Proposed Northern Gateway Pipeline may be underinsured for liability: former ICBC exec

Enbridge Inc. may not be carrying enough insurance coverage for its proposed Northern Gateway Pipeline Project, suggests a written submission prepared by economist Robyn Allan, a former CEO of the Insurance Corporation of B.C. (ICBC).

The proposed $5.5-billion project would include two twin buried pipelines extending from Bruderheim, Alberta (near Edmonton) to a proposed new marine terminal in Kitimat, B.C. Both pipelines would be 1,177 km in length, with one carrying as much as 525,000 barrels of oil per day in a westerly direction, and the other carrying condensate east.

Enbridge currently has a property and business interruption insurance program with a limit of $700 million for any one event, and a general liability insurance program with an annual coverage limit of $575 million, according to company documents filed with the National Energy Board’s Joint Review Panel Established for the Northern Gateway Pipeline Project.

Allan’s submission to the Joint Review Panel cites published filings suggesting that Enbridge held $650 million in liability coverage in 2010-11.

“For the current insurance year, 2011-12, Enbridge purchased $575 million in liability coverage — $75 million less than the previous year, and faced a significant increase in the premium paid for this reduced coverage,” notes Allan, citing a speech to shareholders by Steve Neyland, Enbridge’s vice president of finance, in 2011 Q3.

“Although Enbridge has expressed that it would have preferred protection greater than $650 million, it is not clear whether the premiums were too expensive or the coverage was actually not offered by its insurer. Either way, this situation suggests that both consequence and probability — and hence risk — have increased.”

Allan notes that the 2010 explosion of a gas pipeline in San Bruno, California, owned by Pacific Gas & Electric, resulted in remediation costs of $723 million, with further safety and compliance costs totalling $2.2 billion.

Enbridge Equity Partners suffered two significant oil spills in 2010, with a Michigan spill leaking into the Kalamazoo River, Allan’s submission notes. The loss estimate there increased to $773 million by 2011.

“The company is undertaking an increase in their exposure,” Allan’s submission notes. “Unless significant plans are in place to augment the current insurance scheme, by 2016 Enbridge may not have adequate coverage.”

In a filing with the Joint Review Panel, Northern Gateway Pipelines Limited Partnership, of which Enbridge is a majority owner, responded that “regardless of whether or not the insurance covers losses and liabilities of Northern Gateway and/or third parties, Northern Gateway would make good the damages which it has caused.”

Northern Gateway goes on to add that it has yet to determine its insurance limits and, therefore, does not know the extent to which it may choose to self-insure its operations.

“Losses and claims in excess of insurance coverage could be covered by cash from operations, the issuance of debt, commercial paper and/or credit facility draws, expected future access to public and capital markets or the sale of assets,” Northern Gateway states.