Should Federal offshore oil spill liability limits be raised or eliminated? ThatÃ¢â‚¬â„¢s the question being debated on Capitol Hill following the Deepwater Horizon oil spill.
At TuesdayÃ¢â‚¬â„¢s hearing before the Senate Energy and Natural Resources Committee, a U.S. Department of Justice official said Congress would be on solid constitutional ground if it wanted to retroactively raise the $75 million liability cap on BP to pay for economic damages from the spill. He also said that in future the cap should be eliminated. Check out a Greenwire story via the New York Times for more on the hearing.
Under the Oil Pollution Act of 1990 (OPA), responsible parties for offshore facilities are liable for up to $75 million per spill for economic damages, plus removal costs. The liability cap does not apply if the incident was caused by gross negligence, willful misconduct or violation of Federal regulations.
OPA also created the national Oil Spill Liability Trust Fund (OSLTF), which can provide up to $1 billion for any one pollution incident and is used for costs not directly paid by the polluter.
In this incident BP has already said it will assume liability for all legitimate claims caused by the oil spill. Meanwhile, legislation has been introduced in Congress seeking to raise the liability limit to $10 billion.
In case you were wondering what the Oil Pollution Act of 1990 says on the subject of raising liability limits, hereÃ¢â‚¬â„¢s the text:
The President shall, within 6 months after August 18, 1990, and from time to time thereafter, report to the Congress on the desirability of adjusting the limits of liability specified in subsection (a) of this section.
The President, by regulations issued not later than 3 years after July 11, 2006, and not less than every 3 years thereafter, shall adjust the limits on liability specified in subsection (a) to reflect significant increases in the Consumer Price Index.”
AÃ‚ growing issue of concern is how raising the liability limits might affect insurance costs. In a letter to U.S. Senator Robert Menendez earlier this month, broker Lloyd & Partners said that any significant increase in the liability limit will cause insureds operating in U.S. waters to face the prospect of significant self insurance.
Check out further I.I.I. information on the liability system and on offshore energy facilities and insurance considerations.
The Northeast United States faces an increased risk of hurricane landfall this season, according to the latest 2010 tropical forecast from WSI (Weather Services International) Corp. The warning came as WSI said it expects the 2010 hurricane season will be the most active since record-breaking 2005.
WSI says the coastline from the Outer Banks of North Carolina to Maine is under a significantly increased threat of a hurricane this season, according to its statistical landfall forecast model. In a press release WSI Chief Meteorologist Dr. Todd Crawford is quoted as saying:
Our model suggests that the threat to the Northeast coast this season is on par with that in Florida and the Gulf coast states.Ã¢â‚¬
Homeowners and businessowners in the Northeast would be wise to take note. Despite never making U.S. landfall and remaining hundreds of miles out at sea, Hurricane Bill, the first Atlantic hurricane of 2009, ran parallel to the East coast from the Outer Banks of North Carolina all the way up to New England and claimed the lives of two.
ItÃ¢â‚¬â„¢s important to recognize that while exposure to windstorms and high property values combine to make Florida the state with the highest potential for property losses, New York State is second highest, according to risk modeling company AIR Worldwide.
A recent study by AIR Worldwide put the value of residential and commercial coastal property in New York at $2.4 trillion, after Florida with $2.5 trillion. Connecticut, Maine and Massachusetts were other East Coast states where insured coastal property values exceeded 50 percent of the stateÃ¢â‚¬â„¢s total insured property values.
The last major hurricane to devastate the Northeast was the 1938 Long Island Express, which crossed Long Island and moved into New England, resulting in approximately 600 fatalities. Check out I.I.I. facts and stats on hurricanes.
The National Hurricane Center yesterday said a low pressure system centered about 500 miles south-southwest of Bermuda has a 30 percent chance of becoming the first named storm of the 2010 Atlantic hurricane season. The official start to the 2010 Atlantic hurricane season is just a week away.
