There is no such thing as unlimited liability oil spill insurance coverage

Mar 25, 2022 Features / Columnists, Peeping Tom

---

Kaieteur News – I have listened and read carefully and patiently to the numerous complaints and pleadings about the absence of full liability oil spill coverage for oil operations in Guyana. Those making the complaints want to ensure that in the event of an oil spill there will be full compensation for personal, economic and environmental losses.
The idea of unlimited oil spill insurance coverage is a fiction. No such thing exists.
There also is a difference between full liability coverage and unlimited or full liability insurance. The former is about total liabilities while the latter relates to liabilities covered by insurance. In reality, there is no insurance which can provide unlimited coverage for oil spills.
And this why there are usually civil liabilities agreements which aim to provide compensations beyond that covered by insurance. Guyana has no such clause in its Production Sharing Agreement.
Unfortunately, in much of the discourse about remedies, the two concepts have been conflated and used interchangeably. References to full liability coverage have been used to refer to full coverage insurance liability.
The contentious and highly flawed motion which was filed by a member of the Opposition in the National Assembly, underscores the distinction between full liability compensation and that provided for by insurance. The Motion argues that “the Liza 2 Permit was corrected to ensure unlimited liability for all spills by including a provision requiring EEPGL’s purchase of the maximum available private insurance offered in the market, with all of the remaining liabilities to be covered by EEPGL’s parent companies – Exxon, Hess and CNOOC…”
The Motion therefore, recognises that there is no such thing as unlimited oil spill insurance liability. It speaks to the maximum available private insurance available, with the outstanding liability being shouldered by the oil companies.
The Speaker was perfectly in order to demand that the evidence of such an agreement be produced. Without such evidence, the motion cannot be entertained because the motion will be undermined if it is established that no such clause exists in the Liza 2 permit.
Unlimited oil spill insurance is a fiction. How does one underwrite an unlimited oil spill insurance coverage? If oil companies were required to provide unlimited oil spill insurance coverage, the oil industry would collapse. There would be no insurance coverage because it would be simply unaffordable. And no oil company will want to assume such risks.
Unlimited liability is a different kettle of fish. Under the “polluter pays” principle of international environmental law, oil companies are expected to shoulder economic and environmental compensation associated with oil spills. But in reality they do not, because it is too onerous a burden.
In the United States there is an Oil Spill Liability Trust Fund which helps to offset claims for oil pollution. But this Fund provides limited coverage per oil spill.
It is rumoured that in Guyana the operators have taken out insurance to the extent of US$2B. What is not clear is who will cover liabilities in excess of this sum.
The government says that it expects the oil companies to do so. But there is no agreement to this effect in writing.
In fact, all those who are contending that Exxon had agreed to full coverage liability are yet to indicate why this alleged commitment was not inked on pen and paper. If you don’t have it in writing, it is foolhardy to speak about there being an agreement for full liability coverage.
The real concern locally therefore is not about the full coverage insurance. No such thing can exist in the oil industry. The concern is that the locally incorporated oil companies do not have the assets to back the difference between liabilities covered by insurance and that which is likely in the event of a massive oil spill.
The government says that it believes that the overseas parent companies will be liable for this difference. But again, not having a full liability coverage agreement exposes the country to major risks in the event of a disastrous oil spill.
All that is required to end this debate is for the government, before signing any other permit for the oil companies, to demand that full liability coverage be borne by the oil companies operating in Guyana and by their parent companies in the event that the locally incorporated companies cannot afford to do so.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

---

---