Understanding insurance roles after an oil spill

INSURANCE AND LIABILITY

Several professionals may become involved in an oil-spill claim. Understanding who appointed each person – and whose interests they represent – helps the policyholder ask better questions.

Policy wording, circumstances, limits, exclusions and notification duties vary. This guide explains common roles and process questions; it does not determine whether a particular loss is covered.

The insurer: claims handlers and loss adjusters

When a policyholder first notifies their insurer of an oil spill, the initial contact will usually be through a claims hotline, online portal or claims-handling team.

The first person dealing with the notification may be a general claims handler rather than someone with specialist experience of domestic heating-oil contamination.

That can make the first conversation slightly frustrating because oil-spill claims are relatively specialised compared with more common household claims such as storm damage, escape of water, theft or fire.

The important thing is to provide the facts clearly and ensure that the claim is formally registered.

Useful information at this stage includes:

• when the spill was discovered;
• the suspected source;
• whether the leak has been stopped;
• whether oil may have reached drains, water or neighbouring property;
• the approximate quantity lost, if known;
• whether emergency work has already been undertaken; and
• any immediate risks to the property or occupants.

The claims handler’s role is generally to open the claim, gather the initial information and begin the insurer’s internal process.

Specialist handling may follow

Depending on the insurer and the complexity of the incident, the claim may then be referred to a more specialist claims team or to an external loss adjuster.

A loss adjuster is normally appointed by the insurer.

Their role may include:

• investigating the circumstances of the loss;
• gathering evidence;
• reviewing estimates and reports;
• assessing the extent of the insured damage;
• coordinating specialist input;
• advising the insurer on the claim; and
• helping progress the claim towards settlement.

The exact authority given to the adjuster will vary from claim to claim.

Who does the loss adjuster represent?

This is an important distinction for policyholders.

A loss adjuster is generally acting on behalf of the insurer, rather than as the policyholder’s personal representative.

That does not mean the adjuster is entitled to treat the policyholder unfairly. Claims should be handled professionally and in accordance with the insurer’s obligations and applicable regulatory standards.

The adjuster’s task is to investigate and quantify the claim fairly within the terms of the insurance policy.

Part of that role is establishing what loss has actually occurred and what work is reasonably required, rather than simply accepting every proposed cost without scrutiny.

Oil-spill cover depends on the policy and circumstances

Domestic heating-oil escapes are commonly dealt with under household insurance where the release arises from an insured heating system, but coverage should never be assumed until the policy and circumstances of the particular incident have been reviewed.

The objective of the first call is not to solve the entire claim. It is to get the incident properly recorded, communicate any urgent risks and begin the process of obtaining the right expertise.

Independent claims support

A policyholder can appoint their own independent representative to assist with an insurance claim.

In the UK and Ireland this role is commonly described as a loss assessor. Some loss assessors have previously worked as loss adjusters or within the insurance industry, but the important distinction is who appointed them:

• the loss adjuster is normally appointed by the insurer;
• the loss assessor is appointed by the policyholder.

Loss assessors can be particularly useful on large or complicated claims, such as major fire or flood losses, where there may be extensive damaged contents, business interruption, multiple contractors or a substantial schedule of losses to prepare.

They may help the policyholder:

• document and quantify the loss;
• prepare schedules and supporting evidence;
• communicate with the insurer and loss adjuster;
• review proposed settlements; and
• negotiate aspects of the claim on the policyholder’s behalf.

Their role in a domestic oil-spill claim may be more limited

For a straightforward heating-oil spill, there may be less need for a separate loss assessor.

A competent environmental consultant should already be defining:

• the extent of the contamination;
• the investigation required;
• the remedial scope;
• the anticipated costs;
• the validation requirements; and
• the technical evidence supporting the claim.

In that situation, appointing another professional to quantify essentially the same technical loss may add cost without materially improving the outcome.

An independent claims representative may become more useful where:

• the claim is unusually large or complicated;
• there are several different categories of loss;
• the insurer and policyholder disagree significantly about the scope or value of the claim;
• progress has stalled;
• proposed remediation appears inadequate; or
• the policyholder needs help managing a difficult claims process.

Understand how they are paid

A loss assessor is normally paid by the policyholder rather than by the insurer.

Fee structures vary and may include:

• a percentage of the claim;
• a fixed fee;
• an hourly or professional fee; or
• some combination of these.

The policyholder should therefore establish the charging arrangement before appointment and should not assume that the insurer will reimburse that cost.

For many domestic oil-spill claims, it may be more valuable to spend money on independent technical environmental advice than on an additional claims representative – particularly where the main disagreement is about contamination, remediation or validation rather than the financial calculation of the overall loss.

Environmental specialists and remediation contractors

Oil-spill claims often involve environmental consultants, remediation contractors or organisations that provide both services.

There are capable specialists operating throughout the UK and Ireland, but experience, technical capability, workload and service levels can vary considerably between providers.

Some insurers maintain approved or panel contractor networks. These organisations may deal with a high volume of insurance work and can bring considerable experience to domestic oil-spill claims.

However, high workloads can sometimes affect response times or the level of individual attention available to a particular case.

For that reason, the policyholder should understand that an insurer-appointed contractor is not necessarily the only possible option.

