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Insurers can learn a few lessons from the Exxon Valdez case in effectively dealing with policyholders, according to an attorney for the oil giant.
Some of the acrimony between Exxon Corp. and its insurers could have been avoided if dealings between the two had involved a little more courtesy and common sense, says J. Donald Bowen, an attorney with the Houston firm Helm, Pletcher, Bowen & Saunders L.L.P.
For example, Mr. Bowen advised insurers, never take as long as Exxon's insurers did to deny a claim.
It took Lloyd's of London attorneys about 19 months to send Exxon a letter denying coverage for the 1989 Alaska oil spill that occurred when the Exxon Valdez supertanker ran aground, he said.
"I guess one of my requests to (insurers) would be, if you truly believe that there's no coverage. . .don't wait 19 months to deny coverage."
Speaking at the Houston Marine Insurance Seminar last week, he told insurers: "Your insured deserves an early answer. If you know there's no coverage, if there's nothing anybody's going to say to change your mind about that, don't string this process out."
Mr. Bowen said that "the lead underwriter, a very intelligent and capable man, upon hearing about this disaster said that he knew within minutes. . .that there would be no coverage" under Exxon's global corporate excess policy.
"And the reason he knew that was because he was confident" the loss would be covered by the International Tanker Indemnity Assn. Ltd., a Bermuda protection and indemnity club.
That $400 million in coverage was paid several months after the spill.
Richard Youell, the Janson Green Marine Syndicate underwriter Mr. Bowen referred to, responded in a telephone interview that it was understood by underwriters soon after the accident that pollution coverage was excluded from the global policy and was covered under the ITIA policy.
"That was not a unilateral statement by underwriters" denying coverage, he added. "Underwriters on Day One acknowledged their possible exposure in the loss of the vessel and cargo," even with that coverage.
Exxon also filed claims under the global policy written in European and U.S. markets. The coverage was written to limits of $600 million with large deductibles and covered Exxon affiliates for property/casualty risks.
The letter that arrived 19 months later listed 33 reasons why the coverage would not respond to losses.
That kind of response is "the thing that gives your market a bad name," Mr. Bowen said. "It makes people feel like you will delay paying even a legitimate claim," while holding on to the money that draws interest for the insurer and not the policyholder.
Mr. Bowen said it peeves policyholders to get a denial letter from an attorney instead of the insurer. "You are the insurer. You've taken the premiums. You have either written the policy or you have agreed to the wording of the policy. Take whatever advice you need from coverage counsel, but you send that letter yourself."
Another mistake, said Mr. Bowen, was that insurers named the firm that had written the letter to head the ensuing litigation. That was a "major mistake" by insurers, and not just because they named attorneys who already had committed one blunder.
"You need to have separate counsel, and I know too often that does not happen. Use one firm to review the policy, and if they say there's coverage, great, and if they say there's no coverage, that's great, too. But don't hire them to litigate an opinion that they have given."
It took almost eight years for Exxon to settle all its claims with insurers. A 1996 Texas jury award and settlements later that year totaled $780 million that the oil company collected related to its claims against the global policy (BI, Nov. 4, 1996; June 17, 1996).
Mr. Bowen, who spent his career as a plaintiffs attorney before being selected to head up Exxon's insurance litigation, told insurers that in some cases they have earned a reputation for collecting premiums but not wanting to pay claims.
That was the feeling of jurors who found in favor of Exxon, Mr. Bowen said. They saw the oil company as having the same kinds of problems collecting from insurers as they experienced when filing homeowners or automobile claims.
Exxon won that case "not because we were smarter. It was won because Exxon had the easy side of the facts," Mr. Bowen said.