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Insurers Ask Court to Rule on BP Costs Tied to Spill

Source: Dow Jones


Posted on 25 May 2010

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A group of insurance companies that sold $700 million in coverage to Transocean Ltd. (RIG) asked a federal court Friday to decide whether they must pay for costs that BP PLC (BP) is incurring as it cleans up the massive oil spill in the Gulf of Mexico.

The insurers, led by underwriters at Lloyd's of London, argue in court papers that they aren't required under Transocean's so-called excess-liability policy to cover BP's costs because the policy covers pollution "originating above the surface of the land or water."

"Because liabilities BP faces for pollution emanating from BP's well are from below the surface and from BP's well, those liabilities are not within the scope of the additional insured protection," the court papers say.

BP has said it is self-insured against such losses. The court papers suggest that BP's contract required Transocean, which owned the Deepwater Horizon, to carry the pollution insurance. Scott Dean, a spokesman for BP, and Marcus Matthews, the attorney for the Lloyd's underwriters, didn't immediately return a phone call seeking comment.

The lawsuit is among the first by insurers seeking clarification over who must bear the costs tied to the sinking of the Deepwater Horizon oil rig last month. Swiss Reinsurance Co.estimated two weeks ago that insurers would incur $1.5 billion to $3.5 billion in claims, and the spill in the Gulf of Mexico has only grown since then.

The suit, filed in U.S. District Court in the Southern District of Texas, says the group that sold the excess liability coverage to Transocean also includes Zurich Financial Services AG, XL Capital Ltd., Axis Capital Holdings, W.R. Berkley Corp., Navigators Group Inc. and Liberty Mutual Insurance Co. Insurers typically prefer to share larger risks.

Other insurers that have said they will likely incur some costs tied to the sinking of the rig and the spill include American International Group Inc. (AIG), Munich Re (MUV2) and Swiss Re.

The price to insure offshore drilling operations has already increased by 15% or more since last month's disaster, said Richard Kerr, chief executive of MarketScout, the Dallas-based electronic insurance exchange.


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