Deepwater Horizon could have long-term impact on D&O market of up to $500 million

The Deepwater Horizon disaster could have a long-term impact on directors and officers’ lines in the range of $250 million to $500 million, suggests EWI Risk Services.
In addition, in the immediate future, carve-out exclusions and coverage grants currently afforded in the soft D&O market will likely disappear, the company added.
The impact would be spread across a variety of carriers and reinsurers in the U.S., Bermuda and the United Kingdom, a release says.
EWI’s estimate is based on the D&O program limits in the aggregate that may have been insuring BP PLC, Transocean Ltd. and Halliburton Company.
These three publicly-traded companies have been subject to federal and/or state securities litigation resulting from the Deepwater Horizon disaster.
“The ultimate impact on capacity and the quality of coverage available for going-forward D&O insurance in the exploration and production (E&P) sectors will be largely determined by the set reserves and the ultimate insurable losses paid by the insurance carriers and reinsurers at the time of the settlement or judgment,” EWI said in its release.
Although it will likely be several years before (re)insurers know the full size and scope of the losses, “what is known at the present time is the nature of the allegations levied against the defendants as a result of the investor losses associated with the Deepwater Horizon disaster.”
For example, the initial complaint against BP alleges BP’s directors and officers “elected to cut costs, including safety and manufacturing expenditures in pursuit of profitable results…”
Also, because it is based in the United Kingdom, BP is subject to the British Companies Act of 2006, which requires corporate boards ensure their companies act with due regard for “the impact of the company’s operations on the community and the environment.”
“Taken collectively, and in light of the cross-jurisdictional issues at hand, specific exclusion carve-outs and coverage grants now available in this ‘soft’ D&O market (relative to representations, severability, pollution, bodily injury, others) are likely to be re-examined by carriers and reinsurers in the months ahead,” EWI says. This in turn “could have a material aggregate impact on the quality and price of coverage for renewals in the second half of 2010 and beyond.”