Can you choose your own contractor?

A policyholder can generally ask to use an environmental consultant or contractor of their own choosing, rather than automatically accepting the company suggested by the insurer or loss adjuster.

However, this should normally be discussed with the insurer before substantial work is commissioned.

The insurer may reasonably want to consider:

• the proposed scope of work;
• the contractor’s qualifications and experience;
• whether the proposed remediation is technically appropriate;
• the estimated costs;
• how those costs compare with alternative proposals; and
• how completion will be independently demonstrated.

The precise position will depend on the insurance policy and the circumstances of the claim.

The important point is that a policyholder does not have to assume that they have no voice in who works at their property.

If they would prefer another suitably qualified contractor, they can raise that with the insurer and ask for the proposed appointment and costs to be considered.

Choosing a contractor

Selection should not be based on price alone.

Useful questions include:

• How much domestic heating-oil remediation experience do they have?
• Who will carry out the environmental assessment?
• Will they prepare a conceptual site model?
• Will laboratory analysis be undertaken by an appropriately accredited laboratory?
• Who determines the remediation objectives?
• How will the work be validated?
• Will a formal validation report be provided?
• Who will be responsible for regulatory liaison where required?
• What response time can they provide?
• Who will actually manage the project day to day?

Recommendations from people who have previously dealt with a similar spill can also be useful, although experience should still be checked independently.

A local specialist may sometimes offer advantages such as greater familiarity with local geology, regulators, contractors and disposal facilities.

Panel contractor and independent contractor roles

There is nothing inherently wrong with using an insurer’s panel contractor.

Many are highly experienced and may be able to manage investigation, remediation and reporting efficiently.

Likewise, choosing an independent contractor does not automatically produce a better outcome.

The important issue is whether the organisation has the necessary expertise, capacity and technical controls to manage the particular spill properly.

The question should be who is best placed to investigate, remediate and validate the incident – not simply who appears on a particular list.

Do not allow an emergency to worsen while waiting for administration

An active oil spill can require action outside normal working hours or before an insurer has had time to appoint its preferred contractor.

If oil is continuing to escape, affecting a building, entering drainage, threatening water or migrating towards neighbouring property, reasonable emergency action to prevent further damage should not be unnecessarily delayed.

That may mean contacting an appropriately experienced spill-response contractor directly and asking them to:

• stop or isolate the source where safe;
• contain the released oil;
• protect drains and watercourses;
• recover accessible free product;
• prevent contamination spreading beneath the building; or
• protect neighbouring property.

The purpose at this stage is mitigation, not committing to a complete remediation programme before the claim has been assessed.

Keep emergency expenditure reasonable

Where practical, notify the insurer immediately and obtain authority.

However, an emergency does not always occur during office hours, and waiting for several layers of claims administration can sometimes allow a relatively manageable spill to become substantially more expensive.

Emergency work should therefore be limited to what is reasonably necessary to stabilise the incident until the wider investigation and remediation strategy can be agreed.

Experience shows that properly justified emergency intervention can materially reduce the eventual claim cost, but this should not be treated as a guarantee that every independently incurred expense will automatically be reimbursed. Policy terms and the circumstances of the particular incident still matter.

Document everything

Good record keeping can be extremely important during an insurance claim.

From the moment the spill is discovered, keep a simple chronological record of what happens.

Record:

• when the spill was discovered;
• telephone calls to the insurer;
• claim-reference numbers;
• names of people spoken to;
• advice received;
• contractors contacted;
• arrival and departure times;
• photographs and videos;
• the condition of the site before emergency works;
• actions undertaken;
• quantities of oil or contaminated material recovered;
• invoices and receipts; and
• correspondence with the insurer, adjuster and contractors.

Where possible, take photographs before, during and after emergency intervention.

Preserve the chain of evidence

Insurers and loss adjusters need evidence that allows expenditure and decisions to be justified later.

A well-documented claim allows somebody reviewing the file months or years afterwards to understand:

what happened -> why action was necessary -> what was done -> what it cost -> what benefit it achieved.

That is particularly important because insurance claims may be subject to internal review, audit or later scrutiny.

The stronger the documentary record, the easier it is for everyone involved to substantiate decisions and expenditure.

Evidence protects everyone involved

Good documentation does not only protect the policyholder.

It also helps:

• the contractor demonstrate why emergency action was required;
• the consultant reconstruct the spill;
• the loss adjuster justify recommendations;
• the insurer substantiate payments; and
• regulators understand what occurred where environmental receptors were affected.

This creates a continuous chain of evidence from the initial discovery through investigation, remediation and final validation.

Professional judgement

Understand who appointed each person, what their role is, and who they are accountable to.

Independent claims support can be useful, but it should solve a problem that actually exists. For many routine oil-spill claims, the essential independent expertise is technical environmental expertise rather than an additional claims representative.

In a genuine emergency, concentrate first on preventing the spill from becoming worse – but document everything you do.

Emergency mitigation and full remediation are not the same thing. Stabilise the incident first; agree the long-term solution once the evidence and claims process have caught up.

Read next

• Who may need to be notified after an oil spill?
• How an oil-spill site is assessed and remediated
• Understanding oil-spill sampling, laboratory results and monitoring
• Oil-spill terms explained in plain English