Fifteen years ago this month, the Exxon Valdez grounded in Prince William Sound in Alaska
On 24 March 1989, the vessel, loaded with 53 million gallons of North Slope crude oil destined for California, beached at Bligh Reef, spewing out almost 11 million gallons into the Sound. As the Alaska Oil Spill Commission's final report stated: "No human lives were lost as a direct result of the disaster, though four deaths were associated with the cleanup effort. Indirectly, however, the human and natural losses were immense - to fisheries, subsistence livelihoods, tourism, wildlife. The most important loss for many who will never visit Prince William Sound was the aesthetic sense that something sacred in the relatively unspoiled land and waters of Alaska had been defiled."
Detailed investigationAn exhaustive enquiry detailed every action leading up to the ship's grounding, and the report at that point continued: "The Exxon Valdez nightmare had begun. Hazelwood (the ship's captain) - perhaps drunk, certainly facing a position of great difficulty and confusion - would struggle vainly to power the ship off its perch on Bligh Reef. The response capabilities of Alyeska Pipeline Service Company to deal with the spreading sea of oil would be tested and found to be both unexpectedly slow and woefully inadequate. The worldwide capabilities of Exxon Corp would mobilise huge quantities of equipment and personnel to respond to the spill - but not in the crucial first few hours and days when containment and cleanup efforts are at a premium. The US Coast Guard would demonstrate its prowess at ship salvage, protecting crews and lightering operations, but prove utterly incapable of oil spill containment and response. State and federal agencies would show differing levels of preparedness and command capability. And the waters of Prince William Sound - and eventually more than 1,000 miles of beach in Southcentral Alaska - would be fouled by 10.8 million gallons of crude oil."
Clean-up delay ramificationsArguments surrounding the delays to the start of the cleanup still linger today. Irrespective, the ship's owner, Exxon Shipping Co, found itself spending more than $850m in cleanup costs, and when it became insolvent, the cargo owner, Exxon Corp, found itself facing a bill of more than $1bn.In addition, the punitive damages against Exxon were in the realms of the GDP of a small country. Inevitably, disputes over insurance coverage ensued. Of course, those were the heady days of the London market excess of loss spiral (LMX - the three letters most likely to strike terror into the heart of a Lloyd's member in the early 1990s), and the centre of the soft market. And, perhaps unsurprisingly, those disputes continue to roll on. Ironically, this month sees the start of yet another court case surrounding the Exxon Valdez disaster. Exxon-related London market claims settlements have stalled as the reinsurers (and, more likely, their run-off managers) await the decision of the court as to whether the primary insurers' settlements fall within the terms and conditions of the primary policy. According to some in the legal profession, this should be the final Exxon case, and the decision will help unravel - and lay to rest - another part of the LMX spiral. Others, however, are less optimistic, suggesting that whatever the decision, it will be disputed.
Age-old disputesThe theme of old year problems and disputes runs through this issue of Global Reinsurance. As the official reinsurance publication of the Association of Run-off Companies (ARC) Congress, Global Reinsurance follows this facet of the business closely. Run-off management - well-developed in London for reasons that the market should not be proud of - is increasingly important as re/insurers shut books of business or, in extreme cases, shut up shop. According to figures issued by consultant KPMG last year, the run-off sector represents 28% of the UK non-life insurance market, with total liabilities estimated at £33.3bn.While this reflects pretty poorly on the UK market of the past, it does mean London currently has a pool of professional run-off management talent, many of whom will be meeting alongside their international colleagues at the ARC Congress. As the experience of managing run-off increases, the speed with which disputes are unravelled and books and businesses close accelerates accordingly. Thus it is to be hoped that the past year issues which mean that claims from 15 or more years ago remain unresolved, are themselves being settled.Sarah Goddard is the editor of Global Reinsurance.