The system is producing a large area of showers and thunderstorms along with gale-force winds, according to an NHC bulletin issued last night. Ã¢â‚¬Å“There is a medium chance of this system becoming a subtropical or tropical cyclone during the next 48 hours,Ã¢â‚¬ the NHC said.
By this morning meteorologists at Accuweather.com said they believed the low has little, if any, chance of developing into a true tropical system. The more likely scenario is that it takes on both tropical and non-tropical characteristics, making it a Ã¢â‚¬Å“hybridÃ¢â‚¬ storm. Hybrid systems can be named as subtropical storms or depressions.
However, Accuweather.com observed that whether the system develops into a pre-season tropical storm or not, it will have some impact on the southeastern United States as it continues its trek northwestward through midweek.
Forecasters have said they expect this yearÃ¢â‚¬â„¢s hurricane season will see above-average activity with as many as 18 named storms possible. Updated forecasts for the 2010 Atlantic hurricane season are expected from forecasters at the National Oceanic and Atmospheric Administration (NOAA), Colorado State UniversityÃ¢â‚¬â„¢s Tropical Meteorology Project and others in the next few days. Check out I.I.I. facts and stats on hurricanes.
Last nightÃ¢â‚¬â„¢s 59 to 39 Senate vote in favor of financial regulatory reform is the most extensive overhaul of financial-sector regulation since the 1930s, according to the Wall Street Journal. It notes that the Senate billÃ‚ must now be reconciled with a similar bill passed by the House of Representatives last December, before it can be sent to President Obama to be signed into law.
In addition to a timeline of financial legislation, the WSJ article includes a useful summary of key parts of the Senate bill and where it differs from the House version. From the insurance industryÃ¢â‚¬â„¢s perspective, the takeaways are as follows:
Check out I.I.I. information on regulation modernization.
As Congressional hearings continue about the impacts of the recent Gulf oil spill, the National Law Journal via law.com reports that environmental law firm Earthjustice and New Orleans law firm Waltzer & Wiygul have filed a lawsuit in federal court on behalf of conservationists and fishermen against the U.S. Department of InteriorÃ¢â‚¬â„¢s Minerals Management Service (MMS).
According to the NLJ article, the suit Ã¢â‚¬“ Gulf Restoration Network and Sierra Club v. Salazar Ã¢â‚¬“ charges that the agency violated federal law by exempting oil companies that drill in the Gulf of Mexico from disclosing blowout and worst-case spill scenarios as well as plans for dealing with them before approving the companiesÃ¢â‚¬â„¢ offshore drilling plans.
For the BP Deepwater Horizon rig exploration plan, MMS had issued a notice to oil companies telling them that they didnÃ¢â‚¬â„¢t have to comply with those blowout and worst case oil spill rules, according to Earthjustice. In addition, it alleges that MMS failed to produce an analysis of potential environmental impacts in the event of a blow-out despite being required by law.
The legal challenge asks the court to invalidate the MMS practice of sending notices to oil companies informing them that they donÃ¢â‚¬â„¢t have to comply with the rules and to order review of existing offshore drilling plans that do not comply with existing rules.
A quote from Earthjustice attorney David Guest sums up the case thus:
This case is about lax regulation by the Minerals Management Service. It is actually easier to get a permit for an offshore oil well than for a hot dog stand.Ã¢â‚¬
U.S. President Barack Obama recently criticized what he described as a Ã¢â‚¬Å“cozy relationshipÃ¢â‚¬ between the oil and gas industry and the MMS and charged U.S. Interior Secretary Ken Salazar with reforming the agency. Salazar already has announced that MMS will be split into two, effectively separating its safety and environmental enforcement responsibilities from its leasing, permitting and revenue collection activities.
Check out an I.I.I. backgrounder on offshore energy facilities and insurance considerations.
A bit of good and bad news in latest reports on auto theft and staged auto accidents from the National Insurance Crime Bureau (NICB). First the good: the NICB says 2009 marked the sixth consecutive year of declining vehicle thefts in the United States.
