June 23, 2005 by Canadian Underwriter
Alberta and Calgary-based chemical manufacturing company Nova Chemicals Corp has recently announced it will declare force majeure clauses which excuse the party from liability if an unanticipated event results in its inability for it to perform obligations under contract on all affected ethylene, hydrogen and polyethylene customers.
This action is a result of high wind damage that caused six third-party-owned natural gas processing plants in Alberta to shutdown. As a result of these damages and a subsequent decrease in output (almost a 50 % decrease to its Alberta supply of ethane), the Company is facing incremental costs for insurance over the next five years that will reduce its second-quarter profit by $15 million after taxes.
Increased expenses for insurance pools that Nova participates in, to insure against “catastrophic risks,” have necessitated a US$22 million pretax charge the Pittsburgh-based company must take in its second quarter. Nova must pay these non-cash charges to compensate for higher insurance premiums “precipitated by a recent change in accounting practices” related to “liabilities arising out of substantial insurable losses occurring in the insurance company shareholder groups in 2004 and early 2005,” Nova chief financial officer Larry MacDonald says.