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Identified Insurance Industry Claim Risks from Offshore Gas and Oil spills

Insurance companies are well known for evaluating risks so as to minimise any claims made against them, especially if it will impact negatively on their bottom line profits.

In the report just released by Bio Deloitte about the civil liability, financial security and compensation claims for offshore oil and gas activities in the European region, their investigation identified the type of claims that the insurance industry has made provision for, and which could result from a spill of oil or chemicals from offshore oil and gas operations or from the inappropriate use of dispersants.

1.    Bodily injury
2.    Property damage
3.    Governmental claims
4.    Losses by commercial fisheries and aquaculture / mariculture
5.    Losses by businesses in the tourism industry; and
6.    Loss by other coast businesses

Now, we have to take note that if insurance companies and insurance underwriters have taken notice of these potential risks of claims resulting from offshore oil and gas drilling and exploration …one thing that it spells out for me, is that they are expecting claims to be made.

I believe that we need to learn from them, and take note of the risks that we as residents and businessmen in the Algarve will be confronted with and use this knowledge to either stop altogether the offshore gas and oil exploration scheduled to be launched in 2015, or at the very least, give us the ammunition to really demand from the Portuguese government the right monitoring of offshore gas and oil operations.

I have no reason not to take the findings of Deloitte’s report at face value, rather than believing all the assurances of the oil and gas industry lobbies as well as our government, that claims that the risks are nominal … in fact they are trying to brainwash the population that the oil and gas industry is safe. If it is safe, why would insurance companies do such a compreensive risk assessment?

Bottom line: To ignore it, is the same as if we put our heads in the sand, or even more like following an order to go and jump of a cliff.

Would you do that? You would not. So why do so when it relates to speaking up and questioning the powers that be about all these risks?


More Detailed Information About the Identified Risks:

1.    Bodily injury claim risk

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Bodily injury claims and even death claims may arise from activities during a spill at an offshore facility. It may also happen as a result of injuries suffered by a person from the effects of a spill when oil or chemicals reach land, as well as from dispersants whilst cleaning up a spill.


2.    Property damage

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A spill may cause damage to property of persons involved in the commercial fisheries and aquaculture / mariculture economic sectors.

Other examples of the risks to property include:

  1. Damage to boats, and to equipment used to catch fish or to equipment used to cultivate mariculture - especially floating equipment, fixed traps, submerged nets, pots, lines and bottom trawls. (Typically damage would be caused by sub-surface or surface oil or by lifting items through the oil or chemical spill)
  2. Fish farmers may suffer loss of fish "products". (Typically it would be owners or anyone with a legal interest in oyster or other shellfish beds  - who for example may be prevented from harvesting the shelfish thus affecting their "rights" to harvest.)
  3. Yachts and other boats that are not involved in fishing may also suffer damage from an oil spill if, for example, the oil enters harbours, marinas or other locations where the boats are moored, or even if the spills affects their boats at sea.
  4. Onshore industries such as harbours anddesalination facilities will also be affected if oil or other chemicals from a spill enters their location.
  5. Farmers with land located close to the shore or an estuary can see their land, and their crops destroyed by an oil and other chemical spills.
  6. Offshore industries like windfarms will in all probability also suffer damages to their property.


3.    Governmental Economic Claims

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 Governmental authorithies may incur costs and lose income from a marine spill. Meaning that tax payers will carry the costs and losses.

Direct costs include the cost of measures carried out to respond to a spill, such as clean-up costs, measures to abate oil, or measures to prevent oil or other chemicals affecting the shoreline or properties near the shore.

Indirect costs include the loss of taxes and other revenues from coastal activities, such as from fisheries, aquaculture/mariculture, and the TOURISM industry due to loss of employment and lost profits resulting from a spill.


4.    Loss by Commercial Fisheries and Aquaculture / Mariculture

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Commercial fisheries and individuals involved in aquaculture / mariculture industries may suffer economic losses if they cannot carry out their operations due to bans on fishing and bans on the sale of oysters, scallops, mussels and other shellfish. They in all likelihood will also suffer a reduction or loss of markets due to the fact that oil and other chemicals would have contaminated their stocks.

