Category Archives: Crisis Management

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Gulf Oil Spill, Day 44

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As the Gulf oil spill enters its 44th day, BP officials are now fearing that it may be impossible to stop the flow of oil until relief wells are completed in August. The company is now hoping to stem the flow by using underwater robots that will attempt to cut the leaking riser pipe and install a custom fitted cap that will allow them to siphon the gushing oil the surface. It is a risky procedure that, if unsuccessful, could actually cause the flow of oil to increase, but it seems that this may be the only option left.

Meanwhile, the Obama administration has begun civil and criminal investigations into the circumstances surrounding the spill, intending to prosecute any responsible parties to the “fullest extent of the law.”

One person briefed on the inquiry said it was in an early stage and that no subpoenas had been issued yet to BP, the owner of the well. It was unclear whether any had gone to Transocean, which leased the Deepwater Horizon, the nine-year-old drilling rig that exploded and sank in April, to BP; Cameron, the company that manufactured a “blowout preventer” that failed to function after the explosion; or Halliburton, which performed drilling services like cementing.

Administration officials said they were reviewing violations of the Clean Water Act, which carries criminal and civil penalties and fines; the Oil Pollution Act of 1990, which can be used to hold parties responsible for cleanup costs; the Migratory Bird Treaty Act and the Endangered Species Act, which provide penalties for injury and death of wildlife.

In addition to its inability to stop the oil from gushing into the the Gulf, some of BP’s comments have not helped it to garner public sympathy. When reports recently surfaced that cleanup workers were experiencing nosebleeds, headaches, nausea, vomiting and shortness of breath – symptoms that are evidently similar to exposure to the chemical dispersant that BP is using – BP CEO Tony Hayward dismissed the illness as food poisoning. Food poisoning experts have disagreed with Hayward’s assessment and have pointed to a lack of proper safety equipment.

“These do not sound like the symptoms my clients typically suffer, ” said nationally-known food safety attorney Bill Marler. “It’s not that I wouldn’t mind suing BP.”

Of greater concern perhaps is the long-term environmental and economic impact this disaster will have. Although the outcome is still unknown, it is almost certain to be devastating. For businesses in the Gulf area it will be important to understand their insurance coverage . To that end, be sure to check out Anderson Kill & Olick’s latest online Fine Print column in Risk Management magazine. Originally the subject of an AKO Policyholder Alert, the article discusses the policies that could be in play for your company.

The massive losses are covered by a variety of insurance policies already purchased by those being harmed. First party property and business interruption (BI) insurance certainly will provide coverage for certain losses. Liability insurance, both general liability and pollution liability policies, will provide defense and indemnity for lawsuits. Directors and officers insurance also will provide coverage for derivative lawsuits against directors and officers.

Be sure to check it out and stay tuned to the Risk Management Monitor for more updates.

Oil Leak Could Take 90 Days to Repair

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Oil has been spewing out into the Gulf of Mexico at an alarming rate soon after the oil rig, The Deepwater Horizon, first sank on April 20. Since then, an estimated 5,000 gallons barrels per day have been let loose into the Gulf, polluting ecosystems and putting commercial fisherman out of work. It is a situation that worsens with every day that passes.

Speaking on the Sunday morning television circuit, Interior Secretary Ken Salazar said it could be 90 days before federal officials and BP, which was leasing the well when a fire broke out April 20, manage to stanch the oil–although he also said it could be stopped much sooner.

Much sooner, only if BP is able to quickly fabricate giant steel domes to be placed over the leaks, and only if the robots responsible for placing the domes can successfully do so in extremely murky conditions where visibility is limited. If this process is not completed soon, this will end up being the worst oil spill in American history, even eclipsing the Exxon Valdez incident in 1989. The local paper of New Orleans, The Times-Picayune, has a great animation of oil spill here.

This incident comes at a bad time for the Obama administration. He recently signed a bill allowing an increase in offshore drilling — and as exploratory drilling increases, accidents like these are likely to follow. Obama visited southeast New Orleans yesterday, telling those listening that, “BP is responsible for this leak. BP will be paying the bill. But as president of the United States, I’m going to spare no effort to respond to this crisis for as long as it continues.”

But Obama may have a larger crisis on his hands than he immediately realizes. As New York Times opinion column writer Stephen J. Dubner put it:

Could the Gulf disaster be just the kind of tragic, visible, easy-to-comprehend event that crystallizes the already-growing rush to de-petroleum our economy? As with TMI [Three Mile Island], it won’t do much to change the facts on the ground about how energy is made. But as we’ve seen before, public sentiment can generate an awful lot of energy on its own, for better or worse.

