The Exxon Valdez 1989 Oil Spill

This summary will briefly discuss three topics: a) the oil spill, b) the environmental damage and clean up, and c) the insurance coverage settlements. This paper will then focus on the insurance coverage settlements. Afterwards, it will provide an analysis on the effectiveness of the dispute resolution process. The Exxon Valdez Oil Spill of 1989 was one of the largest manmade environmental disasters (Rodgers et al, 2005, p. 136). It occurred in U. S. waters at Prince William Sound, Alaska in March 1989 (Rodgers et al, 2005, p. 136).

The oil tanker, Exxon Valdez, struck a reef and discharged an estimated 10. 8 million gallons of oil according to Exxon estimates but other sources indicate that it is around 30 million gallons (Rodgers et al, 2005, p. 136). The oil belonged to Exxon Corporation while the tanker belonged to Exxon Shipping, its subsidiary (Holman, Fenwick & Willan, 2004, p. 1). The environmental damage caused by the oil spill and the subsequent clean up of the spill and its contaminants became the subject of numerous litigations.

Environmental damage claims and settlements ran into several billion U. S. dollars (Rodgers et al, 2005, p. 149-88). Oil spill clean up expenses likewise ran into several billion U. S. dollars (Holman, Fenwick & Willan, 2004, p. 2). In this regard, due to the huge volume of lawsuits, the complexity of the case or cases, the wide coverage of the disaster, and the disaster’s far-reaching implications among other considerations, Exxon Corporation undertook a wide variety of legal strategies. One of those strategies involved alternative dispute resolution through settlements for insurance coverage disputes.

The Exxon insurance coverage disputes are complex (Covington & Burling LLP, 2007). One point of consideration is that Exxon’s primary insurers are reinsured with Lloyd’s London (Holman, Fenwick & Willan, 2004, p. 2). This complicates the disputes since Exxon is an American company while its underwriters are international business entities. Hence, the dispute involved significant activities in many locations: Texas, New York, London, Oslo, Alaska and other places (Covington & Burling LLP, 2007).

As such, issues on jurisdiction and applicability of laws whether English law or New York law should be applied made litigations costly and long. Covington & Burling LLP represented Exxon from 1991 to 1997 in “its hotly contested, multi-forum claims for coverage of losses arising out of the grounding of the Valdez” (Covington & Burling LLP, 2007). In early 1997, these disputes ended after Exxon and the Lloyd’s consortium of international underwriters and various Scandinavian companies settled for $780 million (Treaster, 1996; Covington & Burling LLP, 2007).

Covington & Burling LLP (2007) best describes the legal complexity of these disputes, to quote: The Exxon claims arose out of the company’s Global Corporate Excess package of policies for 1988-89, which was characterized by high limits and high retentions. Exxon claimed coverage under various sections of the package, including the first-party property section’s cover for removal of debris, the marine liability section’s cover for cargo-owner pollution losses, and the general liability section’s cover for pollution clean-up costs.

Meanwhile, the Covington & Burling LLP strategy involved:

1. “a non-binding ADR procedure moderated by a London-based barrister before any litigation commenced;”
2. “a Texas lawsuit filed by Exxon that the underwriters unsuccessfully sought three times to remove and that resulted in a jury verdict for Exxon on one of its three claims;”
3. “an arbitration proceeding in New York;”
4. “a federal declaratory judgment action in New York that the underwriters struggled to keep alive despite a dismissal and multiple trips to the Second Circuit and the Supreme Court on jurisdictional issues;” and finally,
5. “two settlements — one for $300 million before the Texas verdict and one for $480 million while the Texas verdict was on appeal and just before the arbitration hearing was to commence” (2007).

Many forms of alternative dispute resolutions or ADR can be made. Balmer (n. d. ) notes that several types of ADR can in fact be customized as can be seen from the Exxon insurance settlements. Some of these customized ADRs can range “from non-assisted discussions through mediation, neutral fact finders, case exposure such as mini-trials, arbitration both binding and non-binding, and limited issue litigation” (Balmer). Exxon already spent some U. S. $ 2. 5 Billion in damage claims as a result of the oil spill (Rodgers et al, 2005).

Without ADR, it would have been unable to recover some $780 million from its insurance coverage (Treaster, 1996) while Exxon’s insurance disputes could have been unnecessarily protracted. For this incident, Exxon employed litigation but was always open to the many forms of alternative dispute resolution. For instance, Exxon used mediation through a non-binding ADR procedure moderated by a London-based barrister before any litigation commenced (Covington & Burling LLP, 2007). Technically, mediation involves a neutral third party who helps in hammering out a resolution (Balmer). In another instance, Exxon employed arbitration proceedings. Balmer describes arbitration as “getting a neutral party or panel to reach a decision on facts, law or both.”