For 2009, the 10 Metropolitan Statistical Areas (MSA) with the highest vehicle theft rates are: Laredo, TX; Modesto, CA; Bakersfield, CA; Stockton, CA; Fresno, CA; Yakima, WA; San Francisco/Oakland/Fremont, CA; Visalia/Porterville, CA; Las Vegas/Paradise, NV; and Albuquerque, NM.
Some 83 percent of the 366 MSAs within the U.S. reported lower thefts than they experienced in 2008 and once the final figures for 2009 are available vehicle theft may drop as much as 19 percent on 2008, according to NICB.
Now for the bad news: staged accidents. The NICB says so-called staged accident questionable claims (QCs) increased 46 percent from 2007 through 2009. The ratio of staged accident QCs to overall bodily injury (BI) and personal injury protection (PIP) claims also increased over this period.
The five cities that generated the most staged accident QCs were: New York City Ã¢â‚¬“ 1,304; Tampa Ã¢â‚¬“ 562; Miami Ã¢â‚¬“ 511; Orlando Ã¢â‚¬“ 422; and Houston Ã¢â‚¬“ 376.Ã‚ Notice that Florida and New York, which are no-fault (or PIP) states, dominate the top loss locations.
NICB has created a series of videos demonstrating some of the most common types of staged accidents, available here. Check out further I.I.I. information on auto theft and no-fault auto insurance.
An international study into the link between cell phone use and two types of brain cancer has proved inconclusive, according to the World Health OrganizationÃ¢â‚¬â„¢s International Agency for Research on Cancer. Results from the study are published this week in the International Journal of Epidemiology.
The 10-year study found that most cell phone use did not increase the risk of developing either meningioma or glioma. However, there were suggestions that heavy use of cell phones (more than 30 minutes per day) could increase the risk of glioma, but Ã¢â‚¬Å“biases and errors limit the strength of the conclusions that can be drawn from these analyses and prevent a causal interpretation.Ã¢â‚¬
Despite the inconclusive results, the authors suggested further research was necessary.Ã‚ A press release quotes Dr. Christopher Wild, director of the IARC saying:
An increased risk of brain cancer is not established from the data from Interphone. However, observations at the highest level of cumulative call time and the changing patterns of mobile phone use since the period studied by Interphone, particularly in young people, mean that further investigation of mobile phone use and brain cancer risk is merited.Ã¢â‚¬
The IARC notes that mobile phone use has become much more prevalent today and it is not unusual for young people to use mobile phones for an hour or more a day. But this increasing use is tempered by the lower emissions, on average, from newer technology phones, and the increasing use of texting and hands-free operations that keep the phone away from the head.
For more on this story, check out blog items at the Huffington Post and the Washington Post.
The eruption of the EyjafjallajÃƒ ¶kull volcano in Iceland has left the aviation industry reeling, but from the perspective of the insurance markets, the position is relatively clear, according to AonÃ¢â‚¬â„¢s May 2010 Airline Insurance Market News.
Aon notes that successful claims against standard airline liability insurance policies due to delays as a result of the volcanic eruption in Iceland are unlikely. The main reason for this is that this is a natural event and there has not been any actual damage to aircraft or property at this stage.
The picture is similar from the business interruption point of view. Stephen Cross, CEO, Aon Global Risk Consulting, says:
Typically, business interruption (BI) policies will most likely not be responding to the disruption to airspace caused by the volcanic ash. BI policies usually only kick in when there is physical damage. If ash falls to earth and lands on a businessÃ¢â‚¬â„¢ premises and causes damage, blocking air pipes that could lead to an explosion for example, then that could trigger a resulting BI policy.Ã¢â‚¬
However, CrossÃ‚ says itÃ¢â‚¬â„¢s important to note that insurance policies vary and a firm should always ensure they study their own policy language in determining whether they are able to claim on their insurance cover. Work continues on developing BI cover to make it more relevant and bring it into the 21st century, he adds.
