BP Caps Insurance Cover at Just $700 Million (£465M)


BP’s $6 billion (£3.98 billion) inhouse insurance fund will pay out only $700 million for the Gulf of Mexico oil spill, documents reveal, leaving the firm exposed to billions in potential liabilities.

The firm largely insures itself against any damages using its own private vehicle, Jupiter Insurance, which is based in Guernsey.

A source familiar with the situation said: “Jupiter’s retention is limited to $700 million for any one event, which means the maximum it will payout is $700 million. The rest will be down to BP.”

BP is facing liabilities of up to $70 billion according to estimates by Goldman Sachs. It has already put $20 billion into a special US clean up fund after intense political pressure.

BP’s value has plummeted since the Deepwater Horizon rig exploded and sank in the April 20 accident. At one point its share price halved.

The beleaguered oil giant is pushing to fix its runaway Gulf oil well by July 27 in a bid to show investors it has capped its ballooning financial liabilities. Its eagerly-awaited second-quarter results are due out that day and are set to reveal the full scale of the impact from the spill so far.

The oil firm is drilling two relief wells which are said to be nearing the leak. However, its plans could be blown off course by the many hurricanes forecast for the region this season.

This week BP is lowering a new, bigger cap over the well which could capture all the escaping oil.

If and when the stricken well is capped, BP can concentrate on defending a potential takeover. Last week, chief executive Tony Hayward was in the Middle East to drum up support. Abu Dhabi and Libya are believed to be interested in taking a defensive stake.

BP said in a March regulatory filing that it was more economic for it to bear losses as they arose rather than to buy external insurance policies. A BP spokesman said: “In the mid-Nineties BP chose to self-insure. This does not mean we are not insured, it means that we do not pay premiums to outside insurance firms.”

However, the oil giant did take out limited protection with members of the Lloyds insurance market. It is thought that BP has taken out cover worth an estimated total of $1 billion to $1.3 billion at Lloyds.

Last month, insurance ratings agency AM Best downgraded its rating for Jupiter Insurance. It said: “Potential large losses cannot be disregarded and Jupiter’s risk retention per occurrence is significant at $700 million.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
Cooper Law Firm

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