these groups (charity, government or insurance).

In contrast, Feinberg's report focuses on outputs alone: Since all the Fund money came from Congress (and hence from taxpayers), Feinberg's focus is on where it went: Who got how much, and why?

Third, and finally, the studies differ in tone. This difference follows naturally from the second difference - that is, from the fact that RAND looks at all the inputs and outputs of post-9/11 compensation, whereas Feinberg's report looks at only outputs to Fund beneficiaries.

The RAND Study, while never critical of the Fund, looks at the Fund neutrally -- as just one among a number of ways in which money was funneled to victims after the attack. In contrast, Feinberg's report defends the establishment of the Fund and ends with criticism of how it was designed by Congress.

The RAND Study: Reflecting Both Inputs and Outputs for Compensation

The RAND Study -- by placing the Fund in context of all the other inputs and outputs related to post-9/11 compensation -- allows one to ask whether it makes sense from a public policy point of view to treat certain victims 'better' than others.

At first glance, the RAND Study reads like a laundry list. Each chapter deals with a different victim group, and analyzes how much they got and from whom they received it.

For example, here are the respective outputs: Of the $38 billion given to all victims, $8.7 billion went to the civilians killed or seriously injured; $1.9 billion, to the emergency responders killed or seriously injured; and $23.3 billion, to the businesses that suffered property or economic injury. (The figures in the Feinberg report differ slightly from the RAND figures.)

And here are the respective inputs: Overall, 42% of the $38 billion came from the government, 7% from charity and 51% from insurance.

But a closer inspection of the statistics reveals some interesting things about way in which the losses suffered on 9/11 were compensated.

For example, insurance played a much greater role in the compensation of business losses (75%), than in the compensation of losses suffered by civilians (23%) or emergency responders (0%).

To take another example, the RAND Study claims that tort liability has, thus far, not played a major role in the compensation of victims. And it predicts that it will never play an important role - because, among other reasons, Congress limited the liability of airlines and other, similar potential defendants.

A Crucial Question: What 9/11 Victims Were Left Out, and Never Compensated?

The RAND Study also raises a key question: Who was left out? That is, what victims were compensated only a little, or not at all?

RAND notes that those left out included victims of environmental injuries and emotional injuries, as well as workers in the New York City area, who suffered from the immediate economic effects of the attack.

These groups received much less compensation, in relative terms, than civilians killed or seriously wounded (who were covered by the Fund); emergency responders killed or seriously wounded (who were also covered by the Fund); or businesses (which typically had insured themselves).

One Key Question to Ponder: Was the Government's $16 Billion Spent Correctly?

The final, brief section of the RAND Study asks why society wants to do things this way. It also asks whether society should rethink its commitments before the next catastrophic attack. Two issues the Study raises seem, to me, especially important.

First, let's assume that Congress should, indeed, be ready to pay $16 billion after another mass attack on Americans - as it did after 9/11. Should it, once gain, pay most of the money in the form of death benefits?

Remember, most of the money the government spent after 9/11 was spent on the Fund - meaning it went to victims, if they survived, or to their families. The average award to a family was about $2 million.

Thus, the Fund is best seen as an unprecedented death-benefits government program. That program may not have been overly generous from the perspective of tort law - where multimillion dollar verdicts are common. But there were many problems with the victims' tort cases. As both Feinberg and Rand point out, it is not clear that the families of the victims of the attack would have done much better, all things considered, had they sued the airlines.

The RAND Study notes that President Bush separately "promised" $20 billion to help New York City recover from the attack. But in the end, it seems that the Federal Government delivered only 75% of that promised amount -- and about half of that went to pay for the Fund, which was designed to protect the airline industry from litigation.

Would the government's money have been better spent in other ways? RAND does not ask the question expressly, but some of its findings suggest the answer is yes.

For instance, RAND reports that workers were "the least well compensated of the victim groups" - which seems unconscionable. In addition, RAND suggests that further injuries from environmental exposure were neither prevented nor compensated - though, with government funds, they could have been.

Of course, the government simply could have spent more on all groups injured. But assuming, again, that the $16 billion was what it had to spend, perhaps the Fund should have been a bit less generous, and the extra money should have been spent on the families of workers who lost their jobs and New Yorkers exposed to environmental hazards.

Feinberg, in his Special Master's report, argues that the Fund should have provided a "one size fits all" award. (For his reasons, see my previous column). However, he does not argue explicitly that the award should have been less than the $2 million average awarded by the Fund.

In the end, it may be better for Congress to think about issues of equity among victims, when creating a Fund to provide compensation after a mass attack. The RAND Study considered the fates of all current and foreseeable victim groups. Congress's Fund, strikingly, did not.

Another Key Question: Should We Expand the Terrorism Insurance Market?

The second key question the RAND Study raises is this: Assuming that for a future attack, the insurance market can pay for at least $20 billion in losses - as it did after 9/11 - is that figure high enough? Or should the insurance market for terrorism be expanded?

If insurance-buyers assume that 9/11-style compensation - which, by Congress's mandate, was "full compensation" geared to income level -- will be provided in the event of a future terrorist attack, they may not buy terrorism insurance at all. Conversely, as the RAND Study noted, "a fixed, flat amount of government-provided compensation, for example, would place responsibility on high-income earners to purchase life insurance to cover losses beyond those covered by government payments."

This is the 800-pound gorilla in the room. Private insurance may be able to compensate the costs of an attack more cheaply and efficiently than a government fund enacted by a panicked Government in the days after an attack. But what should Congress do to encourage citizens to utilize such insurance - and what should it do if they do not?

The Need to Look Broadly at Compensable Terror Attack Consequences

In sum, Congress should be thinking about the unthinkable--the possibility of another attack - and doing what it can to insure the best possible result in the wake of such a tragedy.

As the RAND Study shows us, Congress should look at the consequences of a mass terror attack from the point of view of all of society. Unless it does so, it will not be able to ensure that the compensation that follows that attack is designed with an eye for what is best for all of America.