Sunken Oil Rig Owner Could Be Liable For Millions, Lawyer Says

NU Online News Service, April 23, 3:30 p.m. EDT

The firm owning the drilling rig that sank in the Gulf of Mexico could be liable for millions of dollars depending on its leasing agreement with BP, a lawyer familiar with oil and gas litigation said.

Meanwhile, in a filing with the Securities and Exchange Commission, Transocean, a global provider of drilling management services based in Zug, Switzerland, said the insured value of its drilling rig was put at $39 billion in aggregate.

Keith B. Hall, an attorney with the law firm Stone Pigman Walther Wittmann LLC in New Orleans, said there are three areas of liability coming out of this incident:

o Loss of life and personal injury.

o Liability to the government for its emergency response.

o Economic loss to private parties, in this case BP and Transocean.

Energy company BP leased the semisubmersible drilling rig Deepwater Horizon from Transocean.

Its insurance program consists of a combination of commercial market and captive insurance policies. The company maintains a $125 million per occurrence deductible on its hull and machinery, subject to an aggregate deductible of $250 million, Transocean reported.

However, in the event of a total loss or a constructive total loss of a drilling unit, the loss would be subject to a deductible ranging from $500,000 to $1.5 million.

The company also maintains a $10 million per occurrence deductible on crew personal injury, $5 million deductible on non-crew claims and aggregate deductible of $50 million.

The company says it carries $950 million of third-party liability coverage.

Transocean retains the risk for any liability losses in excess of the $950 million limit.

Mr. Hall said that of the three concerns, the most expensive could prove to be the economic loss to BP for loss of production. While the rig was not yet producing, the loss of potential income could become a major issue for the two companies, but that depends on the design of the lease which would detail who is responsible for what in the loss of the rig.

"It will not be clear cut," Mr. Hall noted. "People will look at this very carefully to see why they should not incur a loss." And when dealing with such significant numbers, the parties will "test and vigorously re-test to find clarity of the agreements between them."

The Deepwater Horizon caught fire and exploded on Tuesday, sinking two days later. The rig was located approximately 41 miles offshore of Louisiana, Transocean said.

The cause of the fire and explosion remain unknown at this time.

Transocean said the rig was staffed with 126 crew members. Eleven remain missing and the Coast Guard is continuing search efforts. However, reports said rescued workers believe the 11 never survived the explosion and fire.

Environmental concerns seemed to subside today with reports there was no oil leaking from the well site.

The company said in the filing that its customers "generally assume, and indemnify us against, well control and subsurface risks."

Comments

Resource Center

View All »

Contractors General Liability Coverage 102

What is a prior work exclusion? Which option is right for my client? Why do...

Sign up today to get a 50% matching credit -...

Insurance marketing sometimes seems like it's a game of swings and misses, but we're here...

Guide: 5 Steps to Selling Cyber

Cyber risk and data security is on the agenda of every business owner and executive....

Citation Correlation

Do rigger and signalperson qualifications correlate with the cause of crane and rigging accidents? ...

Complete Guide to Electronic Signatures in Property & Casualty Insurance...

In property and casualty insurance, closing new business quickly is key. Learn how to leverage...

INSTANT ACCESS: Complimentary Sales Closer Questionnaires

Help property owners or managers compare your commercial residential property insurance coverage vs. the competition....

Determining Vacant Property Perils and Valuations

Are your clients fully covered for Vacant Properties? In this economic climate, your insureds may...

Risk Management for Law Firms

This package of 3 concise risk management articles offers straightforward content and practical suggestions law...

Guide: Top 15 E&O Risks-And How To Avoid Them

Accidents happen. But when it's an errors and omissions oversight, that accident can open your...

We'll Show You How to Reach Your Sales Goals

Whether you work alone or have a team of agents working for you, we can...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.