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Insurance Industry Must Address Key Questions In Advance of Oil Making Landfall in Gulf Coast States

WASHINGTON, June 4, 2010 - What is now an environmental disaster will become an economic disaster once the oil still spewing from the...
June 4, 2010

Economic Effects of Oil Spill Will Play Out Over Years, Professional Insurance Agents Say

WASHINGTON, June 4, 2010  - What is now an environmental disaster will become an economic disaster once the oil still spewing from the Deepwater Horizon oil leak reaches the shore along the Gulf Coast, according to Jon D. Spalding, president of the National Association of Professional Insurance Agents. As a result, he said the insurance industry needs to prepare now to answer questions from consumers about what's covered and what's not.

Spalding pointed out that because most of the oil that has spilled so far remains offshore, the full economic effects have yet to be felt.

"As the oil moves toward the coast, there are insurance coverage issues that the industry needs to consider and address before the crude makes landfall," Spalding said. "All that oil has to end up somewhere, and chances are it's not simply going to float out into the ocean and head over to BP's headquarters in Great Britain. Just like when hurricanes threaten, the Gulf Coast of the United States is under an oil watch."

Many of the specific questions that individual business owners need to understand as to what is covered and what is not cannot be definitively answered, because this event is unprecedented in many respects. In addition, limitations and exclusions contained in individual insurance policies will affect coverage and judgments regarding individual claims will be made by each carrier.

Among the specific coverage issues that will need to be addressed are:

  • Wind driven oil affecting homes, vehicles and other property.
  • Health effects on those working in the recovery efforts.
    Private vessels operating in the recovery effort being coated with layers of oil.
  • Fish deemed not fit for human consumption due to oil, and the resulting losses to individual fishermen.
  • Businesses that may be forced to shut down, or may have major declines in revenues due to cancelled events or vacations.
  • Independent BP franchise owners who suffer economic losses from consumer boycotts.

"The financial impact will be devastating to our community," said former PIA National President Robert P. Page of Houma, Louisiana. "So many of our residents work directly in the oil industry as well as our fishing industry. The state of the health of our Gulf may not be known for many years. Currently all fishing, both recreational and commercial, is closed off the coast of Terrebonne Parish and more than half of Louisiana's coast is closed. Without the oil industry and the fisheries, our community will become a ghost town and we may never recover."

On June 3, 2010, the Insurance Information Institute, an insurance industry group, published a presentation by its president Dr. Robert P. Hartwig. He reviews the insurance issues relating to the Deepwater Horizon oil rig loss, including the types of coverage that might apply and the number of parties that might be involved. The liability factor and legal ramifications are discussed. Key observations from Dr. Hartwig's presentation include:

  • The loss is a major event for the offshore energy insurance and reinsurance market
  • Estimates for industry insured losses relating to the event are between $1 billion and $3.5 billion.
  • Companies with exposure to the Deepwater Horizon oil rig are insured for losses totaling about $1.4 billion, according to initial reports
  • Impending first-party claims offer more predictability, because businesses covered by commercial property and business interruption insurance are often on standardized forms published by ISO.
  • A lot of activity is expected around business interruption, but under BI policies the suspension of the insured's business operations must be caused by direct physical loss or damage.

The presentation by Dr. Hartwig also noted that history shows when there is a large-scale societal problem that requires significant funding to solve it, "insurers' policy language faces pressure to become more malleable than intended. As a result, insurers may find themselves under pressure to pay more than their appropriate share."

Spalding pointed out that the insurance industry, which remained financially sound during the recent economic crisis, "is a key component in keeping our economy running and commerce flowing during difficult times."

One thing is certain: the oil will ultimately find its way onshore, or into the food chain, and the insurance industry and your Professional Insurance Agent will help you understand how your policy may or may not respond to the damage done by the oil spill.

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street America (SM). PIA's web address is

Insurance Information Institute presentation available at:


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