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The Deepwater Horizon Oil Spill: Potential Insurance Coverage Implications

By Lynn K. Neuner and W. Nicholson Price II

On the morning of April 22, 2010, the Deepwater Horizon oil rig sank into the Gulf of Mexico. By that afternoon, oil from the undersea wellhead, owned by BP plc (“BP”) had appeared and begun to spread on the surface of the Gulf. By the time the flow of oil was stanched with a temporary cap on July 15, more than 200 million gallons of oil had leaked into the Gulf, creating an oil slick over 140 miles long and 70 miles wide, as well as multiple undersea plumes of dissolved oil invisible from the surface. A massive cleanup effort has been underway since shortly after the leak began; BP has spent more than $4 billion in a plan that involves over 30,000 workers. In addition to efforts to contain the oil at the wellhead and to skim oil from the surface, more than 11 million gallons of oil have been burned and hundreds of thousands of gallons of potentially toxic chemical dispersants have been sprayed to break up the oil.

More than 300 lawsuits have already been filed in Louisiana, Florida, Texas, Mississippi, and Alabama against BP and other corporations involved in the spill, including Transocean, Halliburton, and Cameron, with thousands more anticipated. Eventually, more than 100 classes of persons and businesses are expected to assert damages ' double the number after the 1989 Exxon Valdez oil spill, the claims from which are still being litigated today. Claimants will allege a wide variety of damages claims, including claims for environmental cleanup expenses, bodily injury, medical monitoring, and business interruption. Litigation is expected to focus on causation, damages, punitive damages, and allocation issues. While much of the ultimate liability for the spill is likely to fall directly on BP and other companies involved with Deepwater Horizon, the exposure to the insurance industry is estimated at between $1.5 and $3.5 billion. (Moody's; Business Insurance). Given that exposure, coverage disputes are likely to arise, even though the current implications may not yet be fully understood. This article briefly addresses the contours of the coverage lawsuit already filed against BP and other coverage disputes we may see in the future.

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