Specialty Energy Insurance

Specialty energy insurance refers to a specific type of insurance coverage designed for companies that operate in the energy sector. This type of insurance is designed to protect companies from a wide range of risks associated with the production, transportation, and distribution of energy.

One of the key features of specialty energy insurance is that it is customized to meet the specific needs of each individual company. This means that policies can be tailored to cover specific types of energy, such as oil and gas, renewable energy, or nuclear power. Additionally, policies can be customized to cover specific types of risks, such as property damage, liability, or business interruption.

Another important aspect of specialty energy insurance is that it is often provided by specialized insurance companies or brokers. These companies have a deep understanding of the energy industry and are able to provide expert advice and guidance to companies when it comes to selecting the right coverage. They also have access to a wide range of insurance products that are specifically designed for the energy industry, which can help companies to find the coverage that best meets their needs.

Specialty energy insurance is also designed to protect companies from a wide range of risks associated with the energy industry. This includes risks such as natural disasters, accidents, and equipment failure. Additionally, policies can be customized to cover risks associated with specific types of energy production, such as nuclear power or renewable energy.

Overall, specialty energy insurance is an essential tool for companies that operate in the energy sector. It provides companies with the protection they need to mitigate the risks associated with their operations and to ensure that they are able to continue to operate in the event of an accident or other type of loss. By working with specialized insurance companies or brokers, companies can find the coverage that best meets their needs and ensure that they are protected against all of the risks associated with their business.

A number of alternative energy sources to traditional oil, gas, and coal industries are being explored. Examples include wind, hydropower, waste-to-energy, ethanol, geothermal, solar, methane gas recovery, and cogeneration/IPP facilities. Investor willingness to pursue such a wide variety of fuels signals a dynamic and growing energy industry. Some large insurers have arrangements that coordinate property, casualty, and nonstandard coverages and provide technical services to meet the needs of power producers.

Biofuel distributors provide biofuel blended to the specification of its customer base. They are similar to other fuel distributors with the same fire and explosion concerns. Most biofuels are distributed through rail or motor carrier and not through pipelines which is a major exposure.

The most commonly recognized biofuel is ethanol but it is not the only biofuel. A biofuel is any fuel that is made using plant-based/renewable material. Many of the same underwriting concerns related to any type of fuel manufacturing are present with biofuels except that the plants tend to be on a smaller scale. A major concern has been the economic viability of the biofuel due to the availability of lower-priced natural gas and crude oil.

Coal mining presents different exposures than those that are presented in iron, lead, copper, nickel, precious metals, and semiprecious metals mining. Surface mining is safer than underground mining from a workers compensation standpoint but presents more significant liability and environmental impairment exposures and issues. Both underground and surface mining present significant equipment exposures but the equipment used and the hazards involved are very different. Workers compensation in any mining operation is a significant loss exposure.

Force majeure literally means 'greater force.' These clauses excuse a party from liability if an unforeseen event beyond the party's control prevents it from performing its obligations under the contract. Force majeure insurance is a very broad form financial consequence policy that protects insureds that suffer financial loss because unavoidable circumstances lead to the loss of a contract through the force majeure section of that contract. This coverage is usually used with large contracts but not exclusively.

A multipronged approach for energy independence has resulted in a variety of alternatives. Geothermal energy is one that has many direct and indirect applications. Large scale projects involve extracting water or steam from the earth's core. This coverage protects the owners of or investors in geothermal wells from loss of the resource itself. It does not protect the party that uses the resource. Losses occur if the source dries up or fails to produce for an agreed-on operational period. Limits are tailored to each applicant's needs.

These are cutting edge industries, including businesses that develop new sources of and uses for energy, robotics, nanotechnology, and outer space travel. Large insurance brokers, insurers, and reinsurers have established special departments to handle significant technology exposures.

Liability insurance on propane and bulk oil dealers requires specialty underwriting. These businesses need insurance coverage at their storage locations as well as off-premises where the fuel is delivered. There is a significant exposure to catastrophic loss and inspecting the facilities is usually a part of the underwriting process.

There are certain parts of the country where logging and lumbering operations are important to the economy, and agents and brokers must find and maintain markets that understand and write logging and lumbering risks. Placing coverage with specialty carriers is necessary due to the special equipment and vehicles used in logging operations and to transport the logs to the mill for sawing and shaping into lumber. In addition to the liability hazards, workers compensation coverage is also often difficult to place and must be handled by carriers that are familiar with this class of business.

Mining risks have always been considered a specialty class of business because of the liability and workers compensation exposures and hazards as well as physical damage to elaborate and expensive equipment used to mine coal or metal ores. Workers compensation for any mining operation is extremely hazardous because the workers are exposed to occupational diseases such as black lung in addition to the potential for cave-ins and underground explosions. Large and high-valued special-purpose mining equipment requires special named perils or "all risk" inland marine coverage forms to insure against both above ground and below ground physical damage losses. These coverages are underwritten by the following:

Property coverage for this class of business is usually written on a named or specified perils basis. There are several different types of offshore rigs, including mobile offshore drilling units and ship-shape floaters, and rigs built on ship hulls. Rigs that are anchored into the seabed and rigs that have submersible oil drilling apparatus pose problems for property insurers. Offshore drilling operations also have significant liability and workers compensation exposures. Workers compensation requires United States Longshore and Harbor Workers Act and Jones Act coverage and must have sufficiently high limits to protect the owners, operators, and drilling contractors and their employees. The threat of water pollution from offshore oil drilling operations adds to an already difficult and complicated insurance coverage arrangement.

