The Deepwater Rig Disaster

The scale was enormous but environmental damage could equally destroy smaller business

A year ago, it would have been inconceivable that BP, the largest British listed company could face financial meltdown in the next 12 months.  Yet, for a period in the early summer, there were doubts whether the business could survive the disastrous oil leakage in the Gulf of Mexico.  The costs of the disaster covering the rig itself, clean up costs and potential loss of profits and compensation claims, threatened to overwhelm the company.  Strict liability for environmental damage meant that, initially, BP has to bear all the costs before it can begin to try to recover some from other parties.

There are still threats of criminal prosecutions and huge fines.  There was enormous damage to the reputation of the business that, even now, could have far reaching consequences for the future of the business.  The total economic loss for BP could still be $50bn and whilst it will now survive, the business will never be the same.  BP may have limited insurance cover but the vast amount of the loss has had to be bourne by them.

The scale of the event is mind blowing but is a lesson for all businesses, especially those who handle or store substances that can cause pollution or occupy premises where a previous usage may still cause problems.  A business that causes environmental damage is strictly liable in the UK without any defence.  The maxim is “the polluter pays”.

Whilst a loss on the scale of BP is inconceivable, business can still face huge costs if they cause pollution.  Insurance cover under normal policies may be limited.  Any claims arising out of a gradual pollution is unlikely to be covered and whilst Liability policies may cover sudden and unforeseen pollution, cover could be limited for a clean up and any potential financial claims.  Policies may be in place to cover any prosecution costs but not any fines imposed.

There are specialist covers available for environmental impairment risks and these should be considered for any business where a potential hazard exists.  BP may be an extreme example but a small company could be equally threatened as a result of a leaking tank, an unfortunate spillage or a long forgotten disposal of materials which were considered harmless then but now regarded as toxic.

If you have any concerns, do not hesitate to contact us.