The Government’s proposed marine protection rules will make it less likely that third parties like fishing and tourism operators get an insurance payout in the event of an oil spill, Marc Daalder reports.
When the MV Rena ran aground on a reef near Tauranga in 2011, spilling hundreds of tonnes of oil into the ocean and killing thousands of seabirds in a matter of days, it was New Zealand’s worst environmental accident. To add insult to injury, the Government was left to foot a $20 million bill, even after the ship’s Greek owners agreed to pay above the then-maximum liability of $11 million.
In 2013, the Maritime Transport Act 1994 was amended to close some of the loopholes that allowed this to happen and the coalition Government is now doubling down, raising the amount that offshore oil installations must be insured for up to $1.2 billion in some instances.
At the same time, however, new Marine Protection Rules proposed by Associate Minister for Transport Julie Anne Genter will mean offshore installations and tankers carrying more than 2,000 tonnes of oil won’t have to be insured for third party claims of lost profits in the event of a spill.
This means that while third parties like fishing and tourism operators will still be able to claim for lost profits, the installation owners won’t be required to be insured for those claims and would have to pay out of pocket. If the spill is large enough to bankrupt the owners, then these third parties might be out of luck.
Unlimited liability a misdirect
The MTA states that owners have unlimited liability for the cost of an oil spill, including loss of profit. This is what Genter pointed to when asked for comment from Newsroom.
“The Maritime Transport Act 1994 (MTA) imposes unlimited liability on all owners of offshore installations. The proposed amendments to the Act would not change this. Anyone affected by an oil spill would still be able to make a claim against the owners of an oil installation, including for lost profit,” she said.
However, despite being legally liable, the owners won’t be required to be insured for these claims under the new rules. That means that fisheries or tourism operators who lose business because of a spill will have to recoup those costs from claims against the owners.
These claims could easily add up to millions or billions of dollars in a large spill – the Deepwater Horizon explosion cost businesses some NZ$14 billion – and if the owner can’t pay, then these third parties will have to eat the loss.
Genter admitted this in her comments to Newsroom.
“Oil installation owners will need to obtain insurance to cover the significant risks created by their operations,” she said. “These policies … will not necessarily cover claims for pure economic loss.”
She also reiterated that these third parties “will still be able to claim against the oil installation for pure economic losses under the MTA”. But she didn’t explain how they would do that if the oil installation went bankrupt.
Amanda Larsson, Greenpeace New Zealand’s climate and energy campaigner, told Newsroom that the risk of an installation owner going broke after a large spill was very real. “Offshore operators are almost always going to become insolvent in the event of a major spill, which is why these insurance requirements exist,” she said.
Seafood NZ spokesperson Lesley Hamilton echoed these concerns. “This is really a matter for individual commercial fishing companies, as they will carry the risk of lost profits. There appears to be nothing stopping civil action, but we recognise there may be limited funds in the event of a claim,” she said.
However, Petroleum Exploration and Production Association of New Zealand CEO Cameron Madgwick said he supported the changes. “The rules around lost profits are exactly the same as for any other industry whose activities could potentially have a wider impact,” he said.
“This is only fair, as it would be strange for one industry to have different rules to everyone else when the impacts could be the same or worse.”
Larrson pointed out that Genter used New Zealand’s ocean-dependent industries to justify the new MTA insurance requirements, but was now throwing those same industries under the bus in the draft Marine Protection Rules.
“It seems ludicrous that you would rely on these offshore operators to be liable for third party profits without insurance but then require insurance for other aspects. The two industries that would be most effected by an oil spill are tourism and fisheries and the bulk of the effects on them financially will be for lost profits and not being able to carry out their business activities as usual.”