Liability 20 years innocent behind deepwater drilling … · Explosion at power plant after pipe...

EngineeringExplosion at power plant after pipe cleaning

Property insuranceSafety technology for deepwater drilling

Liability 20 years innocent behind bars

EDITORIAL

Dear Reader,

Experience is a hard teacher – the devastating oil disaster in the Gulf of Mexico is currently the most prominent example of how we need to be better prepared against losses. Munich Re’s response has been to develop a new concept for the insurance of off shore drilling operations which would allow insurance covers in the order of US$ 10bn to 20bn per well to be created on the international insurance market. Currently, there is no separate cover for drilling operations, which are insured under the individual liability policies of the companies concerned. The Deepwater Horizon case has clearly demonstrated that urgent improvements are needed in this area. Munich Re’s new concept therefore provides for each individual drilling operation to be covered by a policy specifi cally developed for that risk.

People have been drilling for oil all over the world for the last 150 years. Munich Re has been involved with the subject of deepwater drilling since 1974. “Black gold” continues to be vital for meeting energy requirements. The industry is therefore obliged to obtain this valuable raw material from sources that are extremely diff i-cult to access. Deepwater wells like those in the Gulf of Mexico are a very good example. But the more complex oil production technology becomes, the greater are the associated risks. You can read our risk assessment of this highly topical subject on page 12.

Safety devices play a big part in our feature topic. The “gas blow” technique of cleaning pipes, using mostly fl ammable gas, is widespread, but the risks involved are often underestimated. In this issue, we describe two serious explosions which could easily have been avoided with simple safety precautions.

A lack of risk awareness is something for which many museums can also be reproached. Worldwide, losses running into billions arise each year from the theft of pictures, sculptures or books.

The “Innocent behind bars” contribution is as thrilling as a whodunnit. Read how DNA testing proved the innocence of an alleged murderer who spent 25 years in jail after being wrongly convicted, and what consequences such a miscarriage of justice can have for the insurers concerned.

We wish you a stimulating and informative read.

Your Schadenspiegel [email protected]

1 MUNICH RE Schadenspiegel 2/2010

CLAIMS MANAGEMENT

ENVIRONMENTAL DAMAGEDisused refi nery triggers oil alertMonza environmental disaster Page 28

LIABILITYCompensation for pain and suff eringAwards set to rise furtherNew trends and what they mean for liability insurersPage 32

PROPERTY DAMAGECoveted treasuresNew guidelines for greater security in museumsPage 36

IN FOCUSThe use of the gas blow technique to clean gas pipes often leads to explosions and consequently to major losses which also claim lives.

CLAIMS MANAGEMENTOil discharged from a disused refi nery causes serious environmental damage.

IN FOCUS

ENGINEERINGPlaying with fi reExplosion at power plant after pipes cleaned using natural gas

PROPERTY AND ENVIRONMENTAL DAMAGEOil wells in deep water How can blowouts be prevented?Page 12

LOSS LITERATUREA new book examines the cultural history of disastersPage 19

LIABILITYGlobal fi nancial crisis – Taking stock from the liability perspective An overview of lawsuits, settlements, dismissals and denialsPage 20


CONTENTS

INDIVIDUAL LOSSES

LIABILITY Innocent behind barsUSA, 2008: Two convictions proved wrong after 20 years spent in jailPage 40

AGRO/FIREInnovative harvesting technique reduces lossSalvaging of burnt trees halves loss amount Page 44

BRIDGE CONSTRUCTIONDesign and inspection errors Bridge collapses after more than 40 years Page 48

MAJOR LOSSES

List of major losses 2009 to 20102

INDIVIDUAL LOSSESCases of wrongly convicted people being cleared on the basis of DNA testing after spending years in prison are becoming increasingly frequent. We take a look at a special type of third-party liability claims.


CONTENTS


A gas explosion in a power plant in Connecticut (USA) claimed six lives and caused serious property damage. The accident was triggered by pipe cleaning and purging operations. The “gas blow” technology used for these is widespread but its dangers are often underestimated.

Playing with fi reENGINEERING

View of the power plant in Connecticut after the loss.

IN FOCUS


By Philipp Reißaus, Miles Austin and Robert Abt

The massive blast occurred on Sunday, 7 February 2010, at 11.17 a.m. local time, near Middletown in the eastern USA. The shocks were so violent that people living about 16 km away said they thought there had been an earthquake. In order to clean out the main gas pipes at a power plant, members of the cleaning team had pumped gas through the pipes at high pressure. The gas was vented into the open air inside the plant. A cloud of gas is thought to have formed and then ignited. Six workers lost their lives and at least another 50 were injured. As the plant was esti-mated to be already 95% complete, considerable property and delay-in-start-up (DSU) damage occurred. The power plant, which had been under construction since 2008, was originally scheduled to be linked to the grid at the end of 2010. The 620-MW plant was designed primarily to use natural gas.

Gas-fi red power plants for electricity generation are currently still under-represented in the USA. However, the growing demand for power, the replacement of old plants and the conversion of the energy supply industry to more climate-friendly or, ideally, climate-neutral forms of generation are creating enormous demand for new power plants. According to forecasts, between 2009 and 2035 the USA will need new capacity of around 250,000 MW, which is roughly equivalent to twice the production capacity of the power generation network installed in Germany today.

In a reference scenario, the US Energy Information Administration (EIA) assumes that just under half of these new power plants will run on gas, 37% on renewable energy, 12% on coal and 3% on nuclear power.

Environmentally-compatible combined-cycle power plants

With gas-fi red power plants, by far the most frequently used technology is the so-called combined-cycle process, which leads the fi eld when it comes to envir-onmental compatibility in fossil power generation. Fixed gas turbines fi rst generate electricity by burn-ing gaseous or liquid fuels at temperatures of up to 1,500°C. The residual heat of the exhaust gases, at around 450–650°C, then goes into a heat recovery

steam generator (HRSG) which supplies several downstream steam turbines. Having the two pro-cesses connected in series combines the advantages of gas turbines with those of steam turbines. For while gas turbines excel as regards their high process temperatures and power density, low specifi c invest-ment costs and relatively clean combustion products, steam turbines are attractive for their good utilisation of relatively low-grade heat, as well as the possibility of process-steam and district-heat extraction.

As a result, combined-cycle power plants achieve eff i-ciencies of up to 60% and therefore consume around 25% less primary energy than modern conventional steam power plants or pure gas-turbine power plants. Because of the high eff iciency and the chemical com-position of the most frequently used fuel – natural gas – the CO2 emissions per quantity of energy gener-ated are only about a third to a half as high as with coal-fi red power plants. Despite these undisputed advantages, however, the construction of new com-bined-cycle power plants has been very cyclical since their introduction in the power generation industry more than two decades ago. This is because their economic eff iciency depends on the price of gas, which varies considerably.

The plant in Middletown was designed as a com-bined-cycle plant with two gas turbines, downstream heat recovery steam generators and a steam turbine. Construction work had begun in 2008 and was so far advanced by the turn of the year 2009/2010 that the testing of the plant could have started within a few weeks. The accident on 7 February ruined these plans. Within just under two hours following the violent explosion, around 100 fi refi ghters were at the scene. These quickly brought the fi re under control and fi nally managed to put it out. Investigations into the cause of the accident were carried out by local and federal authorities, including the Occupational Safety and Health Administration (OSHA) and the US Chemical Safety and Hazard Investigation Board (CSB).

Generator Compressor Turbine

Exhaust gas

Stack

Heat recovery steam generator (2)

Pump

Condenser

Steam turbine (3)

FuelAir

Structure of a combined-cycle power plant

Gas turbine (1)

Steam cycle

GeneratorCombus-tion chamber


IN FOCUS

The gas used was vented out of the plant into the atmosphere from a number of open-ended pipes located less than six metres off the ground. In North America, this practice is also known as “gas blow”.

On the day of the accident, 15 such gas blows were completed intermittently over approximately four hours, with each operation lasting no more than a few minutes. During the cleaning operation, work on con-struction of the power plant carried on as normal. Potential ignition sources like electrical equipment or diesel-fuelled heaters in the surrounding area and also in the power plant building remained in opera-tion. Even welding work was not stopped. With gas blows of this kind, “internal“ ignition sources like sparking through friction caused by purged debris or through static accumulation from the fl ow of the gas constitute a further hazard.

On the morning of 7 February, more than 55,000 m3 of natural gas got into the atmosphere in this way. According to the CSB, this was considerably more than was necessary to clean the pipes. The agency calculated that a cloud of about 13,500 cubic metres of natural gas must have formed on the power plant site. The fact that one of the open-ended pipes led into a kind of courtyard between the two steam gen-erators, enclosed on three sides, also favoured the accumulation of gas. The power plant’s location in a

OSHA is part of the US Department of Labor. It reports directly to the Secretary of Labor and is charged with implementing the US Occupational Safety and Health Act in order to reduce the number of occupational accidents and the consequences thereof. At the European level, this would correspond most closely to the Agency for Safety and Health at Work (Bilbao, Spain).

The CSB is an independent federal agency whose Board is appointed directly by the US President. It is charged with investigating industrial accidents and identifying their cause. The CSB cannot impose pen-alties. It only makes recommendations to the industry and to supervisory authorities like OSHA.

The loss

The explosion on the power plant site in Middletown occurred while workers were cleaning deposits and foreign material from the pipe system of the gas tur-bines. Pipes usually lie around on the construction site for some time before being used, which means that dirt and debris can accumulate inside them. There is also the risk that residues like weld slag and spatter can be produced during welding of the pipes which could damage the turbine when the power plant is started up. In order to clean the pipes, the workers pumped natural gas, which was already avail-able in the plant, through the system at high pressure (approx. 45 bar). With the fl ow velocity generated at this pressure, the gas is able to detach and remove any foreign material. The pipes are “fl ushed clean”.

The residual heat from the exhaust gas of a gas turbine (1) serves as the heat source for a downstream steam generator (2), which generates steam for a steam turbine (3).

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former mine which jutted into a mountain, the rela-tively horizontal orientation of the vent pipe, and the cold weather typical of February (with little turbu-lence and not much air mixing) could also have con-tributed to the formation of this gas cloud.

The concentration at which a gas/vapour/dust mix-ture and the oxygen in the air can lead to an explosion is determined by a lower explosive limit (LEL) and an upper explosive limit (UEL). Below the lower explosive limit, experts also talk of a “lean mixture”, and above the upper explosion limit of a “rich mixture”, with any infl ow of air diluting the mixture and increasing the risk of explosion. The limits are dependent on pres-sure, temperature and the size of any particles present, or their distribution where dust is involved. For natural gas, the main component of which is methane, the LEL is 4.4 to 5 volume per cent and the UEL 15 to 17 volume per cent.

View of the power plant in Connecticutprior to the loss.

Combined-cycle power plants achieve eff iciencies of up to 60% and therefore consume around 25% less primary energy than modern conventional steam power plants or gas-turbine power plants.

IN FOCUS


Possible cause of the loss: a spark

The CSB assumes that the LEL was exceeded during the cleaning operations and that an as yet unknown ignition source caused the gas to explode. Investiga-tions into this are still ongoing.

Approximately 150 workers were on the power plant site at the time of the accident. Diff erent instructions on what to do during a gas blow led to some people stopping work and leaving the site, while others car-ried on doing their jobs as normal. According to the CSB, on the day of the accident there had not been any safety briefi ng for all employees prior to the start of the cleaning operation using fl ammable gas.

Enquiries made by the CSB show that the practice of gas blow is widespread in the United States’ power plant sector. In a survey, 63% of participants said that they had in the past used natural gas to clean pipes in the manner described. 37% of respondents said they would also continue with this practice in the future. There are other options, however. On the one hand, inert gases (for example, nitrogen), air or water vapour could be used. Alternatively special cleaning devices known as “pigs” are available. These options have the same cleaning eff ect but are considerably safer to use.

Venting of the gas during a cleaning operation (gas blow) in the power plant in Connecticut.

Combined-cycle power plant in Middletown, Connecticut (USA)

Planned start-up: 2010

Power output: approx. 620 MW (combined-cycle power plant)

Plant concept: Two large gas turbines with downstream heat recovery steam generators and a steam turbine

Type of operation: Natural gas (substitute fuel: oil)

Investment volume: approx. US$ 1bn

Average service life: 25 to 30 years

The remains of the meat processing plant at Garner, North Carolina, after the explosion.

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Severe damage at meat processing plant

The problem of gas blows is not confi ned to power plants. A similar case had already occurred on 9 June 2009 at a meat processing plant in Garner, North Carolina. Four workers died there following an explosion and 67 more were injured and required medical treatment. This was accompanied by serious property damage, as a large section of the plant build-ing collapsed through the force of the blast. Around eight tonnes of ammonia were also released into the en vironment.

