Gulf Oil Leads to Liability Clash: RMS

The oil spill in the Gulf of Mexico highlights the dangers and confusion surrounding major “liability catastrophes” that could leave private companies and governments dealing with claims for years to come, according to a report released today by Risk Management Solutions.

And if a major hurricane were to push oil contamination inland, who will pay for the resulting claims and cleanup will only worsen a already confusing liability scenario.

“The Macondo oil spill has highlighted the potential for separate liability insurance policies, written for entities impacted by the same underlying event to be subject to clash—in what is, in effect, a ―liability catastrophe or L-Cat,” the report says. “The correlation of policy losses from the Macondo spill extends not only across the different partners in the prospect, but across the equipment manufacturers, service companies, drilling platform owners, and operators of the well.”

According to RMS, six large firms could face different levels of liability losses including British Petroleum, Halliburton, Anadarko Petroleum, Cameron International, Mitsui Oil Exploration and Transocean.

All firms combined have available insurance coverage of approximately $3 billion.

Oil contamination that could be pushed inland by a hurricane passing through the spill would add an extra level of liability confusion. The report explains that homeowners insurance would not cover oil damage and that National Flood Insurance Program policies don’ t contain coverage for costs of testing or monitoring pollution unless required by law.

RMS says that there is a 13 percent chance of a hurricane windfield passing through the slick and a 7 percent chance of a major hurricane (Category 3 to 5) doing the same.

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to Risk Market News.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.