01 August, 2015
Background
A tanker ran into a heavy storm, broke in two and sank. Approximately 20,000 tons of heavy fuel oil was spilt into the sea, killing marine life and polluting hundreds of kilometres of shoreline.
Over a two-year period, close to 250,000 tons of oily waste was removed by municipalities in the region. They sought reimbursement for the costs associated with the environmental and property damage as well as for losses experienced by the local tourism industry.
Ultimately, the Supreme Court in the country where the incident had taken place upheld that the company chartering the tanker would be required to pay over €200M to the plaintiffs plus legal costs, in addition to what had already been paid in compensation.
Subsequently, the company submitted a claim to their insurance carrier for the amount of the judgment.
Key Issues
- Were the clean-up costs submitted by the insured accurate and not typical expenses incurred during the normal course of business?
- Were the costs adequately supported and directly related to the incident?
MDD’s Involvement
MDD was appointed by the reinsurers of the policy to quantify the claim submitted by the Insured. We were asked to determine if the costs were calculated accurately and were incremental in nature, rather than typical expenses incurred during the normal course of business.
MDD was also asked to validate the reasonableness of the costs and to confirm that they were in fact a direct consequence of the spill.
Additionally, MDD converted the associated costs from various currencies to the U.S. dollar equivalents that were specified by the policy at the appropriate conversion rates.
Results
Our evaluation provided the reinsurer’s legal counsel with details that indicated the claim was potentially overstated due to the inclusion of typical business expenses; costs not incurred as a direct consequence of the spillage; and foreign exchange rate variances.
These details were what the legal counsel needed to negotiate with the insured and the insurer under the policy.
The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.
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01 August, 2016
