GLOBAL INSURANCE GROUP COZEN WHITE PAPER O’CONNOR The Deepwater Horizon Catastrophe: A Factual Overview and Preliminary First-Party Analysis Richard M. Mackowsky Christopher B. Kende Richard C. Bennett Joseph A. Ziemianski Philadelphia New York Philadelphia Houston Cozen O’Connor Cozen O’Connor Cozen O’Connor Cozen O’Connor P: 215.665.2064 P: 212.908.1242 P: 215.665.2114 P: 832.214.3920 F: 215.665.2013 F: 212.509.9492 F: 212.665.2013 F: 832.214.3905 [email protected] [email protected] [email protected] [email protected] The confidence to proceed. © 2010 Cozen O’Connor. All Rights Reserved. 550 Attorneys • 24 Offices • www.cozen.com TABLE OF CONTENTS INTRODUCTION............................................................................................................................................. 1 FACTUAL OVERVIEW ..................................................................................................................................... 1 Deepwater Drilling.................................................................................................................................. 1 The Process of Drilling a Well.................................................................................................................. 2 The Parties ............................................................................................................................................. 5 The Deepwater Horizon.......................................................................................................................... 6 The Loss Location.................................................................................................................................... 8 The Incident ........................................................................................................................................... 8 The Leaks.............................................................................................................................................. 11 The Oil Slick.......................................................................................................................................... 12 Interim Fixes and Permanent Solutions................................................................................................. 15 The Cause of Loss ................................................................................................................................. 16 Federal Oversight ................................................................................................................................. 18 The Impact on the Area ........................................................................................................................ 19 The Claims Against BP........................................................................................................................... 20 The Statutory Scheme........................................................................................................................... 21 The Impact on the Insurance Industry................................................................................................... 22 Litigation .............................................................................................................................................. 22 STATUTORY AND REGULATORY FRAMEWORK ........................................................................................... 23 The Oil Pollution Act of 1990................................................................................................................. 23 The Outer Continental Shelf Lands Act.................................................................................................. 27 The Death on the High Seas Act ............................................................................................................ 28 General Maritime Law .......................................................................................................................... 28 The Limitation of Liability Act ............................................................................................................... 29 Regulatory Framework ......................................................................................................................... 30 OVERVIEW OF COVERAGE ISSUES: PROPERTY DAMAGE............................................................................ 31 Pollution and Contamination Exclusions ............................................................................................... 32 Alabama.....................................................................................................................................................33 Florida ........................................................................................................................................................34 Louisiana....................................................................................................................................................35 Mississippi..................................................................................................................................................36 Texas ..........................................................................................................................................................37 Conclusion..................................................................................................................................................39 Concurrent Causation ........................................................................................................................... 39 Alabama.....................................................................................................................................................39 Florida ........................................................................................................................................................40 Louisiana....................................................................................................................................................41 Mississippi..................................................................................................................................................42 Texas ..........................................................................................................................................................42 Conclusion..................................................................................................................................................42 Anti‐Concurrent Cause Provisions......................................................................................................... 43 Alabama.....................................................................................................................................................43 Florida ........................................................................................................................................................43 Louisiana....................................................................................................................................................44 Mississippi..................................................................................................................................................44 Texas ..........................................................................................................................................................45 Conclusion..................................................................................................................................................45 OVERVIEW OF COVERAGE ISSUES: BUSINESS INTERRUPTION ................................................................... 45 Basic Business Interruption Coverage ................................................................................................... 46 Direct Physical Loss to Covered Property...................................................................................................47 Causation Requirements............................................................................................................................48 Period of Restoration .................................................................................................................................48 Total or Partial Shutdown..........................................................................................................................50 Extended Period of Business Interruption..................................................................................................51 Contingent Business Interruption Coverage .......................................................................................... 51 Order Of Civil Authority and Ingress/Egress Coverage........................................................................... 55 Prohibition of Access..................................................................................................................................56 Order or Action of Authority Requirement.................................................................................................58 The “Perils Insured Against” Requirement.................................................................................................58 The Causation Requirement.......................................................................................................................59