Aon’s 11 th Energy Insurance Training Seminar

1. Aon’s 11th Energy Insurance Training Seminar Onshore & Offshore LiabilitiesDavid Sayer

2. Why Purchase Liability Insurance? • Statutory Obligation e.g. motor, employer’s liability • Contractual obligation • Protection of the Balance Sheet Regardless, the company should act as if uninsured and adopt risk control and risk management procedures 2

3. Is the risk overstated ? • Since 1997 in Europe only : • > 32 Major Accidents in commercial and transport activities within the Oil industry* • > 24 Major Accidents in Oil Refineries* • Types of accidents : • > Leaks from valves / faulty joints / pumps failures • > Overspills • > Corrosion defects / tightness defect • > Bulk storage collapse • > Pipeline burst • > Fire and Explosion All resulting in pollution from crude oil or refined products, but also from foaming agents 3

4. Operators Normal Responsibilities • Own employees - Employers Liability, WCA • Production Unit, Physical Damage, Removal of Wreck (Platforms, FPSO) • Control of Well • Pollution from the Wells and owned Property • Liability to Third Parties 4

5. Contractors Normal Responsibilities • Own employees - Employers Liability, WCA • Drilling Vessel Physical Damage, Removal of Wreck, Protection & Indemnity • Pollution from the vessel (not the well) • Liability to Third Parties • Liabilities arising of Gross Negligence or Willful Misconduct 5

6. Operator / Contractor relationship • Liabilities between Operators and Contractors are normallydefined in the contract. For example: • Indemnities for people • Indemnities for property • Indemnities for Control of Well • Indemnities for Removal of Wreck • Indemnities for Pollution 6

7. Upstream Oil Company Upstream • Exploration / Production • Pipelines to Refinery 7

8. Deep Water Horizon—Gulf of Mexico The numbers: • Release of oil between April 20 and July 13, 2010 • Between 25,000 and 30,000 bbls released daily • 19,000 personnel deployed   • Over 1,000 vessels on site   • 1.9 million feet of boom deployed   • Over 19,000 claims filed • Over $8 Billion spent over 1st 4 months • BP establishing a $20 Billion Trust to pay claims • Cost estimated at $40 billion • Dividend suspended • Share price collapse • CEO replaced 8

9. Risk Assessment Exploration/ Production • Operating area • Revenues / throughput • Number of Employees / wage bill • Number of Contractors and who • Number of Wells • Depth of Wells • Contingency Plan/Disaster Plan • Contractual Agreements • Claims Record • Methodology and experience ( differentiation ) • P&I entry ( special opps extention ) • OIL entry ? 9

10. Downstream Oil Company Downstream • Refining • Terminal / Storage Operations • Pipelines / Transportation & Distribution • Products 10

11. Fuel Terminal—Bayamon, Puerto Rico An explosion of 11 fuel tanks at a fuel storage complex which shook the ground of Bayamon, a municipality near San Juan, with the force of a 2.8 magnitude earthquake caused the evacuation of about 1,500 residents, school closings and class actions suits. 11

12. Tank Farm Fire - India 12

13. 2005 : Buncefield - UKExplosion and fire at a tank farm outside London 13

14. 2005 : Kallo - Belgium 14

15. 2009 : Plaine de la Crau - France Underground pipeline burst in Natura 2000 protected site 4000m3 – 5ha- +$25M claim 15

16. Star Terminal—Suburban Washington DC A petroleum leak from the Pickett Road Tank Farm on a nearby site contaminated the 1,500-home community : Cost in excess of US$ 250m 16

17. Risk Assessment Refining and petrochemicals • Proximity of the public • Proximity of neighbours premises ( surrounding third party ) • Potential for escape of hazard e.g. Vapour Cloud Release / Pollution Hazard • Presence of third parties at the site e.g. Contractors / Vessels ( Terminals ) • Measurement of Activity, Turnover or Throughout • Nature of operations e.g. Refining, Petrochems, Terminals • Products Exposures • Moral Hazard – Risk Management and quality of risk in general. • Surveys • Capex ( capital expenditure on betterment / maintenance ) • Details on any construction activity to be insured or otherwise • Claim History 17

18. Risk Assessment Transportation • Type Road / Rail / Vessel / Pipeline • Size of Vessels / Pipelines / number of wagons / road tankers • Frequency • Distance • Type of Product being transported • Contractual Arrangements • Surveys including details on pigging / scada protection. • Claims Record 18

19. Risk Assessment Products • Type • Turnover / volumes • Export markets • Contractual Sales Agreement • Claims Record 19

20. Types Of Liability Policy • Public Liability / Commercial General Liability • Products Liability • S & A Pollution Liability • Environmental liability ( European directive 2004/35/ec) • Employers Liability • Professional Indemnity • Directors & Officers Liability • Motor Liability • Aviation Liability • Marine Liability • P & I 20

21. What will a Liability policy not normally cover Exclusions • War / Nuclear • Damage to own Property or Property in CCC unless by extension. • Punitive / Exemplary Damages unless by extension ( limited markets ) • Gradual Pollution • Products Guarantee / Recall • Damage to Product itself • Contractual liability other than for liability that would attach at tort ( ie in absence of the contract ). • Statutory Motor • Workmens compensation schemes ( strict liability ) 21

22. Public Liability Down-stream Employers Liability / Workers Compensation Act Auto Marine & Aviation Comprehensive General Liability Upstream Terminal Operators A Liability Insurance programme Excess UMBRELLA Difference in Conditions 22

23. Adequacy of Limits of indemnity 23

24. What can the insurance market offer :US$ 2,500 m ? • Lloyd’s ( US$ 500m ++) • Marine syndicates • Non-Marine syndicates • Combined • Companies ( US$ 750m ++ ) • UK • Continental Europe • USA • Rest of the World • Bermuda ( US$ 750m ) • OCIL / OIL (Oil Casualty Insurance Ltd & EIM ( Energy Insurance Mutual) • XL, ACE, STAR EXCESS • Others ( US$ 1bn) • Berkshire Hathaway. 24

25. Can you Ignore the Risks Questions ? 25 25