The accident happened during the installation of a new natural-gas-fi red industrial water heater. In prep-aration for commissioning, workmen were purging the heating pipes with natural gas in order to remove air and impurities, in a similar way to the cleaning team in Middletown. The gas was vented directly into the closed factory building – a practice that according to the CSB’s investigations was previously wide-spread for this procedure. The purging operations continued intermittently over several hours without the gas being vented into the atmosphere in a safe area. Gas detectors were not used either.

Location density of power plants fuelled by natural gas in the USA (2010–2015)

Source: US Chemical Safety Board (CSB)

6–8

15–23

0

1–5

Here too, it has to be assumed that the oxygen/gas mixture exceeded the lower explosive limit. At the time of the purging, about 200 employees were inside the building and handling potential sources of igni-tion. The result was an explosion which again caused considerable property and business interruption dam-age. The plant has in the meantime been shut down.

A common feature of both losses is that they occurred during the installation and commissioning of gas-fi red plants, the direct trigger being the accumulation and release of a large quantity of fl ammable gas. Both accidents happened when people were busy carrying out installation work. In both cases there was no sep-aration between the workers needed for the purging operations and the employees not directly involved in them, with the result that more people were present than was actually necessary. Nor was there any analy-sis of how to keep the resultant air/gas mixture below the LEL, bearing in mind the pipe confi guration and the area into which the gas was being vented.


IN FOCUS

Likewise, there was no check and elimination of potential ignition sources. Furthermore, it was evi-dently not known that the gas blow operation itself already harbours the potential for ignition. Specifi c off icial regulations or requirements for this type of use of fl ammable gases have so far been lacking in the USA or are only just starting to be implemented. New safety recommendations for gas blows

Because of the Garner accident, in February 2010 the CSB issued safety recommendations for purging operations involving fl ammable gas in enclosed areas/buildings. The agency proposed making amendments to the National Fuel Gas Code, which contains guidelines on how to correctly install and operate pipe systems for fl ammable gases in the USA. The proposed changes relate to safety meas-ures during purging operations involving fl ammable gas in cases where – unlike in Middletown – these are vented into enclosed spaces inside a building. The proposed changes have in the meantime been incor-porated into the National Fuel Gas Code as a Tenta-tive Interim Amendment. Power plant operators are so far exempted from these regulations, however.

In June 2010, as a result of the Middletown explosion, the CSB made further recommendations on the gen-eral procedures to be followed with purging opera-tions involving fl ammable gas. These recommenda-tions were directed at OSHA, the National Fire Protection Association (NFPA), the state of Connecti-cut, the Electric Power Research Institute, the Ameri-can Society of Mechanical Engineers and also leading gas-turbine manufacturers.

The most important recommendations:

1. Prohibit the release of fl ammable gas to the atmos-phere for the purpose of cleaning fuel gas piping.

2. Prohibit fl ammable gas venting or purging indoors. Prohibit venting or purging outdoors where fuel gas may form a fl ammable atmosphere in the vicinity of workers and/or ignition sources.

3. Prohibit any work activity in areas where the concentration of fl ammable gas exceeds a fi xed low percentage of the lower explosive limit (LEL) deter-mined by appropriate combustible gas monitoring.

4. Require that companies develop fl ammable gas safety procedures and training for their employees.

5. Remove the existing National Fire Protection Asso-ciation exemption for the power plant industry in the National Fuel Gas Code.

6. For purging operations of this kind, require the use of inherently safe alternatives to fl ammable gas (e.g. air).

7. Turbine manufacturers must develop strict guide-lines specifying what quantities and pressures of gas are required for cleaning processes for the purposes of the manufacturer’s warranty.

After the CSB recommendations had been issued, OSHA imposed fi nes totalling several million dollars on 17 fi rms involved in the construction of the power plant in Connecticut. At the time of publication of this article (October 2010), however, it was not yet known how the companies concerned would respond to this. OSHA also drew up warning letters for power plant operators who were using fl ammable gas for gas blows, in order to draw their attention to compliance with safety procedures and to point to safer alterna-tives for cleaning pipes. Similarly, after the CSB rec-ommendations had been issued, these recommenda-tions referring to indoor purging of industrial gas lines were added to the National Fuel Gas Code in an emer-gency code change known as a Tentative Interim Amendment. Accordingly, industrial buildings, large commercial buildings and large multi-family build-ings blocks are in future required to perform such purging operations outside, after fi rst evacuating per-sonnel and eliminating potential ignition sources, and using suitable detectors.


IN FOCUS

Conclusion

Regardless of the industrial sector involved, the use of fl ammable gas to clean out pipe systems during installation work harbours considerable risk potential which is often underestimated. Although the loss examples given relate only to the USA, Munich Re’s view is that the problem is not confi ned to that country. Wherever possible, inherently safe alterna-tives (like nitrogen, air or water) should be adopted for the cleaning of pipe systems. Otherwise, as indi-cated in the CSB proposals, the careful handling of fl ammable gases should be examined separately for each individual case but, in Munich Re’s view, should be urgently recommended as a general measure.

Above all, appropriate training is needed both for workers involved with the gas blow and for those working in the vicinity during the purging operations. The accidents at Middletown and Garner serve as a sharp reminder of the risks that are inherent in purging operations using fl ammable gas. Munich Re therefore recommends that insurers, reinsurers and insureds should jointly examine projects in which any kind of fl ammable gas is used to carry out such opera-tions, and should adopt appropriate safety measures. With new gas-fi red plants being built, the power plant industry in particular is highly exposed. It is in the interests of all those involved to prevent such losses in the future.

OUR EXPERTS

Philipp Reißaus is Claims Manager for Energy, Engineering and Special Enterprise Risks in Munich Re’s Special and Financial Risks Division in Munich. [email protected]

Robert Abt is Senior Underwriter in the Power & Utilities Department of Munich Re’s Special Financial Risks Division in [email protected]

Miles Austin is Senior Claims Specialist for Engineering and Construction Claims at Munich Re in [email protected]

INFORMATION MATERIAL

Information on combined-cycle power plants: Munich Re leafl et “Technology for underwriters, No. 14, Gas turbines and combined cycle power plants”.Order number 302-00297

Further information on the Garner loss and the CSB recommendations made in that connection can be found at http://www.csb.gov/newsroom/detail.aspx?nid=285

Further information on the Middle-town loss and the CSB recommenda-tions made in that connection can be found at http://www.csb.gov/news-room/detail.aspx?nid=330

All in all, the safest, even if sometimes slightly more expensive variant, continues to be to use non-fl am m-able gases, air, water vapour or special cleaning devices. Should this not be possible, gas detectors must be used at signifi cant locations. The human sense of smell is certainly not suff icient. It varies too much from one individual to the next for it to be able to give reliable warnings of dangerous gas concentra-tions.


By Thomas Friedrich

Fire broke out on the Deepwater Horizon – owned by the Transocean drilling company – on 20 April 2010 following a blowout in 1,500 metres of water. Eleven people lost their lives, but 115 were rescued. Two days later, the semi-submersible drilling rig sank in the Gulf of Mexico. By the beginning of August, an esti-mated 4.9 million barrels of crude oil (roughly 800 million litres) had gushed out. Some of it was col-lected, but a large amount spread in the sea or onto the beaches of Louisiana, Mississippi, Alabama and Florida. The insured property damage was soon determined, but the situation as regards environmen-tal damage and other consequential loss remains unclear. From what is currently known, the principal of the oil-drilling operation – the oil company BP (65% share) – was largely self-insured, which reduces the insured loss considerably. The question is: How great are the risks of such deepwater wells?

History of oil wells

The fi rst wells to strike oil date from 1860 in Baku (Azerbaijan), Germany, Canada and the USA. The well drilled by Edwin Drake in Titusville, Pennsylvania (USA), triggered the fi rst oil boom. The oil in this well was found at a depth of about 20 metres. Once the reservoir had been opened up, the oil fl owed out of the borehole in an uncontrolled fashion but only at low pressure and could easily be collected. The fi rst wells were developed using cable drilling.

With the introduction of drilling fl uids to carry crushed rock out of the well, the rotary drilling method was developed, and this is still the standard method used today. Drilling fl uids also made it pos-sible to prevent blowouts for the fi rst time. These occur when the formation pressure causes oil or gas to fl ow into the well and come out at the surface. The weight of the column of drilling fl uid can create a counterpressure to the pressure in the reservoir.

The fi rst major uncontrolled blowouts occurred at the start of the twentieth century. In 1910, the Lakeview Gusher in California spewed out around nine million barrels of oil (roughly 1,400 million litres) in 544 days until the well was exhausted.

In 1922, the development of a shut-off device at the wellhead, known as a “blowout preventer” (BOP), made it possible to seal a well for the fi rst time. The fi rst devices of this kind were operated manually.

PROPERTY AND ENVIRONMENTAL DAMAGE

The explosion of the Deepwater Horizon oil rig and the subsequent oil pollution in the Gulf of Mexico had the world on tenterhooks for several months. People have been drilling for oil for some 150 years. A risk review.

Oil wells in deep water


IN FOCUS

Explosion of the Deepwater Horizon oil drilling platform on 20 April 2010.

Off shore drilling began in the 1920s in the Caspian Sea off Azerbaijan and in Lake Maracaibo in Vene-zuela. Initially, onshore drilling technology was used in these shallow waters. For wells in deeper water, blowout preventers were installed on the seafl oor and connected to the off shore drilling rig by pipes. The BOPs had to be adapted for use underwater, as did the triggering control.

Shallow-water versus deepwater drilling

Wells in up to 500 metres of water are assigned to the shallow-water or standard off shore range. The next deepest category up to 1,500 metres is currently known as the deepwater range, whilst wells at even greater depths lie in the so-called ultra-deepwater range. The fi rst deepwater well was drilled in the Gulf of Mexico in 1984, and a few years later the ultra-deepwater range was also reached there. In 2003, a well was drilled in a record depth of 3,000 metres of water – a record which still stands today.

People have been searching for oil off shore since the 1920s. Lately, in the Gulf of Mexico alone, on average more than 300 drilling operations have been carried out each year.

Marine riser

Annular preventer

Kill line Choke line

Seafl oorWellhead

Blind rams

Shear rams


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Since 2000, more than 90 oil and gas fi elds have been discovered in deep water in the Gulf of Mexico, and more than 70 in ultra-deep water.

The main diff erences between deepwater and shal-low-water drilling are the signifi cantly higher specifi -cations for the drilling equipment and the resultant costs. The daily rate for a drilling rig in shallow water is less than US$ 100,000 per day, compared with up to US$ 500,000 and more per day for (ultra) deep-water drilling. All items of equipment, including the BOP, must be adapted to the great water depth and the pressure prevailing there and are therefore much larger in size.

The reservoirs found in deep water are mostly consid-erably larger and more productive than those found in shallow water. They can be located much better on seismic profi les. The probability of drilling success-fully is therefore considerably higher than in shallow water or onshore.

The blowout preventer

The drill pipe can be cut through using the shear rams integrated into the BOP stack and the well can be sealed using the blind rams. Alternatively, the drill pipe can be sealed off with the rubber sealing element of the annular preventer. As soon as the out-of-control well has been sealed off by closing the preventers in the BOP, the oil and gas are circulated out via the choke lines and kill lines and replaced by heavy drilling fl uid until the infl ow of oil and gas has stopped.

Source: Munich Re


IN FOCUS

Deepwater BOP: The BOP stack is more than 16 metres high and weighs over 350 tonnes.

The fi rst safety measure for preventing a blowout is the drilling fl uid. This not only cools the drill bit and carries the drill cuttings out of the well but also pro-duces a counterpressure in the well to prevent oil and gas from fl owing into the well bore from the reservoir. The relevant parameters of the fl uid must be moni-tored continuously in order to allow countermeasures to be taken immediately if there are any changes. This is important as, in order to protect the reservoir, work is often carried out with a weight of drilling fl uid that precisely matches the expected reservoir pres-sure or is even lower. As the depth of wells increases, the stability of the drilling fl uid likewise gains in importance, since only certain drilling fl uid additives are suitable for the rising temperatures.

The blowout preventer is the most important safety device for controlling blowouts. It sits directly on the wellhead and shuts the well off when the drilling fl uid’s density is no longer suff icient to prevent the infl ow of oil and gas. The current state of the art is to have several of these shut-off devices built together one on top of the other to create a BOP stack. Deep-water BOPs are operated hydraulically with large pressure cylinders. These devices are designed for diff erent pressure ratings. For wells at a very great drilling depth with correspondingly high pressure, a BOP with a pressure rating of 1,379 bar was intro-duced in 2009.

Safety, maintenance and inspection

Use of the best possible safety devices depends on the local legal requirements and regulations and is also a question of cost. The drilling rigs used must be able to cope with the very large and heavy safety devices.

The maintenance and inspection of safety devices are important. With off shore wells and deepwater wells in particular, this is much more expensive than on -shore. Requirements with regard to the reliability and ease of maintenance of safety devices are thus high. The individual components of a BOP stack must be subjected to functional tests at regular intervals and should be tested every time prior to being used.