Comparing this oil spill, and the reaction that follows, to what happened on Three Mile Island may be a bit of exaggeration . . . or maybe not. We will wait and see.

Class Action Suit Filed Over Oil Spill

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It started with the explosion of an exploratory drilling rig on April 20th off the coast of Louisiana. That event has spawned what some are calling a “Valdez-like oil spill.” The U.S. Coast Guard has said that oil is escaping from the well at a rate of about 5,000 barrels a day and Louisiana Governor Bobby Jindal has declared a state of emergency and requested aid for commercial fishermen.

Jindal, a Republican, also requested federal funding for 90 days of military duty for as many as 6,000 National Guard troops and demanded extra oil barriers from BP and the U.

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S. Coast Guard to protect wildlife reserves that nurture a $1.8 billion seafood industry, the richest in the U.S. behind Alaska.

And it’s the members of Louisiana’s seafood industry who are taking action against those responsible — class action that is.

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Shrimpers and fishermen filed suit Wednesday against BP and Transocean Ltd. claiming, and rightfully so, that the oil spill is hurting their livelihood. The suit, Cooper v. BP plc, claims that the defendants “knew of the dangers associated with deep water drilling and failed to take appropriate measures to prevent damage.” The suit was filed on behalf of Louisiana fishermen, commercial boaters and shrimpers, but is likely to spread as the oil slick starts does, effecting the offshore industries of other coastal states such as Alabama, Texas, Mississippi and, eventually, Florida.

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The insurance industry will also take a severe hit from this mega-spill. As PartnerRe has stated:

The ultimate insured loss for this event is unclear given the multiple parties involved and the on-going situation regarding control of the oil spill. The Company [PartnerRe] estimates that insured losses from the explosion have the potential to exceed $1 billion. Given current information, the Company expects its second quarter 2010 results will include claims relating to the explosion in the range of $60-$70 million. These losses are expected to be contained primarily within the Global Specialty and PARIS RE sub-segments.

So far, efforts to shut down the well have failed and though a partial burning of the slick was successful, the oil continues to spew at an alarming rate from miles beneath the water’s surface. At the current rate of leakage, the volume of oil released “would exceed Alaska’s 1989 Exxon Valdez accident by the third week of June.” If something is not done quickly, we may be facing the largest oil spill in history. A scary thought.

The Sun Hates You

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You would never know it amid the cloudy, 40-degree weather here in Boston, but the sunny days of summer will be with us before you know it. The thing is that while many of us (particularly my fellow Northeasterners)  look forward to a little more sun in our lives, I’m not so sure the sun has our best interests at heart. I attended a session on solar storms the other day at RIMS 2010 and basically learned that there’s a good chance that the sun will be wreaking havoc on our cushy modern lives sometime in the not-so-distant future.

According to Dr. Sten Odenwald, a NASA astronomer, our sun is gearing up for what is called the 24th cycle–a period of increased sunspot activity, known to result in an uptick in solar flares and coronal mass ejections (massive jets of plasma that shoot out from the sun’s surface) that can effect the earth’s magnetic field. This sort of solar activity can damage GPS and satellite systems and cause power grid problems that evidently we are not prepared to deal with. In past periods of increased solar activity, earthlings have experience everything from TV and radio interference to a general increase in feelings of anxiety and panic. Airline traffic has had to be rerouted away from polar areas because radio communication is imposible. Satellites are degraded, shaving years off their useful lives and requiring millions of dollars of replacement or repair costs. Cosmic rays can fry sensitive computer components causing errors, glitches, of even total system failures. Basically it’s a mess.

But the real problem is that today, we are so much more dependent on technology than we ever were. We have a lot more to lose. John Kappenman of Storm Analysis Consultants pointed out that the power grid is particularly vulnerable. Many of the high-voltage transformers that we depend on to run just about everything are not adequately protected from exposure to cosmic rays and considering how costly and time-consuming these transformers are to replace (it takes a year or more just to build one), we would have a real problem if one goes down and,  say, takes out the power for the entire East Coast. According to estimates, about 130 million people are at risk in the most probable areas of power failure in the United States and we could see $1-2 trillion dollars in economic losses in the first year alone from a particularly bad, and unfortunately not unprecedented, solar storm. It’s a risk that sounds like the plot of a bad science fiction movie (I’m thinking something with Nicholas Cage) but its actually not even a little far-fetched.

The presenters were of the opinion that we need stronger design codes mandated by the government to prevent a sloar catastrophe. It certainly seems like a fine idea to me. Personally I’m thinking of starting my own sun worshipping cult. At the very least, it can’t hurt to get on the sun’s good side, right?

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