In addition there will be a loss of markets, because they will be prevented from carrying out their activities, as a result of measures being carried out to remediate a spill in their locality.


5.    Loss by Businesses in the Tourism Industry

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 Any business involved in the tourism industry sector will suffer economic loss due to lost profits from the lack of customers due to, among other things, oil and other chemicals having washed up on beaches, as well as from oil and chemical contamination of the ocean.

Affected tourism businesses include, but are not limited to:

  1. Hotels
  2. Restaurants
  3. Coffee shops
  4. Ferries
  5. Cruise ships
  6. Charter fishing boats
  7. Boat tours
  8. Cafes
  9. Souvenir shops
  10. etc

Economic loss is not limited to a loss of profits; in the context of harm from an offshore incident, it also includes losses suffered by businesses that fail due to the inability to operate or trade, or businesses that are starting-up but cannot withstand the resultant economic downturn of a spill, due for example to a lack of customers (tourists) for their goods and services because of a depressed local economy.


6.    Loss by Other Coastal Businesses

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There is no doubt in the eyes of insurance companies that the impact of an oil spill will indeed affect a wide range of coastal industries as well, and many will suffer pure economic losses. And they will make provision to cover the risk of claims as broadly as possible. Meaning that they would have done an accurate assessement of the risks.

Shouldn't you do the same?

More examples of risks identified by the insurance industry:

  1. Power stations and desalination facilties that use large quantaties of sea water in their operations. Lack of access to sea water may result in their mal-functioning if oily or chemical water is drawn into the facilities.
  2. Shipyards, ports and harbours may also suffer loss of profits.
  3. A ban on offshore oil and gas operations following a spill will also result in a loss of profits for offshore operators and related businesses.


In Conclusion

The above information was extracted from the 478 page report "Study on Civil Liability for Offshore Oil and Gas Activities" attached below, and clearly indicates the wide variety of insurance claims that followed for example the BP Deepwater Horizon oil disaster. There is no doubt that spills have a multiplier effect on a wide range of coastal industries and businesses, and that it destroy's livelihoods and community sustainability in the short to medium term.

On 14 August 2014 the European Commission (Commission) published a study – the Civil Liability, Financial Security and Compensation Claims for Offshore Oil and Gas Activities in the European Economic Area.

The study reviews legal regime of 20 Member States and European Economic Area States (the Target States), which are carrying out or planning to carry out offshore oil and gas operations, particularly focusing on the effectiveness of liability regime, handling of compensation claims and financial security instruments for compensation of damage.

It reports that while all Target States have effective liability regimes for compensation of employees, the third party claims for traditional damage for harm from release of oil, gas or other dangerous substances are mostly regulated by the general provisions on torts; in this regard some laws exclude pure economic loss in the absence of bodily injury or property damage (which is highly relevant for these types of accidents) while the Tort Law in some Target States recognises only direct claims but not remote claims (which could be understand to mean e.g. damage on tourism); most Target States require proof of negligence for all claims for traditional damage while the strict liability exists for so-called dangerous activities that are not further specified and are subject to interpretation.

Referring to the required financial security instruments concerning compensation for claims, significant number of the Target States have only one preferred mechanism for such claims – insurance, while on the other hand, applicants for the exploration and exploitation license may chose from the range of financial security instruments for meeting of license or contractual obligations, such as bank guarantees, performance bonds, insurance and parent company quarantines.

The conclusion of the study is that in case of a major accident in offshore oil and gas operations in the EU waters there is currently no liability in many Target States for most of third party claims, no regime in majority of Target States to handle compensation payment and no assurance for adequate financial assets to meet such claims.

The question that all of us in the Algarve have to ask ourselves and our leaders is: - "Is if its really justifiable to place the Algarve economy at risk, when there are safer alternatives available with much lesser risks to people, the economy and the environment?"

In our opinion, NO, its not justifiable.

You have to access if you and your business could be placed at risk when a spill occurs, keeping in mind that it is not IF but WHEN a spill will occur! and what the impact will be on you, your family and off course on the survival of your business or investment.


To read the full 478 page report download it here: See attachment section below.



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