The human factor is of particular importance. All the requirements and safety regulations must be com-plied with. Possible cost savings achieved through longer maintenance intervals and operating times or less qualifi ed personnel can have fatal consequences.

Set against this are signifi cantly higher costs for drilling, installations on the seabed and the pro-duction platform. Because of the cost burden, however, the level of royalties that oil companies had to pay was reduced in the Gulf of Mexico.

Challenges of deepwater wells

Blowouts in which the escaping oil and gas ignite and destroy the installed drilling rigs and produc-tion platforms are the oil industry’s nightmare scenarios. Possible causes are safety-device mal-functions, technical problems, failure to observe prescribed safety regulations, and human error.

Any blowout is always preceded by an uncontrolled infl ow of oil or gas. With sensitive measuring instruments, even small changes in the composi-tion of the drilling fl uid can be detected. In order to bring the well back under control, all the warning signs must be carefully recorded and appropriate measures taken, even if this results in considerably greater expense.

1

2

4

3

9

8

67

5

Source: Munich Re


IN FOCUS

World map showing deepwater regions

Known deepwater regions with major dril-ling activity and development of fi elds are in the Gulf of Mexico (1), off the coast of Brazil (2), along the west coast of Africa (3), in the eastern Mediterranean (4), the

Black Sea (5), the Norwegian sector of the North Sea (6), to the west of the Shetland Islands (7), off the east coast of India in Southeast Asia (8) and off the west coast of Australia (9).

Dwindling reserves of fossil fuels coupled with rising demand for energy are making it lucrative to carry out the complex and costly exploration of oil and gas lying far beneath the surface of the sea. In recent years, more than 3,500 wells have been drilled off shore each year worldwide, 500 of them deepwater wells, and this trend is rising.


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Once a section of well has been drilled, the casing is positioned and cemented in order to stabilise and seal the wellbore. The quality control for this work is car-ried out by means of cement bond logging and a pres-sure test. Errors or weak points can be identifi ed and eliminated in this way. Cleaning the cavity between the casing and the borehole wall, centring the casing and optimising the cementing with the relevant wait -ing period can increase well safety.

The well design and the relevant casing programme should take account of all the critical points. For example, safety margins are possible when designing the casing. The oil industry and service companies are constantly working on new well designs in order to reduce costs without sacrifi cing safety.

Insurance policies

Drilling and production licences are issued to oil com-panies by national regulatory authorities, with several companies generally teaming up to jointly exercise the rights and perform the obligations in the conces-sions concerned. One of the companies is placed in charge of the operation. Key decisions are always taken jointly by all of them, however.

The operator engages contractors to carry out the various jobs in the licence block: fi rst the seismic sur-vey, then drilling of the wells, and fi nally installation of the permanent facilities for exploiting the fi eld. For the drilling, this is mainly the drilling company, but also service companies for special work like cement-ing, well logging, and directional drilling services.

The standard covers in connection with wells are the control-of-well (CoW) policy for blowouts and the operation policy for the drilling rig and/or existing production facilities.

The CoW policy is mostly part of the operation policy, which is taken out independently by each of the oil companies involved. The CoW policy also covers the cost of regaining control of the well. This includes relief wells, the drilling of a new well down to the dril-ling depth at which the work was broken off , and also cover in respect of environmental damage (usually on the basis of the Oil Pollution Act, OPA). The cover is based on the Energy Exploration and Development wording (EED 8/86), developed by the London mar-ket in 1986. The limit under a CoW policy is generally no higher than three to four times the drilling costs of the most expensive well in the portfolio.

The operation policy for the drilling rig is arranged by the owner and covers property damage to the installa-tion up to the policy limit and possible salvage costs of up to 25% of the policy limit. It may also include business interruption and contingent CoW.

Lakeview No. 2 gusher, 20 May 1914.

The operation policy for the production facilities is arranged by the oil companies concerned and covers property damage to the installations up to the rele-vant limit and additionally possible salvage costs of up to 25% of the policy limit. The oil company’s policy, which usually covers all off shore risks worldwide, can also include business interruption (BI), including con-tingent BI and liability.

Insurability

Following the event in the Gulf of Mexico, the ques-tion of the insurability of deepwater wells arises. Here, a distinction has to be made between the standard covers for CoW and property damage to drilling rigs and production facilities and the various liability covers.

With the CoW policy, the insurer has possibilities for assessing and infl uencing the risk. The claims experi-ence from wells in previous years and the current drilling programme with data on the location of the well, the type of drilling, the drilling depth, water depth and drilling costs are the fi rst step in assessing

IN FOCUS


the risk. The drilling programme and the proposed drilling rigs/drilling companies and operator are further criteria. In addition, special fi rms may be engaged to check the entire drilling programme for, amongst other things, safety standards and the general suitability of the drilling rig for the project. Surveyors may also be brought in to check that safety aspects are being complied with on the drilling rig. These include the BOP’s condition and function test and the established safety standards. When setting the premium, it is important to take account of gen-eral risk factors like the policy limit, scope of cover and deductible, and of risk factors specifi c to drilling, such as the well type, location and development, water depth, and drilling costs in relation to the policy limit.

The operation policy for drilling rigs is a standard cover where attention needs to be paid in particular to the condition of the installations and appropriate con-sideration of the values. Because of the high capacity utilisation of the drilling rigs, shortcomings can arise with maintenance and safety tests. Given that insur-ance values have risen to well over US$ 500m, the premium calculation must take particular account of the total loss of such units. Here too, surveyors can help with the risk assessment through inspection reports.

OUR EXPERTThomas Friedrich is Technical Expert and Underwriter for Off shore Oil and Gas Energy Risks in the Global Clients andNorth America [email protected]

Munich Re develops new insurance solution for oil spill catastrophes

Munich Re has developed an insurance solution cover ing oil companies against liability risks arising from oil catastrophes during off shore drilling opera-tions. Operators, generally drilling joint ventures, may be held liable for death or injury, property damage, environmental impairment and fi nancial losses in the event of an accident. Currently, there is no separate cover for drilling operations, which are insured under the individual liability policies of the companies con-cerned. As a rule, covers are available subject to a limit of US$ 1–1.5bn on the international insurance market. With Munich Re’s new concept, each individ-ual drilling operation will be covered by a policy spe-cifi cally developed for that risk. As a result, it should be possible to increase liability limits to US$ 10–20bn per drilling operation. Munich Re would be prepared to off er coverage capacity in the order of US$ 2bn.

Based on the US Oil Pollution Act, cover would largely relate to clean-up and removal costs, impairment of natural resources and property damage, as well as loss of earnings in sectors such as fi shing or tourism.

Munich Re considers the tightening of safety stand-ards crucial to the concept. To ensure such standards are met, companies independent of the operators and possessing the requisite expertise would have to monitor and oversee the risk management of each project. More stringent risk management standards of this type ought to be an integral part of the proced-ure for granting drilling licences. The sum total of these factors should help considerably to reduce the number of accidents in the future.

In its current form, the new concept is designed to cover drilling operations in the USA. However, suitably adapted, it could also be used elsewhere.


LOSS LITERATURE

By Zoran Andrić

The Genevan historian François Walter traces the history of the concept of disasters from the early modern period to the present.

The eruption of Eyjafjallajökull showed how we often deal with risks today: overcautiously rather than too rashly. Discussions about the way we approach risks have been going on for hundreds of years.

The book “Katastrophen” (Disasters) starts with an epoch in which little was known and much was believed: the medieval view of the world, with Thomas Aquinas’s doctrine of God as the prima causa (fi rst cause) to which nature as the secunda causa (second cause) is subordinate, dominated not only religious discourse. However, as people wanted to give natural disasters some meaning besides merely accepting them, they interpreted them as a punishment from God. The best precaution against this, the Church taught, was a morally impeccable life.

Quoting from extensive sources, the author analyses hundreds of natural events, wars and diseases, as well as accidents at chemical plants and reactors and the terrorist attacks of 11 September 2001.

The question of the meaning of the incomprehensible is one of the principal motifs of the Age of Romanti-cism. And certainly no text is refl ected in art as strongly as the Apocalypse, whether it be in works by Leonardo da Vinci, Michelangelo or Albrecht Dürer. Later, in the 18th century, Johann Sebastian Bach has an earthquake thundering in his St. John and St. Matthew Passions.

Today’s risk society tries to anticipate the future with probability calculations. According to Walter, how-ever, risk awareness has increased to such an extent that the feeling of uncertainty is becoming increas-ingly divorced from the real threat. Good prerequi-sites for powerful fi gures in politics: more than ever they exploit disasters for their own ends – Walter cites climate change as an example.

In the fascination for disasters, Walter discerns a deep longing for spirituality. In autumn 2005, when Hurricane Katrina devastated the US city of New Orleans, some commentators interpreted the disaster as a well-deserved punishment for sin.

Walter considers that, in the cultural history of deal-ing with disasters, common sense is no match for either religious or symbolic coping strategies. Experts are not always the custodians of the truth, and there are limits to their knowledge too. For disasters them-selves are not good teachers – even in a risk culture they are all too often a matter of faith.

Disasters A cultural history from the 16th to the 21st century

François Walter: “Katastrophen –Eine Kulturgeschichte vom 16. bis ins 21. Jahrhundert” (Disasters – A cultural history from the 16th to the 21st century). Translated from the French by Doris Butz-Streibel and Trésy Lejoly. Published by Reclam, Stuttgart 2010.


By Christine Angerer, Torsten Plagenz, Alexander Stampf, Cedric Balton-Stier

Immediately after the subprime crash, a fl ood of law-suits broke out. These were mainly directed against fi nancial institutions and their managers, as the is -suers of the fi nancial products aff ected by the crisis. The USA and American plaintiff lawyers remained true to their reputation as one of the most litigious nations in the world. In a second wave, the fl ood of claims reached the banks’ so-called “gatekeepers”: brokers, underwriters, consultancies, law fi rms and also rating agencies are increasingly fi nding them-selves exposed to actions from investors, sharehold-ers and supervisory authorities, but in turn also from banks themselves.

The lawsuits are primarily based on violation of state and federal securities laws and also on violation of civil law provisions aimed at protecting investors.

From the underwriting point of view, it is above all D&O and E&O/PI policies which are aff ected by the claims. Depending on the underlying situation, bank-ers’ blanket bond (BBB) and blended policies can also be aff ected, though to a lesser extent.

What began in 2007 as the “subprime crisis” in the USA also aff ected European fi nancial markets before too long and then developed into a worldwide credit crunch and one of the deepest recessions since the 1930s. The result: bank failures, govern-ment bailouts, class actions in the USA and considerable losses for the fi nancial and insurance industries.

Global fi nancial crisis – Taking stock from the liability perspective

LIABILITY

US courts are currently behaving quite neutrally and independently in fi nancial crisis proceedings, with no recognisable preference for plaintiff s or defendants. This is apparent from the fact that, when courts examine the merits of a case (motion to dismiss), plaintiff s may also have their complaints dismissed by the court if their submissions are deemed inadequate, or may have to “revise” them (dismiss with leave to amend).

Of 275 lawsuits fi led, 63 motions to dismiss have been granted and 75 motions to dismiss have been denied (cf. Fig. 2).

Lawsuits, settlements, dismissals and denials

A large number of actions do not take the fi rst legal hurdle, however. The defendant banks are faced not only with huge claims for compensation (running into billions in some cases) but also with substantial litiga-tion expenses. Lawyer’s fees of up to US$ 1,000 an hour and the assignment of a large number of defence lawyers (“defense counsels”) by the defendant banks are not uncommon. The enormous cost pressure has already led to out-of-court settlements in 19 cases. Here, insurers in particular face the challenge of obtaining transparency at an early stage and being in a position to participate in the settlement decision. Otherwise, it can be very diff icult later to separate what is insured from uninsured elements.

IN FOCUS


The global fi nancial crisis began on 15 September 2008 with the collapse of Lehman Brothers.

However, a general trend towards settlements is not yet observable. In many cases, the claims being made are too high and the outcome of pending legal pro-ceedings is still doubtful. The desire of many banks to get the crisis “out of their books” as soon as possible continues to be unmet. Clearing the backlog of cases arising out of this fi nancial crisis is likely to take some years. This is apparent from the number of new law-suits and legal proceedings. Although the number is decreasing (see Fig. 2), individual cases involving spectacularly large amounts are still surfacing.

Action against Goldman Sachs

For example, in July 2010 following weeks of investi-gation for suspected fraud, the major US bank Gold-man Sachs agreed a settlement with the Securities and Exchange Commission (SEC) of US$ 550m in total. This US agency had brought an action against the bank in mid-April 2010, the charge being that it had deliberately withheld important information from investors in a high-risk derivative mortgage product (Abacus 2007-AC1). Hedge fund manager John Paul-son had both controlled the composition of the pack-age and at the same time speculated on a total loss of value. Now that the SEC proceedings have been con-cluded, Goldman Sachs is faced with further investi-gations by the UK Financial Services Authority (FSA),

as well as a large number of shareholder derivative suits, which could also be of relevance in the D&O insurance sector.

