June 23, 2010

The Gulf Oil Spill : Consequences for the Insurance Industry

By Benjamin I. Jordan, Esq.

On April 20, 2010, the oil drilling rig Deepwater Horizon, owned by Transocean Ltd. and leased to British Petroleum sank off the coast of Louisiana after an explosion and fire on board. The explosion, which killed 11 rig workers and left a well gushing hundreds of thousands of gallons of oil a day into the Gulf, will have far-reaching consequences for the oil and insurance industries and the way risks are managed. Claims are expected to soar, impacting insurance and reinsurance companies that cover different aspects of the disaster-- including marine hull, marine liability, general liability, environmental/pollution liability, business interruption, directors' and officers' liability and workers' compensation.

A recent projection by Moody’s Investors Service estimated the total insured losses from the oil spill at between $1.4 billion and $3.5 billion. “With several parties involved in the drilling work, dozens of class-action lawsuits filed and the ultimate extent of environmental damage unknown, the complexities associated with loss claims are significant and could take many years to be resolved,” Moody's said. “It's going to take several years to sort out the various liabilities and what resources in terms of insurance assets and other assets each player is going to contribute,” said John Nevius, a shareholder at Anderson Kill & Olick in New York and an expert in environmental insurance coverage. The trickle down effect this catastrophe will have on the insurance industry, and the economy as a whole, is still unknown. According to Marla Donovan, vice president of product developments at Burns & Wilcox, "all liability coverages will be triggered. This is an enormous property damage loss.” Workers’ compensation, excess casualty and liability, environmental and contingent business interruption are just a few of the coverages that will be impacted by this event. Analysts expect reinsurers will be liable for a substantial amount, and some predict the enormity of the loss to lead to across the board price increases for insureds. This all bears close monitoring in the weeks and months ahead.

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If you have questions or comments, please contact your David & Rosetti attorney at 404-446-4488 or by visiting our website at www.davidandrosetti.com. Nothing contained in this blog should be construed as legal advice or opinion on specific facts. For editorial comments or suggestions, please contact David W. Willis at (404) 446-4491 or by email at david.willis@davidandrosetti.com.

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