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BP may have capped the well but cleaning up the insurance claims from the spill could take decades. (Photo courtesy BP)
The crude may have stopped spewing from the Deepwater Horizon well, but homeowners insurance and business insurance claims and lawsuits are expected to flow for years and perhaps decades from the disaster.
Risk management consulting firm Towers Watson & Co. estimates that commercially-insured losses from the BP spill will total between $4 billion and $6 billion, a fraction of the total economic loss currently estimated at $35 billion. That’s more than 9/11’s $23 billion but less than Hurricane Katrina’s $71 billion.
So how does BP and its partners’ liability coverage stack up against the expected business insurance claims? A little thin, I’m afraid.
According to Towers Watson, the total coverage limits for all parties involved in the disaster totals $3.2 billion, still $800 million shy of its best-case guess on insured losses.
Let’s start with the small fry:
Transocean, Ltd., the owners of the now-aptly-named Deepwater rig, has a $945 million policy on the rig itself and another $950 million in liability coverage.
Cameron International, which manufactured the blowout preventer that didn’t, has a $500 million liability policy.
Halliburton, whose cement work didn’t, has $600 million in liability coverage.
As for BP’s two partners in operating the well, Anadarko Petroleum has $163 million in coverage and Mitsui just $45 million to cover the spill and collateral damage to third parties.
What about BP, which holds a 65-percent stake in Deepwater? Ah heck, let’s quote directly from Towers Watson:
“Interestingly, BP has no commercial liability insurance coverage for the event, despite being named as a defendant in more than 300 lawsuits stemming from the incident. (BP does have a captive insurer, but no outside coverage).”
What’s a “captive insurer?” In layman’s terms, it’s self-insurance.
According to the Insurance Information Institute, BP’s captive is named Jupiter, registered in Guernsey, England, and its coverage…well, let’s let the institute have that punch line:
“BP’s liabilities are expected to be much higher than Jupiter’s maximum payout of $700 per incident. Jupiter’s limitations have spurred discussions of the merits of capital market solutions for covering risks of large scale disasters such as the oil spill.”
Presumably there’s going to be a whole lot of discussion spurred about captives in the coming years.
Mostly in court.
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