Developers and investors whose oil and gas fields do not produce as expected can still get a return on their investments with oil and gas deficiency insurance. If the field's actual output falls short of engineering report projections, the financial institutions, independent oil producers, individuals, or partnerships are indemnified for the loss. Fields with proven reserves that currently yield through at least three producing wells can also qualify for this insurance. Operators must provide equipment needed for the operation and maintain it in good condition. There is no coverage for inadequate cash flow due to price fluctuations, excessive supply, rising petro-loan interest rates, profit or loss from tax risk, environmental regulations that impede production, operating expenses, hazards, and other uninsurable risks.

Property coverage written on special "all risk" as well as named perils coverage forms protect the owner, lessee, or lessor of land-based drilling rigs, portable well service equipment, exploration vehicles, and work-over rigs for loss or damage to this equipment. Ocean marine coverage forms and policies insure offshore drilling rigs, barges, and service craft.

Oil drilling rigs and other equipment necessary to service oil wells present substantial values.

Petroleum distributors face many risks. The primary concern related to property is damage to their equipment by fire and explosion. Large distributors and even oil and gasoline service stations face the difficult liability exposure of pollution from underground oil or gasoline storage tanks. A number of insurers write a full package of coverages for oil jobbers and distributors, including commercial general liability, commercial auto, property, and workers compensation. Coverage is available for retail service stations, wholesale operations, bulk stations, and products being transported in tankers to and from bulk oil and LPG stations to retailers.

This coverage is tailored to meet the specific needs of oil landmen. They provide title search and oil lease purchasing services on behalf of clients who are beginning to develop oil properties. This errors and omissions coverage insures the landman's errors and omissions.

Property coverage is available on special "all risk' type or named perils coverage forms that insure wellhead equipment, oil-gas separators, oil tanks, gas compressors, treating plants, pump stations, gasoline-sulfur recovery plants, and similar oil field service equipment that are commonly used at oil lease sites.

This commercial general liability coverage form insures oil well drilling operators, contractors, pipeline owners, and fabricators for bodily injury and property damage that arises from their ownership, operation, or use of oil wells.

Oil and gas producers have increased their exploration, drilling, and production activities. The risk/reward ratio of these drilling efforts is matched by concerns about environmental accidents and damage to equipment. Operator's extra expense insurance is designed to cover the cost of well control, seepage, and pollution, removing and nullifying, cleanup and containment, and re-drilling expenses as a result of a blowout. Coverage can be endorsed to cover underground blowouts, "unlimited" re-drilling, and offshore operations.

Businesses that manufacture or install custom solar collectors used to heat air or water or to generate electricity for dwellings, swimming pools, or commercial buildings need commercial general liability, products and/or completed operations liability, and/or bailees coverage.

Heating by solar energy continues to grow as an alternative source of energy. Some individuals construct their own solar heating systems, relying in part or totally on the sun for energy to heat their homes, while others purchase commercially manufactured systems. Some even sell excess energy back to their local utility provider. Hazards include the breakdown of combustible materials near collectors, susceptibility to wind, rock, or hail damage, and theft or vandalism losses that involve copper and glass collector systems. Insurers require inspections of homes that use such heating systems.

Wind farms are collections of wind turbines used to supply energy to a single business or to provide energy to the power grid. The property exposure is significant because of the cost of each turbine. The commercial general liability exposure depends on the various types of contractual relationships. Workers compensation exposures are significant because employees work at great heights and the difficulty of gaining access to certain parts of the turbine.

Following are some examples of Specialty Energy Insurance claims and the corresponding insurance coverages that can help pay for them:

1. Offshore Oil Rig Explosion: An explosion occurred on an offshore oil rig, causing substantial damage to the rig and resulting in multiple fatalities and injuries. The workers' families and surviving workers filed lawsuits for negligence and failure to maintain safe working conditions. The Specialty Energy Insurance policy would cover the legal fees and any settlements or judgements arising from these lawsuits. The policy also includes workers' compensation liability which covers medical expenses and compensation for the injured workers or death benefits for the families of deceased workers.

2. Oil Spill: During an oil transport operation, a tanker spills crude oil into the ocean, causing significant environmental damage and impacting local fishing industries. The affected parties file a lawsuit for compensation. Specialty Energy Insurance would cover the cleanup costs associated with the oil spill and the legal fees, settlements, and penalties associated with the ensuing lawsuits. This can also include business interruption coverage, which would help compensate for lost income due to the suspended operations.

3. Wind Farm Equipment Failure: A catastrophic failure of a wind turbine at a wind farm caused widespread power outages, resulting in substantial losses for businesses and individuals reliant on the power generated from the farm. The affected parties filed a lawsuit seeking compensation for their losses. Specialty Energy Insurance would cover the costs of repairing or replacing the failed equipment, the business interruption losses, and the legal fees, settlements or judgements related to the lawsuit.

4. Solar Panel Defects: A solar energy company's panels were found to have manufacturing defects that caused fires in several buildings where they were installed. The property owners and insurance companies filed subrogation claims against the solar energy company. The Specialty Energy Insurance policy would cover the company's legal defense costs, any settlements, and the costs of recalling and replacing the defective panels.

5. Natural Gas Pipeline Leak: A leak in a natural gas pipeline led to an explosion in a residential area, resulting in property damage and personal injuries. The residents and their insurance companies filed lawsuits against the energy company responsible for maintaining the pipeline. The Specialty Energy Insurance would cover the costs of repairing the pipeline, compensating the affected residents, and the legal fees, settlements or judgements related to the lawsuits.