NU Online News Service, May 5, 4:07 p.m. EDT

Companies facing claims from the Gulf of Mexico oil rig disaster are insured for losses totaling about $1.4 billion, the Insurance Information Institute reported.

The coverage amount for the platform explosion and sinking and resulting spillage from of the Deepwater Horizon well is based on initial reports from the companies involved in the incident as well as early insurance and reinsurance industry estimates, I.I.I. said.

Meanwhile, complaints that out-of-state attorneys are converging on Gulf Coast states improperly soliciting persons to become plaintiffs in cases related to the oil rig sinking are being investigated by the Mississippi Attorney General's Office, a spokesperson said.

I.I.I. President Robert Hartwig, who holds a doctorate in economics, said insurance losses from the rig's sinking will be significant and "one of the largest losses ever for global offshore energy insurance and reinsurance markets."

Energy platform risks, he said, "are well-syndicated, with the insured loss spread across a broad spectrum of insurers and reinsurers on a global scale."

"It is also important to note that major oil concerns such as British Petroleum (BP) make extensive use of self-insurance," added Mr. Hartwig.

The self-insurance factor, and the possibility some parties could eventually exhaust the limits of their insurance coverage as losses mount, "means a substantial share if not the majority of losses could be financed by the Deepwater Horizon project participants themselves, through their existing in-house resources," he explained.

I.I.I. cited a National Public Radio broad interview earlier this week that heard from BP Chief Executive Tony Hayward that BP "has made it clear that where legitimate claims are made, we will be good for them."

The fire, explosion and deaths of 11 persons aboard the rig before it sank April 22 are believed to have been caused by a buildup of explosive gas as the well was being shut down.

Regarding the giant spill that has developed, I.I.I. said that "blowout preventers are designed to shut down an operational well and prevent oil from leaking into open waterways. The device's apparent failure to do so in this instance set the stage for the release of hundreds of thousands of gallons of oil into the Gulf of Mexico."

"Offshore energy facilities are among the most difficult and complex commercial risks to insure, especially in the Gulf of Mexico, where hurricanes often damage platforms and undersea pipelines. Yet significant spillage of oil is rare," said Mr. Hartwig.

He mentioned that offshore facilities in the Gulf of Mexico sustained several billion dollars in damage during the intense 2004 and 2005 U.S. hurricane seasons without any major oil spills occurring.

The most expensive oil spill to date came from the Exxon Valdez tanker incident in 1989, which released 37,000 tons of crude oil into Alaskan waters.

I.I.I., citing figures from the International Tank Owners Pollution Federation, said cleanup costs alone from Exxon Valdez totaled $2.5 billion, with fines and penalties adding at least another $1 billion.

"While insurers paid hundreds of millions of dollars in connection with the Exxon Valdez disaster, the majority of the losses were paid by Exxon. Likewise, the larger the loss from the Deepwater Horizon incident, the greater the share that will be paid by BP," said Mr. Hartwig.

Initial I.I.I. estimates indicate that property damage and liability policies will generate the largest dollar-amount claims.

The organization listed the main types of insurance coverages that might apply (in alphabetical order) as:

o Business Interruption/Loss of Production: Provides coverage for energy businesses against loss due to temporary interruption in oil/gas supply from an offshore facility.

o Comprehensive General Liability: Provides coverage for claims an energy business is legally obligated to pay as a result of bodily injury or property damage to a third party.

o Environmental/Pollution Liability: Provides coverage for bodily injury, property damage and cleanup costs as a result of a pollution incident from a designated site.

o Operators' Extra Expense (Control of Well): Provides coverage for costs incurred by energy businesses when regaining control of a well after a 'blowout.' Coverage may include re-drilling expenses incurred in the restoration of a well after a blowout as well as the legal expenses emanating from an incident such as the sinking of a rig, or an oil spill.

o Property Damage: Provides coverage for physical damage or loss to a company's offshore property and equipment, including offshore fixed platforms, pipelines, and production and accommodation facilities.

o Workers Compensation/Employers' liability: Provides coverage for claims arising out of employee injuries or deaths incurred while the employee is in the line of duty.

In Mississippi, Jan Schaefer, a spokesperson for Mississippi State Attorney General Jim Hood, said that "we do have investigators working the complaints" by the Mississippi Association for Justice based in Jackson, Miss.

Stephen Mullins, the president of the organization, wrote Mr. Hood seeking an inquiry into aggressive, "unethical and unauthorized" tactics he said are being used by firms with no license to practice in Mississippi.

He asked for a probe of "investigators, a.k.a. runners, that are setting up illegal meetings with potential plaintiffs through improper solicitation even though no members of their firms have a license to practice in Mississippi."

In addition to pursuing Gulf Coast businesses, he said they had approached families of those who perished on the oil rig while they were still in mourning.

Mr. Mullin wrote that lawyer association representatives in Louisiana, Alabama and Texas supported his request for an investigation.

Special Reports /

Companies Have $1.4 Billion In To Cover Oil Rig Claims, Says I.I.I.

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