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By CYRIL TUOHY, managing editor of Risk & Insurance®

VANCOUVER---Did BP do a good job of attenuating the damage to its public image of its risk management capabilities caused by the blowout of the Macondo oil well in the Gulf of Mexico last year? Or was the company's reaction a textbook example of how not to proceed? On the matter, there's plenty of debate.

The company, one of the largest oil companies in the world, is self-insured. As a result, BP has very few issues with its insurance carriers. The disputes are arising between BP and subcontractors.

BP was in "such a deep hole" that there was nothing they could really say to improve their perception in the eyes of lawmakers and the public. BP's only hope was to make sure things didn't get worse in the wake of the April 20, 2010, explosion and subsequent oil spill, Roach said, during a session at the annual meeting of the Risk and Insurance Management Society Inc. (RIMS) in Vancouver.

"At the end of the day, they are still selling gasoline," he said. "BP's bottom line is still looking pretty good."

The explosion killed 11 rig workers and spilled almost 5 million barrels of oil into the Gulf before the well was finally sealed in July. The spill, by far the worst oil spill in U.S. history, fouled shorelines for miles and the Gulf tourist season took a heavy toll.

DISAGREEMENT

Roach's view on BP's handling of the oil spill was quickly challenged by several members in the audience.

"Excuse me," said one audience member, "but they weren't managing anything."

"I thought it was a disaster," said another audience member, noting BP's effort--eventually unsuccessful--to suppress videotape of the gushing well head. "I don't think they did well at all."

A third audience member said that the only reason BP was still selling gas was because of America's voracious appetite for oil, not because BP saved itself by sound risk management practices in the wake of the disaster.

Roach agreed that the comments were "all well founded." Mounting public pressure did serve to help BP bring all the facts of the spill into the open, Roach also said.

Despite the disagreement within the risk management community over BP's handling of the disaster, there were lessons to be learned--three being to tell your story early, tell the story yourself and tell the entire story, not just bits and pieces to suit your side of the story.

"Those three were basically followed by BP," said Cynthia Larsen, an attorney with Orrick, Herrington & Sutcliffe.

NEW LEGAL GROUND?

Legal experts looking for this case to break new legal insurance ground are going to be disappointed, as much of BP's claims are going to be handled by its self-insured program.

Another claims lesson to take away from the oil spill was BP's ability to remain in control of the claims process instead of allowing the government to step in, said Alan Jacobus, a partner with the San Francisco-based law firm of Carroll, Burdick & McDonough.

Claims are being paid out of a $20 billion fund set aside by the oil company.

May 4, 2011

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