Action against Hypo Real Estate

Another prominent example from Germany is the case of Hypo Real Estate (HRE). In the wake of the fi nancial crisis, the bank had to be bailed out by the German Government to the tune of more than €140bn and was eventually nationalised. Due to the disclosure of a write-off requirement of €390m in the CDO port-folio, the price of HRE shares dropped drastically in January 2008.

HRE now sees itself facing claims for compensation amounting to several hundred million euros in a large number of legal proceedings. Some of the aggrieved shareholders have in the meantime applied for a test case under the German Capital Markets Test Case Act (CMTCA). The aim is to establish whether the write-off requirement of €390m in respect of the CDO portfolio, disclosed by HRE in January 2008, was announced late and ought to have been disclosed in September or November of 2007. Until a decision is reached on the test case, all other legal proceedings of potentially aff ected investors are stayed.


IN FOCUS

Source: www.dandodiary.com

Source: Federal Deposit Insur ance Corporation (FDIC): Failed Bank List

Fig. 1 Number of bank insolvencies in the USA

2007Q1

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

60

50

40

30

20

10

0

Subprime crisis

Credit crunch

Recession

2007 2008 2009 2010

Fig. 2 Subprime- and fi nancial-crisis-related lawsuits, settlements, dismissals and denials in the USA

Number of settlements

Number of dismissals granted

Number of voluntary dismissals

Number of dismissals denied

ERISA lawsuits Total 25

Shareholder deriv. actions Total 29

Securities class actions Total 221

3

1

8 4

6

1215

0 50 100 150 200

8

59 53

IN FOCUS


Ponzi scheme fraud cases

So-called “Ponzi schemes”, i.e. pyramid-type invest-ment schemes like the recent spectacular fraud by Bernard Madoff in which investors lost up to US$ 65bn, do of course attract particular attention during a fi nancial crisis, but the connection is only an indirect one.

The basic model for this type of fi nancial fraud goes back to Charles Ponzi, who in the 1920s – through the illusion of arbitrage advantages with return-postage coupons – promised stable profi ts, but in the end fi nanced the interest paid to old investors with the fresh deposits of new investors.

Such pyramid systems can appear to “work” for decades: in the case of Madoff , the yield promised amounted to an average of 10% per year, without a single transaction being carried out in 13 years. With the limited liquidity of investors during the fi nancial crisis, however, new funds were not forthcoming and investments were increasingly withdrawn. In Decem-ber 2008, this led to the collapse of the whole fraudu-lent construction. Even though Madoff , with his 9,000 injured parties and the loss of US$ 65bn, is an extreme case, since December 2008 over 300 other Ponzi schemes with no less spectacular promises of profi ts have failed to date (Fig. 3).

Auction rate securities

Besides lawsuits arising from the granting and sell-ing-on of personal mortgage loans (US subprime cases), in the USA there is another large wave of actions in connection with municipal bonds known as auction rate securities (ARS). These were sold on to investors by municipalities in public auctions and, through manipulation by banks, likewise produced losses running into the millions. In Germany, many municipal authorities which acted here both as invest ors and buyers suff ered losses. However, ARS cases are not generally of relevance from the under-writing point of view, as claims are mostly made with regard to matters not covered by insurance, e.g. repurchase agreements, or statutory penalties that have been imposed or regulatory settlements that have been reached, which are likewise not insured.

Financial reform in the USA

On 15 July 2010, the US Senate approved the most extensive fi nancial reform since the Gramm-Leach-Bliley Act of 1999. Whether it will help prevent future fi nancial crises is open to dispute. There are a number of new provisions which will restrict risky behaviour on the part of banks and fi nancial service providers. However, the execution of major new regulations is left to the regulating authorities.

Financial reform in Germany and Europe

In autumn 2010, the EU is due to take further import-ant steps to overhaul European fi nancial supervision – for example a regulation on short-selling by fi nancial institutions and a law regulating hedge funds and other alternative investment funds. A proposal for a new European fi nancial supervisory system has already been tabled. The EU is also planning to revise the regulations on rating agencies. Laws on the sol-vency margin requirements of banks and investment fi rms adopted at national level are also due to be revised by the EU. Just how far these proposals can be implemented at national and EU level remains to be seen. The EU countries also continue to be divided on the question of a possible tax on fi nancial transactions.

Insurance aspects: Liability

Because of the collapse of the market for securitised risks, it was necessary to write off much of the book value of securities. Cash-fl ow problems also meant that funds had to sell their shares at well below their value in some cases. The stock market responded with a further heavy fall in stock prices, which resulted in renewed write-off requirements. The downward spiral continued. The loss of investor confi -dence was enormous and continues to be so. This development led to a fl ood of lawsuits from aggrieved investors and shareholders which were directed against the management of fi nancial institutions in particular.

20

18

16

14

12

10

8

6

4

2

0

70

60

50

40

30

20

10

0J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2007 2008 2009 2010

IN FOCUS


Fig. 3 Frequency of insurance claims related to subprime and Ponzi schemes

Cases related to credit crisis/subprime

Insurance claims related to subprime(claims-made principle)

Source: NERA; Munich Re claims data

Number of US federal securities class action fi lings related to credit crisis/subprime per month

Number of insurance claims related to subprime per month

Madoff /Ponzi-scheme cases

Insurance claims related to Madoff (claims-made principle)

Number of US federal securities class action fi lings related to credit crisis/subprime per month

Number of insurance claims related to Madoff per month

20

18

16

14

12

10

8

6

4

2

0

70

60

50

40

30

20

10

0

Source: NERA; Munich Re claims data

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2007 2008 2009 2010

IN FOCUS


The lawsuits are based inter alia on the following liability scenarios:

– In the case of D&O insurance, against banks’ boards: late ad hoc announcements, failure to prop-erly exercise the duty of care required with respect to the business model in general and risk manage-ment in particular (outside the entrepreneurial scope), investments in “structured” products (com-bination of classic form of investment and a deriva-tive) without appropriate disclosure, delay in fi ling for insolvency, etc.

– In the case of professional indemnity/E&O insur-ance, against banks: wrong, inadequate, poor investment advice provided to customers (large- and small-scale investors) by employees. Wrong investment decisions; inaccurate, misleading, inad-equate product description; delayed reaction to market fl uctuations, etc.

– In the case of lawsuits against auditors: wrong risk assessment in the course of manage-

ment consultancy (solvency check)

– In the case of lawsuits against rating agencies: delayed corrections of ratings.

As these policies were generally written before the crisis, they do not generally contain any exclusions relating specifi cally to US subprime business or the fi nancial crisis. One exception might be an invest-ment banking exclusion.

Insurance aspects: Coverage

On the insurance side, fi nancial crisis cases primarily involve D&O policies, professional indemnity/E&O policies, fi duciary liability (in the case of claims from pension funds) and fi delity policies (with Ponzi-scheme cases). Therefore, from the insurance point of view the generally relevant coverage issues and exclu-sions have to be reviewed. These include:

Was there possible misrepresentation, i.e. was an investment bank exposure not disclosed, despite being queried at the time of policy inception?

Did the loss fall within the insured period? Decisive elements here are, in particular, extended reporting periods, the defi nition of a claim and a possible prior acts exclusion.

The allocation of a loss to a specifi c policy year and the question of the possible aggregation of several interrelated wrongful acts into a single loss have to be taken into account. In this instance, decisive factors can be serial loss clauses, the defi nition of loss and possible other contractual arrangements concerning allocation and aggregation in policies.

Attention needs to be paid as well to the extent to which claims are made in respect of insured losses. Here in particular, exclusions in respect of punitive/exemplary damages, state-imposed penalties/fi nes, and also exclusion of business risk take eff ect (e.g. when the wrongdoer buys back its own shares and derivatives in ARS cases).

On the other hand, the mandatory exclusions for fraud, criminal acts, personal profi t and dishonesty, which are common in D&O and PI policies, often are limited in eff ect, as they mostly require the facts to be determined by fi nal adjudication. In the case of court-approved or out-of-court settlements, however, there will be no such determination.

Risk management

An event like this most recent fi nancial crisis swiftly prompts insurers of this segment to check whether prices in the insurance market have been risk-ade-quate. Major price increases, a rethinking of the scope of the conditions and more selective underwriting then followed.

The global interconnection of the fi nancial market became all too clear in the crisis. US market practices and the housing bubble ended up having worldwide repercussions, also for the PI/E&O and D&O policies of banks, insurance companies, fund managers and other investment advisers who were only indirectly involved. So-called “US exposure”, i.e. contact with US jurisdiction and liability law, cannot be deter-mined solely from the place an insured is incorpor-ated or its stock is listed. The actual exposure needs to be analysed based on industrial sector, scope of activities, product and customer segments.

Liability policies in particular edge towards the border of insurability where, in addition to “true compensa-tion of injured third parties”, settlements or verdicts also contain other elements such as restitutionary or disgorgement damages, criminal and civil fi nes, or problematical punitive or other non-compensatory damages.

IN FOCUS


OUR EXPERTS

Christine Angerer is Head of Section in the Global Clients and North America Division with responsibility for casualty [email protected]

Alexander Stampf, LL.M., is an expert on D&O insurance and Head of Section in the Global Clients and North America [email protected]

Cedric Balton-Stier, MBA, specialises in the treaty reinsurance of liability risks and works as Junior Underwriter in the Global Clients and North America Division. [email protected]

Torsten Plagenz specialises in US liability and works as Senior Legal Counsel in the Global Clients and North America Division. [email protected]

Conclusion

The insurance industry will be busy dealing with the legal and insurance repercussions of this fi nancial crisis for many years to come. For today’s underwrit-ing, this means that all the relevant liability policies will have to take even greater account of the global interconnection of the fi nancial markets, and that the insurance industry’s overall exposure will have to adapt closely to the constantly changing market conditions.

Given the high amount of defence costs, thorough checks should be carried out to ascertain the extent to which regulatory and governmental investigations or administrative, regulatory and criminal proceed-ings should be included under the defi nition of a claim, i.e. off er access to insurance benefi ts under D&O policies. Other insurance products such as legal protection insurance might be more suitable here.

For reinsurers, measuring and controlling the sys-temic risk is a core competence when it comes to the insurance of fi nancial lines portfolios, which in the case of D&O and also E&O covers are closely linked to the economic environment. The basis for the under-writing strategy and appetite for risk must therefore be, fi rstly, quantifi cation of the overall exposure with respect to relevant segments and scenarios. Sec-ondly, in reinsurance there are many possible ways of limiting exposure, be it through the right choice of treaty structures or in the area of (highly-exposed) individual risks, with the aim of achieving a well-bal-anced overall portfolio. Thirdly, monitoring of the overall exposure, using direct market know-how but also through regular exchange of information with cedants, is necessary in order to identify new trends in good time and also to adapt to changed market conditions in both underwriting and claims handling.

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NOT IF, BUT HOW


ENVIRONMENTAL DAMAGE

A depot for petroleum products to the north of Milan was the starting point for one of Italy’s worst cases of environmental damage in recent years. The motives of the perpetrators, who deliberately caused a major oil spill, remain unclear.

Disused refi nery triggers oil alert

To prevent the oil from spreading, an oil spill containment boom was set up at San Zenone.


CLAIMS MANAGEMENT

By Dr. Giovanni Faglia and Dr. Lisa Casali

The loss occurred during the night from 22 to 23 Feb-ruary 2010 when unidentifi ed persons opened the valves of six surface storage tanks on the site of a refi nery that had closed in 1980 and had been used for more than twenty years as a depot for petroleum products. 3,000 m3 of oil – including 1,800 m3 of diesel and 800 m3 of fuel oil – initially fl owed across the paved area in front of the storage tanks and then into some nearby settling tanks. These were originally used for treating process water from the refi nery. Their present use was to clean up groundwater pol-luted in an accident in 1990. From these settling tanks the oil got into the San Rocco wastewater treat-ment works in Monza.

Because the plant was soon unable to cope, employ-ees at the treatment works opened an off take pipe. As a result, about 30% of the oil spill got into the River Lambro and from there into the River Po. It is estimated that 70% of the oil was held back in the wastewater treatment plant.

The incident led to the following specifi c damage:

– Pollution of ground and soil at the enterprise– Pollution of the sewerage system and the San Rocco

treatment plant, with wastewater treatment being interrupted for two months and plant remediation costs of €2m incurred

– Pollution of the River Lambro (water and soil)– Pollution of the River Po (water and soil)– Loss of animals and protected species in the

Montorfano conservation area in Melegnano– As yet unquantifi ed damage to third parties

(municipalities, commercial enterprises, etc.)

The interruption in the operation of the San Rocco treatment plant resulted in wastewater from the treat-ment plant fl owing into the Po for two months and from there into the Adriatic. The Italian Ministry for the Environment made €700,000 available for a pro-gramme for monitoring bioaccumulation in animals and plants.

