Class Action Suit Filed Over Oil Spill

It started with the explosion of an exploratory drilling rig on April 20th off the coast of Louisiana. That event has spawned what some are calling a “Valdez-like oil spill.” The U.S. Coast Guard has said that oil is escaping from the well at a rate of about 5,000 barrels a day and Louisiana Governor Bobby Jindal has declared a state of emergency and requested aid for commercial fishermen.

Jindal, a Republican, also requested federal funding for 90 days of military duty for as many as 6,000 National Guard troops and demanded extra oil barriers from BP and the U.S. Coast Guard to protect wildlife reserves that nurture a $1.8 billion seafood industry, the richest in the U.S. behind Alaska.

And it’s the members of Louisiana’s seafood industry who are taking action against those responsible — class action that is. Shrimpers and fishermen filed suit Wednesday against BP and Transocean Ltd. claiming, and rightfully so, that the oil spill is hurting their livelihood. The suit, Cooper v. BP plc, claims that the defendants “knew of the dangers associated with deep water drilling and failed to take appropriate measures to prevent damage.” The suit was filed on behalf of Louisiana fishermen, commercial boaters and shrimpers, but is likely to spread as the oil slick starts does, effecting the offshore industries of other coastal states such as Alabama, Texas, Mississippi and, eventually, Florida.

The insurance industry will also take a severe hit from this mega-spill. As PartnerRe has stated:

The ultimate insured loss for this event is unclear given the multiple parties involved and the on-going situation regarding control of the oil spill. The Company [PartnerRe] estimates that insured losses from the explosion have the potential to exceed $1 billion. Given current information, the Company expects its second quarter 2010 results will include claims relating to the explosion in the range of $60-$70 million. These losses are expected to be contained primarily within the Global Specialty and PARIS RE sub-segments.

So far, efforts to shut down the well have failed and though a partial burning of the slick was successful, the oil continues to spew at an alarming rate from miles beneath the water’s surface. At the current rate of leakage, the volume of oil released “would exceed Alaska’s 1989 Exxon Valdez accident by the third week of June.” If something is not done quickly, we may be facing the largest oil spill in history. A scary thought.

Text No More

We all know the risks of being distracted while operating a vehicle and half of the states have even made the decision to outlaw texting while driving. But for some drivers, a law is not enough to discourage such actions.

Texting while driving poses a huge threat not only to companies that employ drivers and operate fleets, but to others on the road. A Virginia Tech Transportation Institute study found that texting while driving increases the risk of being in an accident by 23 times. As the report states, “Anti-texting laws do not protect businesses from irresponsible employees.” So how can you control the actions of your drivers when they’re on the road? Well thanks to RIMS 2010, I found out that there is a device that can actually disable texting capabilities on phones while they are in motion. The name? TextArrest.

What is it?

A smartphone application that automatically switches off text messaging and calling functions while the phone is in motion. It features:

  • Integration with a phone’s GPS system to determine the speed of a moving vehicle
  • Automatic switching off of text messaging and calling functions after a phone is detected to be traveling faster that 5 mph
  • An auto response message from the driver that informs people sending text messages that their messages will be delivered once the user stops driving

Considering that distracted driving is such a problem now, fleet managers and risk managers may want to consider the option of having complete control of their driver’s cell phone use while operating a company vehicle. Smart risk management.

Nassim Taleb: “Let’s Not Be Turkeys”

black swan

In today’s keynote luncheon at RIMS 2010, Nassim Nicholas Taleb, best-selling author of The Black Swan, told the story of a turkey who is fed by the farmer every morning for 1,000 days. Eventually the turkey comes to expect that every visit from the farmer means more good food. After all, that’s all that has ever happened so the turkey figures that’s all that can and will ever happen. But then Day 1,001 arrives. It’s two days before Thanksgiving and when the farmer shows up, he is not bearing food, but an ax. The turkey learns very quickly that its expectations were catastrophically off the mark. And now Mr. Turkey is dinner.

Taleb’s advice: “Let’s not be turkeys.”

The lesson of our doomed turkey illustrates the central problem of unexpected, “black swan” events (or in this case “black turkey,” I guess). We simply do not have enough data to reach empirical conclusions about how a risk will manifest itself and to what degree. “Just because you never died before, doesn’t make you immortal,” said Taleb.

Part of the issue is in the semantics of how we talk about risk. We have created what Taleb called “an illusion of measurement.” By saying, we can “measure” the risk in a particular situation, we are implying that there is a definitive answer. “We should not be using the word ‘measuring,'” he said. “We should be using the word ‘estimating.'” It’s a psychological difference that allows us to gauge “riskiness” more appropriately.

Taleb pointed out that the issue is magnified by the increased complexities and interdependencies of today’s society. There is a greater potential for the unexpected in a society characterized by extreme randomness and connected in ways that it never has been before. You would only have to compare how a theoretical run on a bank would happen today as opposed to 50 years ago. Once upon a time, if you wanted to pull your money out of your bank after learning of its imminent failure, you would have to physically go to the bank, likely stand on line, and possibly even change your mind after being forced to wait half the day. Now you can get the news on your Blackberry, log into your bank and automatically withdraw the cash in seconds. And so can everyone other bank customer around the world. Voila. Instant crisis.

The situation may not be  encouraging, but Taleb put his faith in good risk management. “Unfortunately, we live in a world that doesn’t understand risks,” he said. “Hopefully, risk managers would run society and not bankers.”

They certainly couldn’t do any worse.

RIMS Canada Can Throw a Party!

Being at the RIMS Annual Conference, you are faced with many tough decisions — like which event to attend after the Exhibit Hall closes for the day. Last night we were lucky enough to make it to the RIMS Canada reception and as the headline says, the great white north knows how to throw a party. Along with air hockey, delicious food and Canadian mounties, there was great music and frivolity.

For your viewing enjoyment, a few pics: