Insurance Recovery for Businesses Affected by the Gulf Oil Spill
1. Property Damage and Business Interruption Coverage
The massive Gulf Coast oil spill is all but certain to cause extensive property damage and business interruption losses to businesses along the Gulf Coast - from fisheries in Louisiana to beachfront hotels in Florida and all kinds of business around the Gulf. There are also businesses away from the coastline whose property is safe, but that might suffer business income losses anyway - for example, due to the oil's impact on ports or shipping lanes, including the Mississippi River. While such businesses are looking first at responsible parties to cover their losses - dozens of suits have already been filed and thousands will likely ensue - they should also start thinking now about their own insurance coverage.
In addition to coverage for damage to tangible property such as ports, marine equipment or beachfronts, affected business owners should look to the business interruption coverage included in most business property policies. "BI" coverage is designed to protect businesses from losses stemming from unavoidable interruptions in their daily operations. BI coverage may apply in a variety of circumstances, such as a forced shut-down, a downturn in business due to the damage from the oil, or a substantial impairment in access to products, services, a business’ physical plant or premises.
Because the economic effects of the spill are likely to extend well beyond the Gulf region, businesses nationwide may be eligible to file contingent business interruption claims - also a standard coverage grant in many property insurance policies, though many small businesses are not aware of it. Contingent BI covers policyholders that did not suffer physical damage but still lost revenue after a property loss crippled a major supplier or customer. For example, a manufacturer in St. Louis will be safe from the oil slick, but nevertheless may suffer losses because of problems shipping its product down the Mississippi River or receiving material from suppliers shipped via the Mississippi.
In addition, Anderson Kill would like to offer the following advice as preliminary assistance to policyholders of all stripes in the hope that they receive the greatest and most timely assistance possible from their insurance policies:
Locate All of Your Insurance Policies
Look To First-Party Property Insurance
Remember That Property Damage, Business Income, Contingent Business Income and Extra Expense Coverage May Be Available
Coverage May Also Be Available Even Without Direct Physical Loss or Damage
Give Notice To All Levels of Coverage
Secure Tolling Agreements With Your Insurance Company To Protect Your Rights
Understand Thorough Emergency Responses and Preservation of Property
Consider Help In Submitting Your Claim, Including Your Broker, Public Adjuster and Attorney
Consider Whether Insurance Coverage May Be Available Under Other Insurance Policies
2. Liability for Drilling Accidents:
It's too early to predict how insurance claims of companies exposed to liability from the Gulf oil spill will play out, but it is certain there will be many, observes Anderson Kill shareholder John G. Nevius. As of May 10, some 70 lawsuits have already been filed. Inevitably, liability insurance companies will cite exclusionary language involving pollution in an effort to minimize their defense and indemnity obligations to policyholders. Meanwhile, the harm is expected to increase exponentially as the oil washes up on-shore.
While BP is self-insured, companies, including Transocean, Cameron International Corp. and Halliburton Co., are known to have substantial insurance coverage available. "There is plenty of potential liability to apportion at this point, but things are only likely to grow more complex," observed Mr. Nevius, adding that many companies in the petroleum business have complex risk management programs in-place. “Major legal disputes over coverage liabilities are almost certain given the scope of the environmental disaster and the stakes involved, including the impacts on fishing, tourism and shipping.”
For companies engaged in off-shore drilling, in addition to traditional liability, business interruption and contingent business interruption insurance, specialty spill-related or other environmental cleanup coverage is available domestically, generally on a surplus or specialty market basis, including, for example, loss of production income coverage for petroleum producers. Numerous off-shore international underwriting syndicates, including Lloyd’s, London (Transocean’s major insurance company) and the London Market will face large claims as well. However, many companies have been known to accept large portions of major oil-spill risk themselves through the use of large Self Insured Retentions and/or so-called Fronting Policies. In addition, captive insurance programs are often used by sophisticated policyholders to provide various tax benefits, direct claim-handling, and potential direct access to reinsurance markets.
Anderson Kill’s Managing Partner, Robert M. Horkovich, who has helped policyholders secure insurance recoveries to help fund the clean-up of hundreds of environmental sites, emphasized the need for those with potential liability to give prompt notice to all the insurance companies in their insurance program. Mr. Horkovich, who served as lead trial counsel for the State of California in the Stringfellow Superfund environmental insurance coverage litigation, added, "The prudent course is to put as many insurance companies on notice as soon as possible. Unfortunately it often takes years, or even decades, to get insurance companies to recognize their obligations for policyholder liabilities. Only by aggressively pursuing recoveries can policyholders potentially shorten the time before they will get access to the insurance funds they need to help with a significant clean-up or other losses."
In addition, valuable information is available here.
For additional information, please feel free to contact the following individuals below:
Robert M. Horkovich
Finley T. Harckham
John G. Nevius