London Market Braces for Oil Spill Losses

November 21, 2002

The London market faces the majority of claims related to the sinking of the “Prestige” off Spain’s Galician coast and the related oil spill, which threatens the livelihood of many in the region.

The tanker broke in two on Tuesday and sank more than 100 miles off the Spanish coast (See IJ Website Nov. 20). Experts are hopeful that the depth -more than two miles – will keep the remaining 65,000 tons of heavy fuel oil solidified, and thus prevent further leakage, but this is by no means sure. The 8,000 or so tons that have already escaped into the sea has caused serious pollution along the beaches of Galicia, and fishing, the region’s main industry, has been suspended.

The Spanish government has announced that it is seeking recovery for the costs of the clean up and the economic losses. It has already contacted the London Steamship Owners Mutual Insurance Association Limited, one of 14 mutual indemnity clubs, that manage marine insurance. According to a BBC report the club is responsible for the first $25 million in damages. Claims above that amount will be paid through the International Oil Pollution Comprehension Fund with the “Prestige’s” insurers responsible for losses up to $115 million, and the fund paying the remainder up to $176 million.

Additional demands could be made through legal actions against the tanker’s Greek owners and managers, or the Swiss-based Russian company that chartered the ill-fated tanker.

Lloyd’s commented on the disaster with a brief statement as follows:
“Lloyd’s of London is a major insurer of marine vessels and may therefore have some exposure to the Prestige. This is most likely to be through reinsurance arrangements. However, at this stage, it is too early for Lloyd’s to know what the nature of that exposure might be. Any resulting claim would be set against 2002’s exceptionally low claims ratio and the most favourable trading conditions in recent history.”

Another marine insurer, The Navigator’s Group, issued a statement that the loss of the “Prestige” was not expected to “have any significant impact on Navigators’ fourth quarter results.” Terence N. Deeks, Chairman of Navigators also noted that “The recent spate of losses that have hit the marine market over the past couple of months will only serve to maintain underwriters’ resolve to continue to push for premium increases. Navigators’ should benefit substantially from this hardening market.”

If the hardening rates force the owners and operators of the world’s tanker fleet to adhere to more stringent standards and inspections, especially of older vessels, then perhaps the disaster off the coast of Spain may have produced at least one positive result.

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