Insurance Recoveries For The Gulf Oil Disaster

Originally published in Corporate Counsel, August 2010.

MANY BUSINESSES HAVE ALREADY been adversely affected by the massive oil slick in the Gulf of Mexico, and many more will be soon as the contamination intensifies and spreads. Much of that damage will be in the form of lost revenues, as resorts, fishing companies, ports, industries and other businesses are unable to use the Gulf's waters or attract customers to seaside areas. Of course, ultimately the responsibility for those losses rests with BP, which has agreed to place $20 billion in an independently administered fund to pay claims, as well as with its partners, and to a lesser extent with other companies that own, operated and/ or built the doomed deep water oil well and platform. BP is making payments on claims submitted to it, but the press is full of reports that the claimants are dissatisfied, and dozens of lawsuits have already been filed. Thus, in all likelihood, it will take years, or even decades, to resolve those claims, and given the massive extent of the damage, BP and other responsible parties may be unable to pay all of the damages they will face. Therefore, every business affected by this disaster should look to its first party property insurance policies and determine whether it has coverage for not only any property damage it suffers, but for lost profits as well.

Business Interruption Coverage

Most property insurance policies pay for losses of business income resulting from damage to covered property. This is often referred to as business interruption insurance. Many also provide so-called contingent business interruption coverage for losses stemming from damage to the property of a supplier or customer. Both types of insurance require, as a predicate to coverage, that there be damage to property, and that the loss of profits resulted from that damage. The property damage requirement might preclude coverage for businesses in the Gulf areas which suffer losses simply because an offshore oil slick is scaring tourists away, because the Gulf waters are not the property of the policyholder or its customers or suppliers. However, many businesses will be able to meet the property damage requirement if oil reaches their beaches, docks or industrial facilities, or fouls their boats or other equipment. Also, companies which have licenses to use the Gulf waters and seabed for fishing, oil and gas exploration and extraction, or for other purposes, may be able to establish...