The April 20, 2010, fire and explosion of the Deepwater Horizon Offshore Drilling Unit and the ensuing oil discharge (the "Deepwater Event") has caused significant damage along the U.S. Gulf Coast. As efforts to contain the damage continue, the full impact of the Deepwater Event is still unknown.  Marsh has been closely monitoring the insurance markets regarding this ongoing situation.  We are providing this notice to Marsh clients in order to advise of a recent market development.

Market Response

To date, the markets have given a variety of responses to notices received in connection with the Deepwater Event, ranging from silence to amended retroactive endorsements. This week, in response to a Deepwater Event notice, certain excess liability carriers indicated that they anticipate adding broadly worded, event-specific exclusions to their 2010-2011 policies to prospectively eliminate coverage for the Deepwater Event. Although Marsh is engaged in discussions with these carriers in an attempt to withdraw or narrow these exclusions, this is an emerging market trend that raises concerns for Marsh clients with respect to their 2009-2010 policies and, specifically, questions about whether circumstances or claims should be notified now.

Certain policies with pollution exclusion carve-out coverage contain time element provisions that require written notice directly to the carrier within the time frame dictated by the policy(ies). For example, a strict reading of an 80-day notice provision with respect to the Deepwater Event would require written notice be provided to the carrier before 5:00 pm EDT, July 8, 2010.  However, at this time, the exact date of the commencement of the loss is unknown, and it may be that later investigation will determine a time earlier than the explosion on April 20, the sinking of the vessel on the April 22 or the discovery of the leak on April 24.  The exact time of the explosion on April 20 is also uncertain. We therefore recommend that notice be submitted as soon as possible, using the time of the explosion as the operative date for calculating notice provision deadlines.

This week, several carriers indicated that they will enforce these time limits strictly, without any weight given to the date the insured first became aware that they faced potential exposure.  Therefore, if not already in process, it is important that clients and their legal counsel analyze the potential exposure to damages arising from the Deepwater Event and review all of their current excess and primary policies in order to comply with notice provisions.  

Implications for Marsh Clients

In determining whether to notice the Deepwater Event in order to comply with the time limits of their various policies, clients should be aware of the following possible reactions from the market:

• If you choose to notice the Deepwater Event in order to comply with the time limit: It is likely that your carrier will attempt to limit its exposure prospectively via an endorsement that excludes the Deepwater Event. The endorsements may be extremely broad and may significantly reduce future coverage for clients, which may be important for clients who may have more than one source of exposure for the Deepwater Event or who anticipate potential future exposure related to remediation efforts. Carriers may also reserve their rights on the grounds that a claim has not yet developed, or on the basis that the insured has not provided sufficiently specific information. 

• If you choose not to notice the Deepwater Event at this time: The time deadline may be strictly enforced by the insurance markets, even if all damage has not yet been established and/or you are not aware of potential exposures.  Even if you opt not to notice the Deepwater Event, your carrier may still add Deepwater Event exclusions to its 2010 policy and future forms.  You may also run afoul of standard policy wording at renewal, such as known loss provisions.

Marsh continues to recommend that its clients and their legal counsel review all potential exposures arising from the Deepwater Event and all reporting and notification provisions in all primary and excess policies, including but not limited to casualty, property, directors and officers, and professional liability policies. These provisions should be evaluated in light of potential future claims in determining whether to provide notice of Deepwater Event claims.

Marsh is committed to assisting our clients in times of need to effectively manage risk and comply with carrier and insurance policy requirements.