As a blogger for Insurance School , I’m watching the horrible spill in the Gulf of Mexico closely . It has been estimated that BP has 1.4 Billion in Insurance . Contrast that with the fact that in 1988 Occidental Petroleum’s Piper Alpha facility in the North Sea exploded and cost 3.8 Billion . In that accident there was no massive oil spill that threatened the coastline and the fishing industry . This is the reason some estimate that it could cost $10 Billion for the BP Spill.
BP’s Insurance coverage is a wide-spectrum blanket but they also have in-house insurance and it looks like the BP’s own project is going to have to foot most of the bill. Or are they?
In response to the Exxon Valdez spil, Congress passed legislation so that an oil company would have to pay for clean-up. However the amount was capped at $75 million. So much for $10 Billion out of their pocket.
Congress is right now trying to change the law so that the limit isn’t so unrealistic , however we don’t know at this point whether they would make the federal law apply retroactively. So it is possible the law might not apply to BP.
This is very different than Obama’s statement that BP will end up footing the bill . Time will tell. Public pressure may force lawmakers to act.
Now that we know how much a spill of this magnatude costs insurers, I envision that the insurance cost for present and future Underwater Oil Rigs will rise substantially . Will it be so prohibitive that investors might consider expensive green technology rather than speculate in oil?
As far as $75 million goes , that resembles the judgement someone might win for a Dunkin’ Donuts hot coffee burn. Well, Big Oil will spend that much on Lobbyists to make sure they pay as little as possible. They will have to do this while butting heads with Obama, Congress, and an outraged public. Should be an interesting case .
Rick Sabian
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