Are Insurers Denying Oil B.I. Claims?

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Policyholder attorney says carriers cite soaring profits asrationale for rejection

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New York

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Insurers are citing windfall profits at oil companies as areason to deny Hurricane Katrina business interruption claims, apolicyholder attorney contends.

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“I've heard on two claims, 'We are not going to pay you anythingbecause you are making so much money,'” said John N. Ellison, anattorney with Anderson Kill & Olick, at a policyholder advisorconference here sponsored by the law firm.

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While declining to identify his oil industry clients who wererefused payment on that basis, Mr. Ellison asserted that ahigh-profit argument is “an across-the-board issue, and it'soutrageous.”

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He explained later that what is involved is policy languagewhere the trigger for coverage is “actual loss sustained.” Mr.Ellison said insurers are telling their energy clients that becausethe price of oil had spiked after supply disruptions caused byKatrina-related problems, “effectively you profited from the stormand there is no actual loss.”

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Attorneys for the policyholders, he said, argue that insurersshould pay the claims because rates were set for individualrefinery operations. When an individual operation is shut down by astorm, they argue, the measurement of loss should be calculated byindividual facility, not by the industry's profit as a whole.

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Concerning another aspect of oil and gas industry coverage,attorney Paul Walker from the firm's Chicago office discussedcontinuing claims over damages caused by methyl tertiary butylether (MtBE), an additive mandated by Congress for gasoline.

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The major allegation, he said, has been that even though the oilindustry knew it was a defective product, it conspired to lobbyCongress for its use in gasoline. The case, generally difficult tomake, might be successful where plaintiffs have brought action inMadison County, Ill., a venue known to be friendly to plaintiffattorneys, he noted.

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In some cases insurers might attempt to deny claims on thegrounds that MtBE involves excluded pollution coverage, he said,noting that a growing number of states may not qualify MtBE as anexcluded pollutant.

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Caption for oil rig shot:

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Since the price of oil skyrocketed following Hurricane Katrina,oil companies in effect suffered no business interruption loss fromthe storm, insurers supposedly are arguing.

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