Are Insurers Denying Oil B.I. Claims?

Are Insurers Denying Oil B.I. Claims?

Policyholder attorney says carriers cite soaring profits as rationale for rejection

New York

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

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

While declining to identify his oil industry clients who were refused payment on that basis, Mr. Ellison asserted that a high-profit argument is “an across-the-board issue, and it's outrageous.”

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

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

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

The major allegation, he said, has been that even though the oil industry knew it was a defective product, it conspired to lobby Congress for its use in gasoline. The case, generally difficult to make, might be successful where plaintiffs have brought action in Madison County, Ill., a venue known to be friendly to plaintiff attorneys, he noted.

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

Caption for oil rig shot:

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