Supply chain management is another critical area. Cross observes that it is the companies that have an effective plan for disruption that are likely to get back on their feet quickly:
While you can’t plan for every eventuality, especially rare occurrences as volcanic eruption, the fundamental principles of sound supply chain management still apply: you should always be aware of what business continuity measures your suppliers of critical inputs have in place and be thinking about alternative suppliers.
Check out I.I.I. facts and stats on volcanoes and aviation.
Massive storms that struck Tennessee and northern Mississippi the weekend of May 1-2 left death and destruction in their wake. In Nashville, more than 13 inches of rain fell during the two-day period, and the Cumberland River crested at 51.86 feet, a level not seen since 1937. There have been 23 confirmed fatalities in Tennessee alone.
Claims Magazine reports that the city of Nashville expects damage from the flooding to surpass the billion dollar mark. It cites a press release from Nashvillle Mayor Karl Dean that the city has identified over $1.56 billion in property damage throughout Davidson County. The damage figures include only building damage and not personal property or infrastructure damage.
Currently, there are no estimates for damage insured by the National Flood Insurance Program (NFIP).Ã‚ I.I.I. flood insurance facts and stats show there were 25,501 floodÃ‚ policies in force in TennesseeÃ‚ in 2008 for a total of $4.9 billion in liability limits.
In addition to losses sustained by homeowners and businessowners, a number of high profile musicians lost instruments stored at SoundCheck, a storage and rehearsal site near the Cumberland River. The New York Times reports on the musiciansÃ¢â‚¬â„¢ flood losses here.
According to the Tennessean.com, 42 Tennessee counties have been declared disaster areas by the Federal Emergency Management Agency (FEMA). FEMA and the Tennessee Emergency Management Agency have also created a Facebook page for online information sharing in the response and recovery to the flooding event. The response and recovery can also be followed at www.twitter.com/FEMARegion4.
All eyes are on Capitol Hill today where two separate Senate hearings get underway to examine issues and impacts of the recent Gulf oil spill. This is the first time that officials at the corporations involved in the spill, including BP, Transocean and Halliburton, will testify about the Deepwater Horizon accident.
This morningÃ¢â‚¬â„¢s hearing before the Senate Committee on Energy and Natural Resources will be followed by an afternoon hearing before the Senate Committee on Environmental and Public Works. An article in the Wall Street Journal describes how the companies are trying to shift blame for who bears ultimate responsibility for the April 20 rig explosion and fire.
Meanwhile, a BP investor has filed a shareholdersÃ¢â‚¬â„¢ derivative lawsuit against the companyÃ¢â‚¬â„¢s chief executive officer Tony Hayward and its board of directors in Louisiana. The complaint alleges that BP has a long history of ignoring crucial safety issues related to the operation of offshore rigs such as the Deepwater Horizon rig, including problems with the blowout preventer devices that so spectacularly failed during this disaster.
Over at the D&O Diary, Kevin LaCroix offers his take on this lawsuit and what it may mean for BPÃ¢â‚¬â„¢s directors and officers:
Where the BP derivative litigation may ultimately head remains to be seen. At a minimum, BPÃ¢â‚¬â„¢s directors and officers face the prospect of enormous expense defending against this litigation, and significant potential liability.Ã¢â‚¬
LaCroix goes on to note that this lawsuit represents yet another example of a company domiciled outside the United States facing a D&O claim in the U.S. courts. The susceptibility of non-U.S. companies to U.S.-based D&O litigation is a topic of recurring interest, not least to D&O insurers, he adds:
The most obvious concern to insurers is the extent to which non-U.S. companies face threats of D&O litigation in the U.S. and therefore should be paying D&O premiums commensurate with the existence of the U.S.-based litigation exposure.Ã¢â‚¬
Check out the I.I.I. release on how insurance and reinsurance markets will play a key role in covering oil spill related claims in the Gulf. Check out an I.I.I. backgrounder on offshore energy facilities and insurance considerations.