Hurricane Katrina has not yet turned into the environmental disaster originally feared for the property-casualty industry, at least in terms of insured losses.

Indeed, oil spills have been the main source of environmental lawsuits and claims stemming from last year's record storms, according to David Bradford, principal of New York-based Advisen Ltd., in a March report titled "Toxic Storm: Hurricane Katrina and Environmental Liability."

When the storm first hit, many commentators feared the so-called "toxic soup" of floodwaters containing high concentrations of infectious organisms and hazardous chemicals would pose serious exposure for environmental writers.

However, the difficulty of identifying specific sources of many contaminants has precluded claims and litigation, Mr. Bradford told National Underwriter.

"The so-called toxic soup was a combination of chemicals from diverse household, retail and industrial sources, and chemicals such as lead that were already in the soil and were discharged by floodwaters," he said.

The most significant lawsuit so far is a class action filed by the residents of St. Bernard's Parish against the Murphy Oil Company in federal district court in New Orleans, according to the Advisen report. The New Orleans-based oil company is charged with failing to take necessary precautions to secure a tank that leaked 1.1 million gallons of heavy crude oil into a St. Bernard's neighborhood.

U.S. District Court Judge Eldon Fallon for the Eastern District of Louisiana certified the class in January. The trial is set to start in October, according to Mindy West, a representative for Murphy Oil.

According to the El Dorado, Ark.-based company's 10-K filing with the U.S. Securities and Exchange Commission, "the company believes that insurance coverage exists" for the release of crude oil from its storage tank. Therefore, "it does not expect to incur significant costs associated with the class action lawsuits," the filing states.

Describing liability insurance in another part of the SEC filing, Murphy said that as of Dec. 31, 2005, it maintained total excess liability insurance with limits of $750 million per occurrence covering certain general liability and certain "sudden and accidental" environmental risks, with an additional limit of $250 million per occurrence.

According to Advisen, another suit filed in federal court in Mississippi charges big oil companies including Shell, ChevronTexaco and Exxon Mobil with causing global warming through their refining activities, which in turn caused Hurricane Katrina.

Concluding his report, Mr. Bradford wrote: "The potential impact on the insurance industry is still a matter of speculation, since most affected parties have not disclosed how much, if any, and what types of environmental insurance coverages are in place."

He added, however, that under a worst-case scenario, the industry is potentially exposed to billions of dollars of additional Katrina losses that haven't yet been tallied.

The industry dodged a bullet--at least in terms of environmental losses, according to Robert P. Hartwig, executive vice president and chief economist for the New York-based Insurance Information Institute, who said "the Murphy case is something that can be contained. There are limits in place."

Meanwhile, energy coverage premiums continue to skyrocket. "But that has not come about as a result of environmental claims, such as oil spills, but rather from pure property claims--such as damage done to oil rigs out in the Gulf," Mr. Hartwig said.

Special Reports /

No Major Lawsuits Filed Over Katrina's' Toxic Soup'--Yet!

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