1.4 Billion Estimated Insurance Loss For BP Spill

Posted on January 31, 2011 @ 1:34 pm

As a blogger for Insurance School , I’m following the tragic spill in the Gulf of Mexico  very closely  .   It has been estimated  that BP has insurance covering 1.4 Billion in Losses .   Contrast that with the fact that in  1988 Occidental Petroleum’s Piper Alpha facility in the North Sea  was destroyed in an explosive and ended up costing 3.8 Billion  .  In that accident there was no massive oil spill that threatened the coastline and the  industries like fishing  .  That is why some speculate 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 Deepwater Horizon Project is going to have to foot 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 still don’t know whether the new law would be retroactive.  So  it is possible the law  might not apply to BP.  

This stands in stark contrast to  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 kind costs insurers,  I envision  that the insurance cost for  present  and future Ocean Oil Rigs will rise  dramatically  .  Will it be so prohibitive that investors  might ponder  expensive  green technology  rather than speculate in oil?

As far as $75 million goes , that sounds like the judgement someone might win for a  Dunkin’ Donuts  hot coffee burn.  Well, Big Oil will spend that much on Lobbyists to  ensure  they pay as little as possible.  They will have to  do this while butting heads  with Obama, Congress, and an upset public.  Should be an interesting case .

Rick Sabian

Life Health License

Florida Insurance School

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