Based on recent reports, BP stands to lose the most from insurance claims that rise as a result of the Gulf oil spill. If the press conferences between BP, and politicians did not confuse you, may finding out who is going to pay for the cleanup will. From an insurance perspective, the financial clean up is getting stickier by the day.
As an insurance professional, my first question is simple. What is BP truly liable for? BP’s chief executive officer Tony Hayward has told major new outlets the company will honor all legitimate claims arising from the disaster. What will BP and all the experts consider legitimate insurance claims?
Based on reports from the Insurance Journal and Business Insurance blogs, BP will bear the cost of clean up. Clean up estimates range as much as $3 billion or more. Now that at least 70 lawsuits have already been filed against BP, Transocean, Cameron, and Halliburton, who will payout and how much will they pay? Since U.S. law currently limits energy companies’ liability to $75 million per spill, how is the rest going to be paid? Well, simply put, taxpayers could end up paying.
Similar to the National Flood Insurance Program, the U.S. federal government maintains a fund which is financed through taxes on energy companies. At some point, that fund may kick in to start paying oil spill related damages. On top of all that, BP only carries reinsurance. That means they are self-insured up to a certain amount and then a excess company kicks in to cover the remainder – depending upon how much they’ve contracted with BP.
So if you ask anyone for a black and white answer regarding who will pay for the oil spill and how much will they are liable pay, at this point they’ll probably say some think like, who knows? This will get even more confusing once you add in the Hurricane factor.
Since the official beginning of Hurricane season, questions arose regarding pollution caused by a Hurricane dispersal of crude oil. Since most home insurance policies specifically exclude damage caused by pollution, BP, et al, and the U.S. Federal government may need to look at the potential damage to coast home owners caused by pollution.
Don’t forget all the different businesses that will be hurt because of the lack of seafood production coming from the Gulf of Mexico. Will we see Business Interruption claims from seafood companies on the east coast that get their Seafood from Gulf because they cannot get food to cook and sell? We already know that all the gulf fishermen are stranded because of oily fish. No pun intended! All I can say is that this oil spill will get really sticky. I didn’t mean that one either.