It is not clear whether the event classifi es as environ-mental damage within the meaning of Directive 2004/35/EC and its subsequent implementation in the unifi ed Environmental Code (Codice dell’Ambi-ente) of 2006.

Reconstruction of events

The following comments are the result of an initial assessment. They are based on information from the company management who accompanied our experts on site one day after the loss. The site was subse-quently sealed off by the judicial authorities and could no longer be entered. The details will have to be checked in the course of investigations by the public prosecution service. Unidentifi ed persons had entered the depot at the former refi nery during the night. They fi rst opened the valves on the bottom of the six diesel and fuel oil tanks which supply two fi lling and empty-ing stations for tankers. For the oil to be able to get into the higher loading bays, the control panel also had to be operated in order to start an electric pump. The station’s fi lling and emptying connections were then opened, allowing large quantities of oil to pour out.

The absence of any security arrangements facilitated this action. For example, the valves on the tanks were operated by means of handwheels which were not secured by any locking devices. The sprawling site is guarded overnight by a night watchman who evi-dently did not notice the presence of any saboteurs. The control panels for the pumps were not secured either but were in fact still connected to the power supply overnight. Opening the valves and operating the pump did not present any technical problem. Anyone who had been there just once when the tanks were being fi lled would have been able to do it.

On 24 February, the public prosecution service in Monza launched investigations against persons unknown for the presumed off ence of causing an “ecological disaster” and “water pollution”. The inves-tigations began with interviews of Lombarda Petroli employees, including former employees who had been dismissed. A culprit could not be identifi ed, however. Investigators also looked into how it was possible for Lombarda Petroli to have told the Italian government that the tanks contained only a limited quantity of chemical products, so as not to fall under the provisions of the Seveso directive.


CLAIMS MANAGEMENT

Consequences of the deliberate oil spill

Even though there is no defi nite proof, it may be assumed that the perpetrator(s) intended to “fl ood” the sprawling, unroofed company site with oil and contaminate it. Probably no thought was given to the fact that, because the site was sloping, oil would be able to get into the public sewerage system and from there into the wastewater treatment plant and the River Lambro. In other words, there may not have been any intention to cause an ecological disaster.

This assumption is also supported by the fact that the disused refi nery was considered to be promising building land which was earmarked for future resi-dential use. Some Italian media voiced the suspicion that the aim of the sabotage was to speed up the complete closure of the depot. It is hoped that the investigations being carried out by the public prose-cution service will help clarify whether and to what extent there is any connection between the oil spill and the planned future of the site.

On learning of the incident, the insureds took action on the morning of 23 February and commissioned a specialist company to initiate emergency measures. With the help of the fi re brigade and a private clean-ing company, workers began to vacuum up the spilt oil and remove the top 30–40 cm of soil from the con-taminated ground. The excavated soil was stored on site and protected by means of PVC sheeting. At the same time, hundreds of helpers tried to set up bar-riers at several points along the River Lambro in order to contain the oil spill.

The company has been insured for many years under a special policy covering environmental damage. However, this cover for third-party liability and re -mediation costs expressly excludes deliberate acts by third parties, which were clearly involved here. Such acts might only be covered by way of a writeback under an SRCC clause. Media reports according to which the tanks contained far more oil than was per-mitted by law also have to be clarifi ed. On this import-ant point, too, it is advisable to wait for the results of the public prosecution service’s investigations.

For operations in which certain potentially dangerous substances or categories of substance are present in quantities which exceed the specifi ed limits, there is an “increased probability of serious accidents”. The “presence of dangerous substances” is deemed to mean the actual or foreseeable presence of danger-ous substances or substances which could arise in the event of the loss of control of an industrial process (Article 2 of Italian Legislative Decree No. 334/99, including subsequent amendments and additions).

Schematic representation of the River Lambro.

During the night from 22 to 23 February 2010, as a result of tampering, 3,000 m3 oil poured out of a storage tank on the site of the disused Lombarda Petroli refi nery in Villasanta in the province of Monza Brianza.

Because of rain, the released oil got into the nearby River Lambro.

To prevent the oil from spreading, an oil spill containment boom was set up at San Zenone.

Conservation area

Monza

Villasanta

Como

CanzoAsso

Lecco

Pusiano See

Alserio See

Lasrego

Magreglio

TriuggioValle del Lambro National Park

Melegnano

San Zenoneal Lambro

Mailand

Lambro

CLAIMS MANAGEMENT


Conclusion

From the underwriting point of view, the interesting point is that a sudden event triggered this disastrous environmental loss. The risks of gradual environmen-tal pollution are usually excluded. Whether and at what conditions risks arising from sudden and unfore-seen environmental pollution should be insured, on the other hand, is examined less closely. This oil spill in the disused refi nery ought to lead to a re-think of this matter.

It is also worth taking another look at the distribution of specifi c insurance policies against environmental damage in Europe. Whereas environmental damage insurance is arranged quite often in Germany, this type of insurance cover is still very rarely found in other countries. In Italy, for example, it is estimated that fewer than 1% of companies have such insurance.

This situation of underinsurance extends to compa-nies in all sectors, even the potentially most danger-ous like the petroleum and chemical industries. The same goes for companies which are exposed to an increased probability of serious accidents. In Lom-bardy, around 250 companies have such exposure, and only 10% of them are covered for environmental damage.

Dr. Lisa Casali is an environmental risk specialist. She writes Pollution Pool risks and is a member of Munich Re’s Environmental Liability Topic [email protected]

OUR EXPERTS

Dr. Giovanni Faglia is an expert in environmental risks specialising in legal and technical matters. He works as a Senior Underwriter and Claims Manager at Munich [email protected]

The most widespread insurance solution in Italy, but also throughout Europe, is the extension of general third-party liability insurance to include unforeseen environmental damage. This cover applies only in respect of damage to third parties as a result of an unforeseen event. In the absence of any defi nition unequivocally establishing the meaning of this term and thereby also clarifying the conditions of validity of such cover, many uncertainties exist regarding the eff ectiveness of this extension. Any company wishing to insure itself appropriately against environmental risks should therefore take out a special policy against environmental damage which does not contain the term “unforeseen” and provides cover in respect of both sudden and gradual environmental pollution.


LIABILITY

Compensation for pain and suff ering –Awards set to rise further

Pain and suff ering awards have to be paid in almost all personal injury cases and even some non-personal injury cases. However, when it comes to who gets how much, diff erences between markets are huge. What trends can be identifi ed and what does this mean for liability insurers?

By Prof. Dr. Ina Ebert

The amount of property damage caused by an acci-dent is usually quite easy to estimate. If a person is severely injured, things get more complicated. How much future income was lost by an eight-year-old girl who due to brain damage caused by a car accident will never be able to work? How much is the care she will need over the next eighty years going to cost?

And what about the non-pecuniary loss of the victim of an accident? Which amount compensates for the pain the girl is feeling? For the fact that she will never be able to lead a normal life? What if she dies as a consequence of her accident? Should her parents, who lost their only child, be compensated for their pain and sorrow?

There is no way of estimating even vaguely how much money is necessary to provide the full compensation that is usually required by damages laws for the pain and suff ering caused by a certain injury or the loss of a close person. The amounts paid follow law or trad-ition. In the end, the sum awarded for a certain injury is the result of a political decision to pay this amount, not more, not less. So compensation for such damage can be highly volatile and is connected with a con-stant risk of change. A change in the national claims mentality or tort law, political or constitutional object-ives or higher minimum liability insurance coverage (e.g. due to the harmonisation of European law in regard to road traff ic accidents) could lead to a sharp

increase in damages awards for non-pecuniary loss from one day to the next. At least in those countries where there are no caps or binding tables for pain and suff ering awards, a spectacular case with lots of media coverage might be all it takes.

The USA has long been comparatively generous when it comes to compensating non-pecuniary loss. Restrictions like caps, if at all existent, are usually lim-ited to the healthcare sector (medical malpractice, nursing home liability). In contrast to this, European jurisdictions traditionally used to try to keep the “fl oodgates shut”. However, this has changed funda-mentally during the last decade. In the meantime, higher amounts of compensation are awarded to a broadening range of people in an increasing number of situations.


CLAIMS MANAGEMENT

(e.g. Portugal, France). More and more countries also accept claims by people not related to the victim but who live in the same household at the time of death, like cohabitants or step- children (e.g. Poland, Bel-gium, France and Spain).

Until a few years ago, pain and suff ering awards to persons close to the deceased were usually limited to cases of wrongful death. However, lately there has been a tendency to extend the range of such claims to cases of very serious injury. For awards to relatives there will either be fi xed sums or a certain range of possible awards, usually graded according to the closeness of the relationship. While some jurisdictions (e.g. England/Wales, Sweden) award rather symbolic sums, awards for relatives in cases of wrongful death in other states can add up to hundreds of thousands of euros (e.g. Italy, Portugal, Greece).

Who is eligible for pain and suff ering awards?

While compensating the direct victim of a personal injury for the pain and suff ering caused is undisputed, it is not always easy to distinguish between direct or primary victims and indirect or secondary victims: for example, if someone is suff ering psychological dam-age because he witnesses a serious accident or hears about the death of a close relative. Until recently, such cases were usually seen as damage caused by “shock” and only sometimes compensated. Lately, post trau-matic stress disorder (PTSD) has become a frequent alternative for claiming damages in such scenarios.

Most countries have either always compensated per-sons close to someone who was killed by a tortfeasor for the pain and suff ering caused by the bereavement (e.g. France), have introduced some form of compen-sation in recent years (e.g. Austria). Only very few states (e.g. Germany) do not award any pain and suf-fering awards for the loss of a close person as such. Some states (e.g. England/Wales) limit the scope of people eligible for damages for their bereavement to the closest family members of the deceased. Others also include siblings, fi ancé(e)s or even more distant relatives like grandparents, aunts, uncles and cousins

Table of pain and suff ering awards by the French Tribunal de Grande Instance de Bordeaux

Awards for the injured person:Very minor pain (1/7) €1,500 Minor pain (2/7) €3,000 Moderate pain (3/7) €6,000 Medium severe pain (4/7) €10,000 More serious pain (5/7) €25,000 Serious pain (6/7) €40,000 Very serious pain (7/7) €50,000 or more

Awards in wrongful death cases:Spouses/cohabitees €25,000 Parents €25,000 Under-aged children €25,000 – for death of last remaining parent €37,500–50,000Adult children– living in the same household €15,000– not living in the same household €12,000Grandparents for young children €9,000 Young children for grandparents €9,000 Siblings €7,000–12,000 Great-grandparents for young children €4,000–7,000 Young children for great-grandparents €4,000–7,000 Other persons close to victim To be estimated by judge


CLAIMS MANAGEMENT

If the direct victim dies instantly after the injury, usu-ally no claims for pain and suff ering arise that could be passed to the victim’s heirs. If, on the other hand, there was a signifi cant time interval between the injury and the death of the direct victim, claims for damages because of his pain and suff ering did arise during his lifetime. These damages claims for pain and suff ering of the direct victim are passed on to his heirs (who are not necessarily identical to those who are eligible for bereavement damages).

How to determine who gets what

Most European jurisdictions have developed certain mechanisms that try to make the estimation of dam-ages awards for non-pecuniary loss less random. Often, sums are awarded on the basis of binding (e.g. Denmark, Sweden) or non-binding (e.g. Portugal) tables which provide a certain range of possible awards. However, there are also still many juris-dictions (e.g. Greece, Germany, Romania, England, Switzerland) where the decision-making process is still dominated by the free estimation of the award by the courts. Awards for non-pecuniary loss are usually paid out in lump sums but (additional) monthly pay-ments are also an option in some jurisdictions (e.g. Germany).

Criteria for determining pain and suff ering awards

Criteria for determining pain and suff ering awards can either be limited to those related to the claimant and the injury suff ered by the claimant or can also include aspects related to the tortfeasor. In all juris-dictions, the basic criteria for estimating damages for pain and suff ering is the severity of the injury and its consequences for the victim: the scope and length of health problems and limitations in everyday life, the existence of permanent damage, the amount of pain felt, complications in the healing process, the scope of necessary medical treatment and the risks involved, the length of time the victim had to stay in a hospital, the necessity to give up or limit practising hobbies or professional activities, the knowledge of the victim about the hopelessness of his situation, or, in a few jurisdictions (e.g. Israel, the Netherlands), the fact that the injury led to a shortened life expectancy.

Another very important criterion is the age of the victim at the time of the injury, at least if the conse-quences of the injury are permanent: an injured child has to live with the consequences caused by the injury for many decades and never has the chance to

live a life not aff ected by it, while someone with a life expectancy of only a few years will suff er less. Simi-larly, the life stage of a victim can be important – los-ing the ability to give birth, for instance, will be worse for a 20-year-old woman without children than for a woman in her late 40s with several healthy children. To estimate the impact the injury has on the living conditions of the victim, some jurisdictions also con-sider the fi nancial situation of the victim. Compara-tive negligence by the victim is usually taken into account when estimating pain and suff ering awards, though not necessarily in the same way as in regard to economic loss.

