Much of the damage to the thousands of businesses likely to be affected by the Gulf oil spill will be in the form of lost revenues, as resorts, fishing companies, ports, industries and other businesses are unable to use the Gulf’s waters or attract customers to seaside areas. Ultimately the responsibility for those losses rests with BP, which has agreed to place $20 billion in an independently administered fund to pay claims as well as with its partners, and to the lesser extent with other companies that own, operated and/or built the doomed Deepwater Horizon oil well and platform. BP is making payments on claims submitted to it, but many claimants are dissatisfied and dozens of lawsuits have already been filed. It will take years to resolve those claims — and ultimately, BP and other responsible parties may be unable to pay all of them. Therefore, every affected business should look to its first-party property insurance policies and determine whether it has coverage for not only any property damage but for lost profits as well.
Business Interruption Coverage
Most property insurance policies have “business interruption” coverage that pays for lost business income resulting from damage to covered property. Many also provide so-called contingent business interruption coverage for losses stemming from damage to the property of a supplier or customer. Both types of insurance require that there be damage to property, and that loss of profits resulted from that damage. This requirement might preclude coverage for businesses in the Gulf areas that suffer losses simply because an offshore oil slick is scaring tourists away. However, many businesses will be able to meet the property damage requirement if oil reaches their beaches, docks or industrial facilities, or fouls their boats or other equipment. Also, companies with licenses to use the Gulf waters and seabed for fishing, oil and gas exploration, or other purposes, may be able to establish coverage for contingent business interruption caused by damage to the property of a “supplier,” i.e., the government entity that has licensed its activities. For example, fishing companies that have business licenses to fish in certain waters may be able to argue that property in which they have an insurable interest has been damaged.
Order of Civil Authority Coverage
Coverage might also be provided for some companies under their insurance for business interruption resulting from orders of civil authority which prevent access to their property. Like BI insurance, order of civil authorities coverage typically is tied to damage to property, though it can be anyone’s property, not just that of the policyholder or its suppliers or customers. Many thorny issues will doubtless arise over coverage for business interruption caused by advisories against swimming, fishing and boating in contaminated areas.
If the requirements for business interruption or order of civil authority coverage can be met, policyholders may still have to contend with policy exclusions — particularly so-called pollution exclusions. These are often broadly worded, and some clearly include oil spills in certain circumstances. However, many pollution exclusions contain an exception for contamination which results from a “hostile fire.” A good argument can be made that the current disaster resulted from a hostile fire.
Pursuing insurance claims can be arduous and frustrating. To maximize the chances of full recovery, policyholders should follow these steps: 1) establish a settlement deadline at the outset; 2) document everything that transpires with respect to the claim; 3) assemble a recovery team that includes claims handling experts on your side; 4) be mindful of all deadlines imposed by policy terms, e.g., a deadline for filing suit against the insurer; and 5) claim losses resulting from slow claims handling if the insurance company drags out the process.