The oil spill in the Gulf of Mexico is creating a growing number of claims. These come from local, state, and federal governments, as well as all the individuals and businesses being adversely affected. There are claims for direct damages, and loss experienced indirectly. Any policyholder adversely affected will naturally ask whether the insurance they have in place will be a source of timely recovery.
The occurrence of loss is man-made, the event of loss is one of pollution, and the primary party responsible for all ensuing losses is BP – as the federal government has clearly stated.
But, in the early days following the start of the spill, as the federal government was beginning to organize its response to these matters, confusion arose about what coverage application would be available to citizens from their NFIP policies, especially given that the hurricane season was quickly approaching.
In the end, an official memorandum addressing NFIP coverage was issued by Jim Sadler, head of claims adjusting for FEMA/NFIP [attach memo]. The statement confirms an earlier statement from Mississippi Insurance Commissioner Mike Chaney (who was correcting earlier misstatements about NFIP coverage made in the press) that residents needed to prove a flood occurred under standard flood policy definitions to obtain coverage for hurricane-driven oil damage through the NFIP.
Meanwhile in Louisiana, oyster harvesters were advised by The U.S. Department of Agriculture’s Risk Management Agency federal crop insurance won’t cover oil damage. This year, about 50 percent of Louisiana’s oyster crop is expected to fall under the Agriculture Department’s group risk plan developed in 2009 by the Louisiana Oyster Task Force. Growers pay premiums based on how many pounds of oysters they haul in from oyster beds leased from the state and gain crop protection from hurricane, drought, and flood damage – everything except crude oil. As a result the policy, designed to cover natural disasters, will not cover damage caused by millions of gallons of oil and chemical dispersant stemming from the site of the Deepwater Horizon rig explosion.
But different forms of claims and loss arise every day, along with claims questions as to whether any of the insurance that people have in force may be able to respond, if only in part. Mississippi Commissioner Chaney also indicated commercial policies cap damage from pollutants at $10,000, while home and condo payments would reflect policy limits. The Oyster Task Force is working with the USDA and Crop Insurance Systems to determine if premiums for this year can be forgiven in light of dead crops. Richard Shore, a partner with Washington, D.C.-based Gilbert law firm who specializes in insurance recovery said the only clear option for growers without a form of business interruption coverage is claiming damages directly with BP. Add to this questions about possible W/C claims that may arise.
No matter what insurance representatives or regulators may suggest in terms of what and how private sector insurance might apply, PIA members appreciate that at the end of the day whether a particular insurance policy will or will not respond, and if so how, is the sole right and responsibility of the insurer.
What It Means to Agents: When insurance customers have needs and questions, they come to their agents for answers. There is a service need to respond. Therefore, this week the PIA National Business Issues Committee will issue a special report to PIA leaders and members. This report will form the basis of our formal outreach to carriers and forms organizations, urging them to activate their instructions to their insurance producers. This should include specifically include informing PIA agencies as to where to direct their customers for their claims questions.
Losses either as a direct or indirect result of BP’s Deepwater Horizon oil spill are man-made pollution losses, not losses from natural disasters to which insurance generally responds. The federal government is holding BP primarily responsible for all the claims arising from this man-made pollution event. Ultimately, what’s covered and what is not covered will be determined by each carrier’s individual decision on each claim. PIA will work with insurers to help facilitate the flow of information regarding claims questions between insurers and their insurance producers.
NFIP Coverage Memo on Oil in Flood Waters (NFIP 6/7/10)
NFIP Will Cover Hurricane-Driven Oil Damage (National Underwriter 6/9/10)
Insurance for Oyster Harvesters Won’t Cover Oil (New Orleans City Business 6/2/10)
PIA: Insurance Industry Must Address Key Questions (6/4/10)
June 15, 2010