Tortfeasor-related criteria, on the other hand, are not considered by all jurisdictions. Even those which, until a few years ago, used to consider other sanctions against the tortfeasor, have mostly given up this prac-tice as a consequence of a more compensation-ori-ented approach to the estimation of pain and suff er-ing awards. For similar reasons, the fi nancial situation of the tortfeasor is usually only considered if some form of reduction clause for debts is generally avail-able in the legal system (as, for example, in Switzer-land or Finland) and if the tortfeasor has to pay the damages himself, without the involvement of a liabil-ity insurer or if the liability of the tortfeasor is based purely on equity.

RISK, LIABILITY & INSURANCECompensation for pain and suff ering New trends in Europe and the USA


CLAIMS MANAGEMENT

You can read more about this subject in our recently published brochure “Compensation for pain and suff ering – New trends in Europe and the USA”, which can be downloaded from our client portal at http://connect.munichre.com or ordered using the number 302-06542.

OUR EXPERTProf. Dr. Ina Ebert is specialist in liability law and emerging risks. She is a Senior Consultant in Munich Re’s Global Clients and North America [email protected]

CONCLUSION

Liability insurers will have to reckon with a further increase in damages for pain and suff ering in Europe. Of course, not all markets will be aff ected to the same degree. In mature markets, dramatic reforms are unlikely. Instead, there will be a sort of fi ne-tuning. Two main trends are to be expected:

– A harmonisation of damages for pain and suff ering within Europe: Those states with relatively low damages awards will increase this threshold and adjust their awards to those of other European states. Those few who do not yet have bereavement damages will introduce them. States that already have bereavement damages will extend the range of eligible people and allow bereavement damages not just in cases of wrongful death but also when a close relative is seriously injured.

– More scenarios that cause pain and suff ering claims: Mental illnesses, like posttraumatic stress disorder, will gain in importance, as will damages for sexual molestation, discrimination or abuse of elderly people in nursing homes.

In those European markets that are not yet fully devel-oped, pain and suff ering awards could be one of the fi rst areas where European compensation standards are reached. And at least for victims of road traff ic accidents, thanks to European provisions, deep pock-ets which can pay damages awards similar to those in fi nancially stronger European states, exist. Claimants and judges might make use of this development.


PROPERTY DAMAGE

Coveted treasures

Rocketing prices on the art market are making the theft of works of art increasingly lucrative. Stolen pictures, sculptures or books are estimated to cause global losses running into billions every year.

By Eckhard Schäper

For the police and insurance companies, thefts of works of art from museums, private collections or galleries are everyday cases. According to Interpol, industrialised and developing countries are equally aff ected, although the phenomenon is particularly prevalent in France and Italy. The illegal trade in cultural assets is being driven by heavy demand on the booming art market, open borders, and also political instability in some countries. Such crimes have become lucrative due to the explosive increase in prices on the modern and avant-garde market. Even if records like the auctioning of Alberto Giacometti’s bronze statue “L’Homme Qui Marche” at the beginning of February for US$ 104.3m remain the exception, the trend is clearly upwards at other major auction houses as well. This is because pro-spective buyers with money to spend have discovered art as an investment which not only protects against infl ation but, in economically turbulent times, also promises more stability than many other cash invest-ments.

While most thefts are from private homes and there-fore go unnoticed by the general public, it is the exceptional robberies from museums that hit the headlines.

Spectacular art heist in Paris

The most recent example was in May 2010, when a lone thief broke into the Museum of Modern Art in Paris and stole fi ve masterpieces by Picasso, Braque, Modigliani, Léger and Matisse. The deputy culture secretary at Paris city hall put the value of the works at €100m. The Picasso alone was worth €23m and the painting by Matisse around €15m.

The burglary was discovered early on the morning of 20 May. Museum staff established that a window had been broken and a padlock smashed. A section of the criminal investigation department specialising in art thefts conducted the investigations. As the paintings are eff ectively unsaleable, the police assume this to be a “theft to order”. It fi ts in with a pattern of other spectacular cases in the last year. In June 2009, for example, during building work at the Picasso Museum in Paris, a sketchbook of drawings by the artist disappeared, while at the Palace of Versailles two valuable bronze vases went missing, the loss only being noticed several weeks later, in September. On New Year’s Eve 2009, art thieves stole the painting “Les choristes” by Edgar Degas, worth an estimated €800,000, from a museum in Marseilles.


CLAIMS MANAGEMENT

Police off icers preserving evidence following the early-morning discovery of the crime.

In August 2010 at Cairo airport, art thieves who had stolen a Van Gogh painting worth €40m from a large Cairo museum in the morning were arrested by police shortly before their fl ight was due to depart.

The risk for thieves is relatively small, as the clear-up rate stands at only 10% to 20%. Even spectacular successes like the one at the end of June in Rome, when police recovered stolen artworks by Grosz, Kandinsky and Fontana worth tens of millions of euros, make little diff erence. These art treasures had been stolen in March from an apartment in the centre of Rome. The suspected perpetrators are understood to have admitted shortly before that they planned to sell the stolen works abroad.

The Art Loss Register

There is often a happy ending where famous works of art are concerned. This is particularly true where less experienced lone thieves have helped themselves to masterpieces but then have problems selling them. On the other hand, the police are largely helpless in the bulk of cases, where thieves are not hindered by

the global fame of their haul. In addition, the compar-atively “mid-range” values of these items do not jus-tify a major investigation. However, the modest clear-up rate can also be explained by the fact that many private individuals, museums, galleries or churches do not have their works of art registered and often do not even have any photographs of them. In such circumstances, the chances of recovering the stolen property are practically nil. The mission of the Art Loss Register, established in 1991, is to increase the chances. With off ices in London, New York, Paris, Amsterdam and Cologne, it is the largest private database of lost and stolen works of art in the world. In close collaboration with special investigators from the FBI, Europol and Interpol, the Register has helped to fi nd works worth €230m. Besides stolen items, the Art Loss Register also records art works in a “positive” database with a view to prevention.


CLAIMS MANAGEMENT

Given the international dimension, cross-border co -operation is important in combating cultural property crime. Many cases in recent years have shown that stolen items may have travelled half way around the world before turning up again. The Art Loss Register is not alone in sharing data: since 1947, Interpol has published a list of stolen art works as well. Interpol member countries have the possibility of accessing a database via the internet. The FBI in the USA has had its own Art Crime Team since 2004. In that time, it has managed to recover more than 2,600 works of art, worth US$ 142m.

Exchange of information on security in museums

Since art criminals have “upgraded” their operations considerably, museums must think about suitable countermeasures. This also became clear at the fourth exchange of information on security in muse-ums, held at the end of 2009 by the Bayerische Staatsgemäldesammlung (Bavarian State Collection of Paintings), the Doerner Institute, Munich Re and the Bayerisches Landeskriminalamt (Bavarian State Criminal Police Off ice). The aim must be to optimally protect exhibits against theft or damage without turn-ing the exhibition rooms into high-security wings.

SPECTACULAR ART THEFTS IN RECENT YEARS

20 April 2002BerlinFour men broke into Berlin’s Brücke Museum and stole nine expres-sionist paintings, including works by Nolde, Kirchner and Pechstein worth a total of €3.6m. One year later, all the stolen pictures had been recovered.

11 May 2003ViennaAn alarm system expert stole the “Saliera” by Cellini from the Kunst-historisches Museum in Vienna. This gold salt-cellar by the Florentine sculptor was worth about €50m. Three years later, the thief demanded a ransom of €10m but was then arrested by the police.

27 August 2003 ScotlandThieves posing as tourists stole two paintings by da Vinci from Drumlanrig Castle. They were recov-ered in a police raid in Glasgow in October 2007.

22 August 2004OsloTwo masked gunmen entered the Edvard Munch Museum in Oslo in broad daylight and stole the world-famous paintings “The Scream” and “Madonna”, worth around €75m. Both robbers and a third man were arrested. The pictures were recov-ered but had suff ered some irreparable damage.

25 February 2006Rio de JaneiroAmid the Carnival celebra-tions, men armed with machine guns and hand grenades stormed the Chácara do Céu Museum in Rio de Janeiro and made off with pictures by Picasso, Dalí, Monet and Matisse worth €40m. The Matisse was off ered for sale on the internet shortly afterwards, but all the pictures are still missing.

6 August 2006MoscowThe art thefts from the Hermitage in St. Peters-burg and the State Archive in Moscow which had been going on for years were cleared up. The husband of the former museum curator, a univer-sity professor and an antiques dealer were arrested for having stolen 221 masterpieces of Russian gold work worth €3.9m.

Even though better cataloguing means that it is virtu-ally impossible to sell prominent works, they are still far from being worthless. Instead of off ering the stolen works to a “fence”, thieves demand ransoms from insurance companies or the owners for their safe return. Private collectors, too, are not immune to “artnapping” (analogous to “kidnapping”).


CLAIMS MANAGEMENT

OUR EXPERTEckhardt Schäper is a fi re safety engineer and expert on burglary/theft working as a Claims Engineer in Munich Re’s GAPA [email protected]

27 February 2007ParisThree paintings by Picasso worth €50m were stolen during the night from the home of his granddaughter, Diana Widmaier-Picasso. The pictures and the thieves were found fi ve months later following an anony-mous tip-off .

11 February 2008ZurichThree gunmen raided the E.G. Bührle Collection in Zurich and stole four paintings by Monet, Cézanne, van Gogh and Degas. Investigators referred to it as the biggest art theft in Europe. Two of the pictures were discovered in Zurich on the back seat of a stolen car.

27 February 2008Pfäff ikonTwo paintings worth several million Swiss francs were stolen from a Picasso exhibition at the Seedamm Cultural Centre in Pfäff ikon (Swiss canton of Schwyz).

9 June 2009ParisIn the Picasso Museum in Paris, a valuable sketch-book of drawings by the Spanish artist which had been exhibited in an unlocked display case was found to have been stolen. Value: €8m.

24 September 2009BrusselsShortly after the exhibi-tion rooms at the René Magritte Museum in Brussels opened, one of the Belgian artist’s paint-ings was stolen: the nude portrait “Olympia” was estimated to be worth up to €3m.

31 December 2009MarseillesThe theft of “Les choristes” (The Chorus Singers), a painting by Degas, from the Cantini Museum in Marseilles in the South of France was discovered.

20 May 2010ParisFive masterpieces by Picasso, Braque, Modigliani, Léger and Matisse were stolen from the Museum of Modern Art in Paris. The works were estimated to be worth €100m.

FURTHER INFORMATION

See the German Insurance Association’s regulations on the subject of safety in museums and galleries in: VdS 3511 Sicherungsrichtlinien für Museen und Aus stellungshäuser (Security guidelines for museums and exhibition venues).

Conclusion

Given the growing threat to works of art and cultural property, museums, galleries and private collectors should protect their property with the help of a co ordinated, properly though-out protection concept. Ideally, a combination of staff , electronic and mechan-ical protective measures should deter potential criminals.

“First secure and then insure.”

Unfortunately, the reality is somewhat diff erent: electronic solutions like security access controls, CCTV and burglar alarms cannot be taken for granted everywhere. And even the best alarm is useless if it does not work. At the Museum of Modern Art in Paris, for instance, parts of the system had been out of service for quite some time. In the absence of an individual protection concept, cover should not be granted.


LIABILITY

Kenneth Waters spent 18 years in prison until a DNA test proved his innocence. Insurance aspects of a very special form of third-party liability claim: the conviction of innocent people.

Innocent behind bars

In dubio pro reo (“when in doubt, in favour of the accused”) – this constitutional principle applies in many national legal systems. Unfortunately, in reality the situation is often very diff erent.


INDIVIDUAL LOSSES

By Dr. Frank Hoff mann

On 21 May 1980, Katherina Brow was killed in her Ayer, Massachusetts, home, by being stabbed more than 30 times. When her daughter-in-law found her body at about 10.45 a.m., there were bloodstains throughout the house. Her purse, some jewellery and an envelope where she kept cash were all missing. The apparent murder weapon, a paring knife, was in a wastebasket.

The Kenneth Waters case

Kenneth Waters, the neighbour, soon became the tar-get of investigations. Waters worked in a diner where Brow was a frequent customer and had told diner employees that she kept a large amount of cash in her home. However, Walters had an alibi: on the day of the crime, he had worked until 8.30 a.m. A work colleague then drove him home, where he changed clothes. Bet-ween 9.00 and 11.00 a.m. he had a court appearance. Afterwards, Waters returned to his place of work, where he stayed until 12.30 p.m. There were no blood stains or cuts on his clothes and body. The police took his fi ngerprints and questioned him, but he was not arrested.

