Insurance will be unaffected by the compensation pool

BP’s $20bn fund for the Gulf of Mexico Deepwater Horizon oil spill agreed on Wednesday will have little impact on insurers' obligations tied to the oil spill, Dow Jones reports.

Ken Feinberg, the administrator of the new fund, oversaw the compensation program for victims of the Sept. 11 terrorist attacks.

If the BP fund operates like that earlier program, people and businesses affected by the spill will likely be paid less if they have insurance that covers some of their losses, said Richard Bieder, president of Trial Lawyers Care, which represented families of Sept. 11 victims pro bono.

Insurers’ share

Estimates are that insurers will pay $2.5bn to $3.5bn in claims.

Howard Mills, a former insurance superintendent for New York, said companies with business interruption coverage wouldn't carry nearly enough protection to reimburse them if they face years of reduced revenue. That would leave the new BP fund to pay for a substantial proportion of the losses.

The existence of the fund may be used by insurers as a reason not to pay claims, said John Nevius, the head of the environmental law practice at Anderson Kill & Olick, which represents clients seeking to collect from insurers.

Some policies may contain language that says other means of recouping costs take precedence over the insurance policy, and insurers may argue that the BP fund should pay out instead of the private coverage, he said.

"That would defeat the purpose of insurance, but it's a possibility," he said. "Nearly everything surrounding this is unclear, though. This Gulf spill is unprecedented."