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Panelist: 'Interesting, Creative' Insurance Battles Over Gulf Oil Spill Loom

ATLANTA - The Gulf of Mexico oil spill could result in some "interesting and creative lawyering" in the insurance arena, an attorney on a four-member panel said June 25 on the last day of HB Litigation Conferences' Oil in the Gulf: Litigation & Insurance Coverage Conference here.

Policyholder counsel Selena J. Linde of Dickstein Shapiro LLP and Kali N. Bracey of Jenner & Block LLP, both in Washington, D.C., and insurer counsel Philip C.  Silverberg of Mound Cotton Wollan & Greengrass in New York and Thomas Brown of Gibbons P.C. in Philadelphia said the nation's worst oil spill and environmental disaster could lead to insurance battles that will boil down to specific policy language.

The economic impact of the spill is estimated in the billions of dollars, and hard-hit sectors include municipalities and the fishing, tourism, shipping and oil industries.

Linde said several types of insurance might respond to pay for losses: first-party policies, including time element coverages; environmental / pollution policies; trade disruption insurance policies; event cancellation policies; and directors & officers policies.

Linde said typical first-party property policies cover direct physical loss of or damage to covered property caused by or resulting from a covered cause of loss.  She said some first-party polices have additional coverages for pollutant cleanup and removal and debris removal.

"Courts have held that removal of oil falls under 'debris removal,'" she said

Many first-party property policies provide some or all of the following time element coverages: business interruption (BI), contingent business interruption, order of civil authority, ingress / egress and extra expense, Linde said. BI coverage provides coverage for lost income due to suspension of business operations.

"There's going to be a big fight, depending on what state you're in, over whether there was complete cessation of the business," Linde said. "Courts have come down both ways."

Insurer defenses to coverage arising out of the Gulf spill include exclusions or limitations on coverage for pollution, land and water, Linde said.

Brown said "the hurdles to recovery" for policyholders are "pretty high."

"I don't currently see first-party insurance coverage as the first place people turn for relief," he said.  "In a first-party property case, the first thing we're going to look at is whether it was a direct physical loss or damage to covered property that was caused by a covered peril. . . ," Brown said., "Typically speaking, land and water are not covered property.

"A hotel on a beach fouled by oil is not . . . physically damaged."

Brown said that for an exclusion to apply, it has to be known what caused the loss.  In this case, the chain of events that caused the explosion on the Deepwater Horizon offshore oil rig "is very much up in the air," Brown said.

"True, there are some hurdles policyholders will have to overcome, and we have in some states," Linde said.

As for environmental liability / pollution insurance, Linde said she doesn't expect any coverage fights "if a policyholder is lucky enough to have purchased this type of policy." She also said she doesn't expect any fights over trade disruption insurance, but said there could be a battle over whether event cancellation insurance applies to a drop in attendance.

As for D&O policies, Linde said she expects shareholder suits for failure to mitigate loss.

Although BP is setting up a $20 billion fund to pay claims, Linde said that the fund will mainly deal with emergency claims filed by fisherman and small businesses, not claims by large companies or corporations.

"The quickest way to get recovery may be through your insurance policies," Linde said of large companies. "You should give notice [to insurers] now.  Get money for your clients quickly.  Let [the insurers] deal with the subrogation claims."

Responding to a question from the audience, Linde and the panelists agreed that insureds who recover under their insurance policy can still file a claim to recover their deductible from the BP fund.

The panelists said there are some wild cards in the Gulf situation, including the possibility of large storms or hurricanes driving pollutants further inshore and the possibility that the oil spill could affect navigation on the Mississippi River.

"You could have potentially businesses all over the country claiming loss because of this oil in the Gulf. . .," Silverberg said of the Mississippi River scenario.

"There is going to be some interesting and creative lawyering" as a result of the spill, he said.