Two years later, the new partner of Waters’ ex-girl-friend off ered to provide the police with supposedly new information in exchange for money, claiming that Waters had admitted the murder to his girlfriend at the time, Brenda Marsh. Marsh initially denied this statement. However, after the police threatened to charge her as an accessory to murder and take away her children, she changed her statement. She now alleged that on the day of the crime Waters had re turned home with a deep scratch on his face.

Another former girlfriend of Waters also implicated him. She had also initially told police that she knew nothing about any murder. After three hours of inter-rogation and threats of arrest, however, she changed her mind and then testifi ed that Waters had let her into the secret about the murder and the robbery.

In May 1983, Waters was charged with the murder of Katherina Brow. The fi ngerprints taken from the scene of the crime did not match Waters’, however. In the trial, this circumstantial evidence of Waters’ inno-cence was not taken into account, as the police had not passed on this information to the District Attorney’s off ice.

The blood groups of the alleged perpetrator and the victim were not the same. According to forensic medi-cine, the hairs found in the victim’s hand and on the murder weapon did not come from Waters. The docu-mentary evidence of Waters’ alibi could not be found in the trial. And although the police had confi rmed Waters’ presence in court on the day of the crime, they never informed the court about it.

During his long imprisonment, Waters suff ered panic attacks, became infected with hepatitis C and twice tried to take his own life. All his appeals for a retrial were denied. Only his family believed in his inno-cence. In order to be able to help her brother, his sister – a 40-year-old waitress – completed a law degree course at night school. At the end of the 1990s, in the course of her research she then found the blood sam-ple of the presumed perpetrator in the courthouse basement. The District Attorney’s off ice agreed to allow DNA testing. The result was unequivocal: Waters was not the perpetrator. In March 2001, after 18 years, Kenneth Waters left prison as a free man.

Six months after his release, Waters died, aged 47, when he fell from a wall. His story has been turned into a fi lm in the USA and has been showing in cine-mas since October 2010.

The Dennis Maher case

Dennis Maher was wrongly imprisoned from the age of 23 to 42. A DNA test subsequently proved his inno-cence. Two diff erent legal proceedings had convicted him of rape: one for the rape of a 28-year-old off ice worker in Lowell, Massachusetts, on 16 November 1983, and also for the attempted rape of a 23-year-old woman on the following evening. The latter had managed to escape. According to the victim, the per-petrator was wearing a red, hooded sweatshirt and a military-style jacket. Maher, a sergeant in the US Army, was stopped in a road check. He was wearing a red, hooded sweatshirt. A subsequent search of his vehicle turned up an army fi eld jacket, a military issue knife and a rain slicker (waterproof jacket).


INDIVIDUAL LOSSES

Wrongly convicted people in the USA

According to Amnesty International, 139 of the defendants sentenced to death in the USA since 1973 have so far subsequently been cleared when their cases were re-opened in the light of new evidence. Professor M. Risinger of the Seton Hall Law School estimates that around 4% of all those convicted of both murder and rape between 1982 and 1989 are innocent. Subsequent DNA testing in 29 cases of rape in Virginia revealed that in 7% of cases the men had been wrongly convicted.

Source: http://www.amnesty.ch/de/themen/todesstrafe/facts-fi gures#section-3 http://www.innocenceproject.org/news/250.php

DNA tests prove innocence

The rapid development of genetic engineering has revolutionised criminology. Even years after a crime, precise DNA tests make it possible to prove whether a certain person was present at the scene of a crime. In the USA, 85 people have been freed in the past twelve months following DNA tests. Altogether, 240 people in the USA were proved to have been wrongly con-victed and have since been released. Because of the many wrong convictions, the state of Illinois has sus-pended enforcement of the death penalty. Numerous initiatives in the United States support prison inmates and their family members who seek help with proving their innocence.

More than three-quarters of wrongful convictions were due to eyewitness misidentifi cations, while over 15% were due to false statements by informants. In almost a quarter of cases, the accuseds even made a false confession because they were put under pres-sure by the investigating authorities or because they hoped that, by confessing, they would obtain a more lenient sentence.

In 2009, Munich Re received two claims advices regarding the Waters and Maher cases from the town of Ayer, for which Munich Re had reinsured a Law Enforcement Professional Liability Policy. This special liability policy provides cover in respect of police mis-conduct.

Insurance aspects

In the USA, compensation for people who have been wrongly convicted is dependent on the law of the indi-vidual state concerned. In the cases of Waters and Maher, the compensation amounted to a seven-fi gure amount each. In other cases, courts awarded victims of the justice system a million dollars for each year that they had been wrongfully imprisoned. However, only 23 US states off er victims of the justice system any compensation at all. Often this only happens years later. The Innocence Project and other support organisations are proposing speedy support for ac knowledged victims of the justice system, with tax-free lump-sum compensation of US$ 50,000 for each year spent wrongly imprisoned, or US$ 100,000 for each year spent on death row.

For insurers and reinsurers, such cases raise diff icult insurance questions regarding how the indemnity payable is to be allocated to the relevant policies. Is the policy that was in force at the time of the convic-tion the one that applies? Or are all the policies that were in force during the period of imprisonment liable? What happens with the shares of insurers which are

The second trial was in respect of the rape of a woman in a hotel in Ayer on 17 August 1983. Although the victims had given diff erent descriptions of the perpetrator, they still identifi ed Maher in photo-graphic line-ups. The juries in both trials came to the conclusion that Maher’s guilt was “beyond any reason -able doubt”. Without the slightest bit of evidence that he had been at the crime scenes, in 1984 the courts sentenced Maher to life imprisonment.

The US Innocence Project initiative (see “Further information”) supported Maher’s cause and learned that the biological evidence found at the crime scene could not be located. It was not until 2001 that a law student discovered two boxes of evidence in the base-ment of the County Courthouse. DNA testing revealed that traces of semen found on the items of evidence did not come from Maher. Another DNA test proved that Maher was innocent of the second rape.


INDIVIDUAL LOSSES

Conclusion

Convictions of innocent people in the USA constitute a special, rarely occurring form of third-party liability claims for insurers. Such individual cases are not a problem for the operating results of a major reinsurer. In individual cases, however, these third-party liability claims are associated with liability and coverage issues which are diff icult from the legal point of view. Such claims also illustrate a special feature of liability insurance, namely long-tail claims which only become apparent after many years (also called “latency claims”). Recognising possible long-tail claims before writing the business is often an important factor for successful liability underwriting.

OUR EXPERTDr. Frank Hoff mann is a claims lawyer and is responsible for US and UK third-party liability claims. He is also a member of the Topic Network Group Latency Claims.fhoff [email protected]

FURTHER INFORMATION

One of the best-known US initiatives providing legal support for wrongly convicted people is the Innocence Project (www.innocenceproject.org). It was created in 1992 by Professor of Law Barry Scheck.

The celebrated best-selling author John Grisham is a member of the Innocence Project’s board of directors. In 2006 he wrote “The Innocent Man: Murder and Injustice in a Small Town”, based on the fate of Ron Williamson, who was wrongly convicted of murder and rape.

no longer in existence? This answer to this and other coverage questions is substantially dependent on the relevant circumstances of the individual case and on the law applying in the state concerned. In particular, questions regarding the allocation of a claim com-parable to one of the examples can form the subject of disputes when the interests of the insurer(s) and reinsurer(s) diff er. There is no generally applicable rule here for apportionment of the claim. In such a case, a comprehensive legal assessment and evalua-tion of all the relevant facts and circumstances must be made.


AGRO/FIRE

Innovative harvesting technique reduces loss at forestry plantation

One of the largest losses in a eucalyptus globulus plantation occurred on 16 January 2009 in Western Australia. Thanks to an innovative harvesting technique, large portions of the damaged plantation were nevertheless salvaged, thus halving the claim.

By Dr. Joachim Herbold and Phil Weir

The loss was caused by an extensive bushfi re called “Blackwood Fire 23”, which occurred in the period from 15 to 20 January 2009 in the vicinity of Bridge-town, in the south west part of Western Australia. This bushfi re burnt an area of approximately 5,900 ha, of which around 1,750 ha were pine and blue gum plantations. In addition, 43 km of power lines, seven houses, nine sheds and other property were destroyed.

The fi re started on the afternoon of 15 January 2009 at two points outside the plantations, presumably after being deliberately ignited by the same individ-ual. It was possible to contain the fi rst fi re, located on crown land, within an area of under one hectare thanks to the rapid response of the Department of Environment and Conservation (DEC). The second fi re, approximately 3.5 km from the fi rst ignition point and on top of a ridge, spread across pasture land, bushland and private woodland. However, the volun-tary bushfi re brigades and local farmers who were responsible for fi re-fi ghting in that section of land were unable to contain this fi re.

With temperatures above 40°C and wind speeds of 40–50 km/h, the fi re spread extremely quickly and on 16 January spread to a 390-ha eucalyptus plantation.

The 81/2-year-old trees with a tree sum insured of around A$ 3m were badly damaged. GPS measure-ments confi rmed that all planted plots were insured. After the fi rst loss inspection, the loss reserve was set at A$ 3m. At that time, the salvage value of the burnt trees was not known but was estimated at 20% of the plantation value.

Innovative harvesting technique halves loss amount

With previous fi res, the possibilities for salvaging eucalyptus trees after a fi re had been limited. Char-coal contamination of the pulpwood and the fact that the trees were still young and so contained a lower wood volume posed problems. In this case, however, it was possible to salvage a great deal. A specialist com-pany took on the harvesting operation, using an inno-vative harvesting technique to remove the welded bark and the burnt branch stubs from the tree trunks.


INDIVIDUAL LOSSES

The fi re caused severe damage to the eucalyptus trees but, thanks to new a harvesting technique, these could still be processed, leading to a reduction in the loss amount.

The salvage operations started shortly after the fi re event and went on until January 2010. A total of around 54,500 t was salvaged for a total net return of around A$ 1.3m. This amounts to 46% of the gross loss. Only a small area could not be harvested, as the trees were too badly damaged. After deduction of the salvage value and the excess and the addition of debris removal costs, the indemnity came to around A$ 1.5m.

Fire – A constant threat

The course of events described is exemplary. Fire con-stitutes the biggest danger for forestry plantations and is therefore the prime insured peril. Tropical timber species like sandalwood and acacia, grown in the northern parts of Australia, are similarly highly exposed – not primarily to fi re, however, but to tropical cyclones. The fi re hazard is highest in the summer months of November to March, when high tempera-tures and low humidity are associated with high wind speeds. Under these conditions, fi res can travel long distances and burn large areas, especially when vege-tation with high fuel loads such as bushland prevails. It is then nearly impossible to stop them with the fi re-fi ghting resources regionally available. Climate change, according to scientists, increases the prob-ability of these extreme events.

Accidental 35.2% Incendiary 13.3% Suspicious 36.2% Natural 6.0% Reignition/prescribed burn

(government)/exposure 5.4% Other 3.9%

Source:Bryant, Colleen: Deliberately lit vegetationfi res in Australia, Trends & Issues in crime andcriminal justice, No. 350, February 2008

Causes of vegetation fi res in Australia (%) – over 90% caused by people

INDIVIDUAL LOSSES


Charcoal contamination; burnt bark is also welded to the trunk by intense heat.

Five factors aff ect a forestry plantation’s fi re exposure

– Surrounding area: Plantations located close to native bushland or conservation areas have the highest exposure because of the high fuel loading. Those located amongst grazing or cropping farms are less exposed.

– Topography: The exposure rises with the undulation of the land because a steep slope often increases the rate of fi re movement up the slope, as radiant heat dries out the vegetation ahead of the fi re front. The more undulating the land, the more diff icult it is for fi refi ghters to quickly reach spot fi res within the plantation and extinguish them.

– Age of plantation: Eucalyptus plantations over six years old have higher fuel loads because of shed bark and dead limbs and therefore a higher ex -posure than younger plantations.

– Harvesting method: Exposure is increased by the following factors:

· Residual debris from the harvesting operation is not removed before the new tree plantings are established. This debris increases the fuel load.

· Where the new rotation is established by regrowth from the tree stumps, fl ammable material accumu-lates in the fi rst two years as the new shoots are thinned down to select only the new main stem. The remaining plant material breaks down over the next four to fi ve years.

– Management: Identifi cation of fi res and response time, existence and maintenance of fi rebreaks, fi re-fi ghting resources and availability of suff icient and accessible water are the most important factors.

Forestry plantations – A growing industry

Despite the exposure mentioned, forestry plantations are a growing industry in Australia. The area of plan-tations has expanded considerably in Australia since 1990, to 1.98 million ha. Protection measures for native forests and the introduction of standards like forestry stewardship certifi cation contributed to this, as did the high demand for wood chips in Asia and the establishment of Managed Investment Schemes (MIS) with tax incentives for individual investors. The main species grown are various pine species for the local timber construction market and eucalyptus globulus (Tasmanian Blue Gum) which are exported after being processed into wood chips.

