Aon

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Aons 11th Energy Insurance Training Seminar
Onshore Offshore LiabilitiesDavid Sayer
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Why Purchase Liability Insurance?

• Statutory Obligation e.g. motor, employers
  liability
• Contractual obligation
• Protection of the Balance Sheet
• Regardless, the company should act as if
  uninsured and adopt risk control
• and risk management procedures

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Is the risk overstated ?

• Since 1997 in Europe only
• gt 32 Major Accidents in commercial and transport
  activities within the Oil industry
• gt 24 Major Accidents in Oil Refineries
• Types of accidents
• gt Leaks from valves / faulty joints / pumps
  failures
• gt Overspills
• gt Corrosion defects / tightness defect
• gt Bulk storage collapse
• gt Pipeline burst
• gt Fire and Explosion
• All resulting in pollution from crude oil or
  refined products, but also from foaming agents

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Operators Normal Responsibilities

• Own employees - Employers Liability, WCA
• Production Unit, Physical Damage, Removal of
  Wreck (Platforms, FPSO)
• Control of Well
• Pollution from the Wells and owned Property
• Liability to Third Parties

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Contractors Normal Responsibilities

• Own employees - Employers Liability, WCA
• Drilling Vessel Physical Damage, Removal of
  Wreck, Protection Indemnity
• Pollution from the vessel (not the well)
• Liability to Third Parties
• Liabilities arising of Gross Negligence or
  Willful Misconduct

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Operator / Contractor relationship

• Liabilities between Operators and Contractors are
  normallydefined in the contract. For example
• Indemnities for people
• Indemnities for property
• Indemnities for Control of Well
• Indemnities for Removal of Wreck
• Indemnities for Pollution

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Upstream Oil Company

• Upstream
• Exploration / Production
• Pipelines to Refinery

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Deep Water HorizonGulf of Mexico

• The numbers
• Release of oil between April 20 and July 13, 2010
• Between 25,000 and 30,000 bbls released daily
• 19,000 personnel deployed  
• Over 1,000 vessels on site  
• 1.9 million feet of boom deployed  
• Over 19,000 claims filed
• Over 8 Billion spent over 1st 4 months
• BP establishing a 20 Billion Trust to pay
  claims
• Cost estimated at 40 billion
• Dividend suspended
• Share price collapse
• CEO replaced

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Risk Assessment

• Exploration/ Production
• Operating area
• Revenues / throughput
• Number of Employees / wage bill
• Number of Contractors and who
• Number of Wells
• Depth of Wells
• Contingency Plan/Disaster Plan
• Contractual Agreements
• Claims Record
• Methodology and experience ( differentiation )
• PI entry ( special opps extention )
• OIL entry ?

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Downstream Oil Company

• Downstream
• Refining
• Terminal / Storage Operations
• Pipelines / Transportation Distribution
• Products

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Fuel TerminalBayamon, Puerto Rico
An explosion of 11 fuel tanks at a fuel storage
complex which shook the ground of Bayamon, a
municipality near San Juan, with the force of a
2.8 magnitude earthquake caused the evacuation of
about 1,500 residents, school closings and class
actions suits.
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Tank Farm Fire - India
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2005 Buncefield - UKExplosion and fire at a
tank farm outside London
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2005 Kallo - Belgium
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2009 Plaine de la Crau - France
Underground pipeline burst in Natura 2000
protected site
4000m3 5ha- 25M claim
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Star TerminalSuburban Washington DC
A petroleum leak from the Pickett Road Tank Farm
on a nearby site contaminated the 1,500-home
community Cost in excess of US 250m
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Risk Assessment

• Refining and petrochemicals
• Proximity of the public
• Proximity of neighbours premises ( surrounding
  third party )
• Potential for escape of hazard e.g. Vapour Cloud
  Release / Pollution Hazard
• Presence of third parties at the site e.g.
  Contractors / Vessels ( Terminals )
• Measurement of Activity, Turnover or Throughout
• Nature of operations e.g. Refining, Petrochems,
  Terminals
• Products Exposures
• Moral Hazard Risk Management and quality of
  risk in general.
• Surveys
• Capex ( capital expenditure on betterment /
  maintenance )
• Details on any construction activity to be
  insured or otherwise
• Claim History

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Risk Assessment

• Transportation
• Type Road / Rail / Vessel / Pipeline
• Size of Vessels / Pipelines / number of wagons /
  road tankers
• Frequency
• Distance
• Type of Product being transported
• Contractual Arrangements
• Surveys including details on pigging / scada
  protection.
• Claims Record

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Risk Assessment

• Products
• Type
• Turnover / volumes
• Export markets
• Contractual Sales Agreement
• Claims Record

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Types Of Liability Policy

• Public Liability / Commercial General Liability
• Products Liability
• S A Pollution Liability
• Environmental liability ( European directive
  2004/35/ec)
• Employers Liability
• Professional Indemnity
• Directors Officers Liability
• Motor Liability
• Aviation Liability
• Marine Liability
• P I

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What will a Liability policy not normally cover

• Exclusions
• War / Nuclear
• Damage to own Property or Property in CCC unless
  by extension.
• Punitive / Exemplary Damages unless by extension
  ( limited markets )
• Gradual Pollution
• Products Guarantee / Recall
• Damage to Product itself
• Contractual liability other than for liability
  that would attach at tort ( ie in absence of the
  contract ).
• Statutory Motor
• Workmens compensation schemes ( strict liability
  )

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A Liability Insurance programme
Excess
UMBRELLA
Difference in Conditions
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Adequacy of Limits of indemnity
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What can the insurance market offer US 2,500 m
?

• Lloyds ( US 500m )
• Marine syndicates
• Non-Marine syndicates
• Combined
• Companies ( US 750m )
• UK
• Continental Europe
• USA
• Rest of the World
• Bermuda ( US 750m )
• OCIL / OIL (Oil Casualty Insurance Ltd EIM (
  Energy Insurance Mutual)
• XL, ACE, STAR EXCESS
• Others ( US 1bn)
• Berkshire Hathaway.

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Can you Ignore the Risks
Questions ?
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