From Gerry's Desk - The Gulf Oil Spill - An Explosion of Claims Expected
May 13, 2010 -We would like to make our business partners and prospects aware of the potential for claims resulting from the ongoing environmental event in the Gulf of Mexico.
The media is already reporting that there will be thousands of claims for damages due to the April 20, 2010 explosion at BP's Deepwater Horizon oil rig. Sources indicate two dozen suits were filed last week. This is not just BP's problem. Defendants can range from the owners of the equipment and its components, to anyone who touched the oil rig or the oil rig's component equipment. Some of these claims for damages will be first party claims while others will be third party claims. How do we expect the insurance industry to respond to this influx of claims?
The requirement for the insurance carriers to pay third party claims depends on the oil  company's insurance program. These programs are generally complex given the liabilities, and may contain significant self insured provisions. If the losses are catastrophic, the extent of damages may be in excess of the limits of insurance carried. This would leave the oil companies assets exposed to cover the damages. Recovery of losses in that scenario will be a long and expensive process.
First party claims for property damage and business interruption are a little more predictable. The standard forms which most businesses are likely to carry are published by the Insurance Services Office (ISO). The common, unendorsed ISO Form CP 10 30, Causes of Loss, does not cover losses due to pollution unless the trigger for the escape of pollutants is due to a "specified cause of loss." The policy's definition of "specified cause of loss" includes fire and explosion which may trigger coverage in this case.
Contingent Business interruption claims are also a concern. This coverage is written to protect the policyholder from a loss when another non - owned property suffers damage. There is a potential that businesses far from the Gulf will have lower revenue and lower profits due to the spill. Any business that relies on others to supply, receive or manufacture goods and services may suffer losses because their contractors (suppliers) can't deliver.
Acts of Civil Authority issues may also come into play when access to a business location is prohibited by municipal authorities because of damage to property other than the Insured’s. For Example, if the Insured’s property is not accessible because of bridge closures, mandatory evacuations, etc, a company in that region will be forced to cease operations.
In the past, insurers have found themselves in a position to pay when ambiguities arise in their policies when faced with catastrophes of this magnitude. One thing is certain. The number of claims will be significant and far reaching likely taking years to resolve.
If you have any questions or concerns about your particular circumstance, please give us a call or email us at contactus@kmrdpartners.com.
Sincerely,
Gerry Sorge, Claims Advocate
KMRD Partners, Inc.
About KMRD Partners, Inc. – KMRD Partners, Inc. is a full service Property & Casualty broker serving the commercial property and casualty insurance market from offices in the Philadelphia, PA region. Their mission statement, “Making a difference by Managing the Cost of Risk”, is a unique approach that focuses not just on insurance placement, but coverage expertise, service accountability, client education and risk management.
2600 Kelly Road, Suite 300, PO Box 755
Warrington, PA 18976
1-866-957-KMRD (5673) Fax 267-482-8431
www.kmrdpartners.com
Reducing the Cost of Risk - One Client at a Time
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