The fi rst-generation plantations in Australia were pine plantations. These proved to be at major risk from fi re in the Australian climate, as their growth cycle lasts more than 20 years and considerable amounts of dead, highly combustible plant material accumulates on the ground throughout this period. Since the mid-1990s, eucalyptus plantations have formed the second generation, leading to a marked reduction in bushfi re vulnerability. This has largely been due to plantations being grown on short rota-tions (generally ten to 12 years) and planted on former farmland. Furthermore, during the fi rst phase of growth there is hardly any dead plant material. In the last few years, a third generation of plantations has emerged comprising high-value timber like sandal-wood, teak and mahogany. These plantations are to be found mainly in Northern Australia due to its plen-tiful water supply. A further trend is the development of plantations for carbon sequestration, for which the mallee eucalyptus is used. This species is tolerant of harsh conditions and grows in areas which are not traditional for forestry.

The main areas of eucalyptus plantations lie in south-ern Australia, in the vicinity of port facilities for easy export. As many of the plantations are in the same regions, accumulations have to be carefully monitored and controlled by the underwriters.


INDIVIDUAL LOSSES

Conclusion

Under extreme climatic conditions bushfi res are diff icult to contain with the available fi re-fi ghting resources once they become too large. Spreading into forestry plantations, these fi res can cause extensive damage.

Early detection is the most important factor in suc-cessful fi re suppression. New technology like the use of early-smoke-detection systems using optical scanners can increase the success rate. However, getting the necessary fi re-fi ghting resources to the sometimes remote areas in time is still a challenge in Australia.

Plantations with eucalyptus trees over six years old are a higher risk than younger plantations due to the increased fuel load, which allows the fi re to move up the trunks, causing crown fi res.

An innovative harvesting technique makes it possible to remove the welded bark and the burnt branch stubs from tree trunks. For forestry plantations older than six to eight years in particular, this increases the salvage potential. In underwriting, consideration should be given to fi nancial incentives for successful salvaging of trees after a fi re, e.g. off ering the insured a fi nancial participation in the salvage value.

OUR EXPERTS

Dr. Joachim Herbold is an agricultural scientist specialising in agricultural risks. He is Senior Underwriter in Munich Re’s Agro Divisional Unit, where he is responsible among other things for forestry business in Australia and New [email protected]

Phillip Weir is an agricultural scientist and works as the Technical Manager at Rural Aff inity Insurance Agency. He is responsible for product and claims management. p.weir@ruralaff inity.com.au


BRIDGE CONSTRUCTION

Bridge collapse due to design and inspection errors?

Negligence by the authorities in the course of planning, renovation and inspection was partly to blame for the collapse of a bridge in the US state of Minnesota.

By Harald Ochsenkühn and Klaus Wenselowski

On 1 August 2007, maintenance work on the I-35W bridge over the Mississippi led to lane restrictions, with only four of the eight lanes being open to traff ic. In the afternoon, construction equipment and aggre-gates were put on the bridge for renewal of parts of the upper deck. At about 6.05 p.m. local time, a failure in the main span caused the roughly 300-m-long deck truss to collapse. The 140-m-long main span plunged 30 m into the river, together with 111 vehicles. Thirteen people lost their lives and 145 people were injured.

Interstate 35W Mississippi River Bridge

The bridge had been built in 1964 and connected two parts of Minneapolis (Minnesota), Downtown East und Marcy-Holmes. The 581-m-long (divided into 14 spans) and 34-m-wide split-deck bridge was opened to traff ic in 1967. Most recently, around 140,000 ve hicles had been driving across the bridge each day. It was designed for permitted overweight loads of up to 72 tonnes and legal truck loads of up to 36 tonnes per truck.

Another layer of concrete was added to the deck in 1977, and in 1998 the Minnesota/Department of Transport (Mn/DOT) had concrete barriers installed between the lanes. Reconstruction of the bridge was scheduled for 2020. Deck steel truss bridges of this kind generally have a life span of about 50 years.

The bridge had been inspected annually since 1993. From 1997, some cracks in the steel girders of the approach spans were identifi ed and in some cases repaired. The University of Minnesota evaluated the fatigue stresses within the deck truss in 2001 and concluded that fatigue cracking was not expected. In 2006, after in-depth analyses, United Research Ser-vices (URS) recommended fi xing additional plates to 52 fracture-critical truss members or carrying out a visual inspection of all suspected welds. Measurable defects were to be eliminated. Since Mn/DOT found no weld cracks, the fi tting of additional plates was stopped at that time. Also in 2006, corrosion, poor welds on the steel truss members and fl oor beams and existing fatigue crack repairs to the truss cross beam led the Mn/DOT team to rate the bridge’s con-dition as “poor” in the Fracture Critical Bridge Inspec-tion Report.

After the collapse

The National Transportation Safety Board (NTSB) came to the conclusion in its accident report of 14 November 2008 that inadequate load capacity – due to design error of the gusset plates (among others) at the U10 nodes – was the “probable cause” of the collapse. All in all, the gusset plates, which were only half an inch thick, were underdesigned and on the day of the accident were too weak to bear the current load. This had been signifi cantly increased as a result of the structural modifi cations of previous years, the heavy volume of traff ic, and the construction equipment and aggregate concentrated in a section of the bridge.

NorthSouth

Pier 5

Pier 6Pier 7

Pier 8

Lower chord(s)

Upper chord(s)

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 13‘ 12‘ 11‘ 10‘ 9‘ 8‘ 7‘ 6‘ 5‘ 4‘ 3‘ 2‘ 1‘ 0‘


INDIVIDUAL LOSSES

The collapsed bridge immediately after the accident.

Source: NTSB report, page 19;Interim report of Turner Fairbank Highway Research Center Report

Live-load lane placement used for design

INDIVIDUAL LOSSES


OUR EXPERTS

Klaus Wenselowski is Head of the Property Claims Management Section for Global [email protected]

Harald Ochsenkühn is Legal Counsel and Claims Manager and is respon-sible for property claims in the Global Clients and North America [email protected]

Conclusion

Even decades after the commissioning of a risk, losses can occur, the causes of which were created right at the planning stage. Corresponding exclusions of design errors in policies (CECR for instance) there-fore prove to be eff ective even with older risks. Tougher requirements must also be set for the insur-ability of “older risks”. Loss prevention is particularly important, especially where “ageing” infrastructure is insured on a replacement value basis. It is the job of risk inspectors to reveal this. Irregularities in mainten-ance and upkeep as well as high rates of wear could be included in any assessment or recommendation.

The Federal Highway Administration (FHWA) assisted the NTSB investigators by reviewing and reassessing the original design calculations. The Interim Report of 11 January 2008 says that there were two diff erent requirement criteria for determin-ing the thickness of the gusset plates: namely the demands of the applied loading and the geometric needs of the connection or the resulting slenderness requirements.

Since these facts were not mentioned in any of the inspections before the crash, the NTSB concluded that inspectors were partly responsible for the bridge’s collapse. The reasons for this were the lack of guidance for bridge owners regarding the placement of construction loads on the bridge during mainten-ance work, inadequate use of existing technology for accurately assessing the state of repair, and insuff i-cient consideration of renovations and additions. Other assumptions about the causes of the bridge’s collapse, like corrosion damage, fracture of a fl oor truss, pre-existing cracks, temperature eff ects and pier movement could not be confi rmed by the NTSB’s report.

The Mn/DOT Metro District bridge safety inspection engineer mentioned in the course of this investigation that he had observed gusset plates bowing during inspections. After consulting a colleague, however, he had decided not to report the deformation, since the gusset plates were overdesigned by a factor of 2 to 3, the connection showed no other signs of distress, and the inspection was focused on fi nding signs of deteri-oration and not on identifying construction or design problems.

Is your knowledge up to date?

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You can benefi t from our experts’ outstanding specialist knowledge and net-work with colleagues from other companies. Munich Re’s seminar programme is sure to off er you what you are looking for.

To fi nd out more about our seminar programme, contact your client manager or visit our client portal at connect.munichre.com.

* The formula on which all insurance is based. Premium equals probability of occurrence times insured sum at risk.

*


List of major losses 2009 to 2010

20 August 2009 West Atlas oil rig fi re, Australia

Fire broke out on the newly installed West Atlas drilling rig during repairs to a leaky pipe. For two and a half months, almost 400 barrels of oil fl owed daily into the sea about 150 miles north-east of Australia. According to estimates so far, the drilling rig and platform will be a total loss, amounting to US$ 500m.

22 March 2010Perth hailstorm Insured loss: US$ 990m

28 February 2010Winter Storm Xynthia, Europe

With wind speeds of 150 km/h, Xynthia moved across Portugal, Spain, France and Germany. In France, it caused a severe storm surge. The storm cost the lives of 65 people. and resulted in insured losses of €2.5bn.

22 July 2009Dornbracht GmbH fi re

The entire site of a plant belonging to the chemical company Weka was ablaze for about nine hours following a violent explosion. External tanks fi lled with solvents could no longer withstand the fi re, resulting in further powerful explosions. The accident happened right next to the insured’s site, causing tremendous damage there (insured loss: €125m).

9 April 2010Kettle Produce fi re, Freuchie, UK

Fire destroyed the bulk (3,000 m2) of a processing plant for root vegetables. The cause of the fi re is still uncertain, but there are three possibilities: an electrical fault, careless hand-ling of tobacco products, or arson. At the moment, however, it looks as if the scale of the damage (insured loss: €36.9m) will make it impossible to establish what actually did start the fi re.

12–16 May 2010Storms, Midwest, USA Insured loss: US$ 1.75bn

6–7 March 2010Melbourne hailstorm Insured loss: US$ 950m


MAJOR LOSSES

12 May 2010Afriqiyah Airways crash, Libya

An Afriqiyah Airways Airbus 330 which had taken off in Johannesburg crashed on its approach to Tripoli International Airport in Libya. The aircraft missed the runway and disinte-grated on impact with the ground. The insured loss amounted to US$ 275m.

27 February 2010Chile earthquake

The magnitude 8.8 earthquake was the fi fth-strongest ever measured worldwide and the second-strongest in Chile after the earthquake of 1960. The event claimed the lives of 521 people. The total insured loss amounted to US$ 8bn.

20 April 2010Deepwater Horizon fi re, USA

Fire broke out during drilling operations on the Deepwater Horizon oil rig in the Gulf of Mexico. Eleven people died and 17 were injured. The extent of the damage from the resultant oil pollution is still unclear. The insured market loss stands at between US$ 1bn and US$ 3.5bn.

12 January 2010Haiti earthquake

More than 222,500 people lost their lives in the magnitude 7 earthquake in Haiti. Around 50% of the buildings in the capital, Port-au-Prince, alone were destroyed. The insured loss amounted to US$ 200m.


© 2010Münchener Rückversicherungs-GesellschaftKöniginstrasse 10780802 MünchenGermanyTel.: +49 89 38 91-0Fax: +49 89 39 90 56www.munichre.com

Responsible for contentClaims Management & Consulting:Nicholas RoennebergGeo Risks Research/Corporate Climate Centre: Prof. Dr. Peter HöppeMarine: Thomas ArtmannSpace: Dr. Achim EnzianRisk, Liability & Insurance:Christian LahnsteinClaims: Dr. Paolo Bussolera,Dr. Stefan Klein, Arno Studener, Dr. Eberhard Witthoff

Editor responsibleCorinna Moormann,Group Communications(address as given above)Tel.: +49 89 38 91-47 29 Fax: +49 89 38 91-7 47 [email protected]

ISSN 0941-0805

Picture creditsCover: AP/The Middletown Press, Catherine Avalonepp. 2 left, 4: Getty Images/Douglas Healey/Stringerpp. 2 right, 28: dpa/Picture Alliance/Giorgio Benvenutipp. 3, 40: Getty Images/Flickr/Olmo Gonzálezpp. 7, 8: US Chemical Safety Board (CSB)p. 13: dpa/Picture Alliance/Us Coast Guard Handoutp. 15: Getty Images/U.S. Coast Guard/Handoutp. 17: US Geological Survey Professional Paper 116p. 21: Shutterstock/Martin Lehmannp. 27: plainpicture/photocake.de p. 37: Getty Images/AFP/BERTRAND GUAY/Staff pp. 45, 46: Agricultural Loss Management Groupp. 49: Getty Images/AFP/MANDEL NGAN/Staff p. 51: Getty Images/Chris Ryanp. 52 top left: Kreispolizeibehörde Mär kischer Kreis/Fire brigade in Iserlohnp. 52 top right: Reuters/Ho Newp. 52 bottom left: Getty Images/AFP/Stringerp. 52 bottom right: Allayit/John A. Thomsonp. 53 top left: Getty Images/AFP/ROBERTO SCHMIDT/Staff p. 53 top right: Reuters/Stringer/Chilep. 53 bottom left: dpa/Chief Petty Off icer John Kepsime p. 53 bottom right: Associated Press/AP/Abdel Meguid al-Fergany

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