Deepwater Horizon to Deep-six D&O Insurance?

The mess from the Deepwater Horizon disaster continues to spread, and the latest victim is D&O insurance for exploration & production (E&P) oil-services companies. According to a release from Dallas-based EWI Risk Services, a reinsurance intermediary and risk consultant, the catastrophe  will have a significant impact on the availability of D&O coverages (corporate reimbursement insurance and Side-A insurance for non-indemnifiable loss assigned to individual directors and officers) for publicly traded E&P companies, their joint-venture partners. EWI also perceives a potential impact to publicly traded mutual funds, closed-end funds and related fund management companies subject to regulation under the Investment Advisers Act of 1940, due to their investment allocations.

The long-term potential insurance market impact of D&O actions is in the range of $250 million to $500 million, EWI says, which is spread across a variety of carriers and reinsurers in the United States, Bermuda and the U.K. The firm bases this estimate upon customary D&O program limits in the aggregate that may have been insuring the three publicly traded companies that have been subject to either federal and/or state securities litigation so far as a result of the Deepwater Horizon disaster: BP PLC, Transocean Ltd., and Halliburton Co. To date, EWI is not aware of any public disclosure of available D&O limits purchased and/or exposed by the three entities.

The total impact on capacity and quality of coverage available for D&O insurance in the E&P sectors will be largely determined by the set reserves and ultimate insurable losses paid by the insurance carriers and reinsurers at the time of settlement or judgment, EWI says. However, it likely will be several years before insurers and reinsurers will know the full size and scope of the tail exposures incurred resulting from settlement or judgment funding requirements.