COVID-19

COVID-19 and Oil & Gas Risk Transfer

London 7th April 2020

We recognise that there are numerous articles circulating regarding the impact of the current COVID-19 crisis on the oil & gas industry and associated contract risk management issues. However, we felt that the attached article by Quadrant Chambers may be of particular benefit to our clients and contacts within the oil & gas risk management community.

Quadrant is one of the barristers Chambers recommended by Trident’s corporate solicitors and a Chambers which we have dealt with since our formation.

Oil & Gas Insurance Package Policies

In addition to the contractual risk management issues raised in the attached article, we recognise that our clients and contacts may have specific insurance coverage issues arising out of the current situation.

So far as the current traditional Oil & Gas Package Policy wordings are concerned, a central issue regarding any potential coverage will, of course, be the manifestation of physical damage. Last year, we deployed the principles behind the decision in Losinjska Plovidba v Transco Overseas Ltd (The Orjula) ([1995] 2 Lloyd’s Rep. 395) to successfully resolve an Oil & Gas policy coverage dispute. In accordance with the principles behind The Orjula decision and related cases, damage must bring about a physical change to the property, impairing its value and usefulness. Significantly, the change does not have to be permanent.

Clearly distinctions could be made between chemicals spilt on the deck of a vessel (as in the case of The Orjula) and a virus attaching itself to a refinery or a platform. That said, the decision in another English Law case, Quorum v Schramm ([2002] 1 Lloyd’s Rep. 249), should not be overlooked. The case involved sub-molecular damage to a pastel painting being held to be damage even though the change was not visible. Obviously, the Law & Practice provisions of individual policies would also need to be taken into account.

In any event, issues such as how long the virus remains attached to property, the cost of remedial action and the duration of such action may all militate against claims progressing under the Physical Damage and Business Interruption sections of Oil & Gas Package Policies. Furthermore, any Business Interruption claim would unavoidably involve the issue of the “other circumstances” principle receiving extremely careful consideration in view of the current downward trend experienced by oil prices.

Future Products

Looking to the future, it is perhaps not difficult to envisage oil & gas insurance broking houses seeking to develop specific “alternative risk transfer” products. Such products blending the practices of the insurance and capital markets in order to protect oil & gas clients against future catastrophic risks adversely impacting commodity prices.

However, as previous case law already shows, it will be critical that the contractual terminology of any such blended products carefully addresses the fact that fundamentally different legal regimes apply to the insurance markets compared with the capital markets. The “alternative risk transfer” disputes involving HIH Casualty & General Insurance Co Ltd. and both Chase Manhattan Bank and New Hampshire Insurance Co. and a major insurance broking house serve as a reminder that product innovation must be married with contract certainty.

View Article

COVID-19: When is a pandemic force majeure? And what should new force majeure provisions address? By Simon Rainey QC and Andrew Leung