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 .