Insurers Denying Oil Business Insurance Claims

National Underwriter News
December 13, 2005
Posted December 23, 2005

New York -- Insurers are citing oil companies' windfall profits as a reason to deny their Hurricane Katrina business interruption claims, a policyholder's attorney said today.

The assertion was made by John N. Ellison, an attorney with the law firm Anderson Kill & Olick, at a policyholder advisor conference in New York, sponsored by the law firm.

"I've heard on two claims, 'We are not going to pay you anything because you are making so much money,'" Mr. Ellison said.

He did not identify his oil industry client who was refused payment on that basis. Mr. Ellison noted 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 that insurers are telling their energy clients that because the price of oil had spiked, "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 may 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.

Copyright © 2005 by National Underwriter News

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