(This post is an excerpt from the full article here, originally published by Bloomberg Finance L.P. in the Vol. 4, No. 9 edition of the Bloomberg Law Reports—Insurance Law. Reprinted with permission.)

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The BP disaster (also referred to as the Deepwater Horizon disaster or the Macondo blowout) in the Gulf of Mexico is now considered to be the largest accidental oil spill in history.  On April 20, 2010, an explosion and resulting fire at the Deepwater Horizon semi-submersible oil drilling platform, the cause of which is still uncertain as investigations continue, killed 11 platform workers and injured 17 others out of the 126 crew members on board the platform at the time. On July 15, 2010, 85 days after the explosion and many subsequent failed attempts to plug the leak, the flooding of oil was finally stopped by capping the gushing wellhead.  It has been estimated that during this period approximately 4.9 million barrels (a barrel of oil is 42 gallons) of crude oil were released, at a peak spill rate of 35,000 to 60,000 barrels per day. By comparison, the entire 1989 Exxon Valdez disaster is estimated to have spilled 257,000 barrels of oil into Prince William Sound in Alaska.

The BP disaster is causing extensive damage to marine and wildlife habitats, as well as the Gulf of Mexico’s fishing and tourism industries. Scientists have reported immense underwater plumes of dissolved oil, which are nearly impossible to track, and even harder to remove or remediate.  Crews continue to work to protect hundreds of miles of private property, beaches, wetlands and estuaries along the northern Gulf Coast using skimmer ships,  floating containment booms, anchored barriers, and sand-filled barricades along the coasts, as well as surfactants (dispersants) and surface burning techniques throughout the Gulf’s waters.

The BP disaster has already begun, and will undoubtedly continue, to give rise to insurance claims under first-party property policies by individuals and businesses seeking coverage for property damage and business interruption losses stemming from the BP disaster. For example, for individuals and businesses operating on the Gulf Coast a majority of the first-party claims will likely involve ‘time-element losses’ arising out of the prevention and/or disruption to fishing, tourism, and shipping channels because of the oil spill and on-going remediation efforts.

The BP disaster has also led to a variety of liability claims against BP and other related entities. In response, BP has announced the creation of a $20 billion fund to pay claims in return for a complete release.  This BP fund will not only be utilized by injured claimants, but will also likely be used by subrogees, i.e., insurers who have paid claims to injured claimants and are now pursuing responsible third-parties (e.g., BP) to recoup their costs. The parties, for which nearly all claims and related suits have been asserted to date include: BP plc, owner of the leaking well in conjunction with minority operators in the joint venture, Anadarko Petroleum Corporation and Mitsui & Company Ltd; Transocean, Ltd., owner and operator of the Deepwater Horizon oil platform; Halliburton, Inc. contractor for Transocean on the Deepwater Horizon; and Cameron International Corporation, manufacturer of the ‘blowout preventer’ which was alleged to have failed causing and/or contributing to the BP disaster. The claims that have been asserted so far generally fall into three categories:  (1) claims for death and bodily injury to workers stationed on the Deepwater Horizon, as well as responders performing removal and remediation work for the oil spill; (2) claims for economic loss by private individuals and businesses (e.g., local maritime industry consisting of fisherman, shrimpers, and charter boat captains, restaurants, hotels/resorts, beach clubs and waterfront property owners); and (3) claims for governmental disaster response, remediation, and clean-up costs.

To analyze all of the claims and coverage issues that might arise as a result of the BP disaster would extend well beyond the scope of this article.  Instead, we provide a general overview of the types of claims and corresponding insurance issues which we have already seen and are likely to see arise from the BP disaster. Presently, there are at least five Gulf Coast jurisdictions – Alabama, Florida, Louisiana, Mississippi and Texas – whose body of law will probably come into play regarding these claims and suits, and it is safe to postulate that many more jurisdictions will become involved as the claims and litigation continue to mount throughout the country.

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