tuesday, march 1, 2016 houston, tx 1:45–3:00 p.m. latest

CIn

Tuesday, March 1, 2016Houston, TX

1:45–3:00 p.m.

LATEST TRENDS IN OIL AND GAS CLAIMS:THE UNDERWRITER’S PERFECT STORM

Presented by

Daniel CorreaSenior Forensic

EngineerLWG Consulting UK Ltd.

Christopher DyeClaims DirectorAllianz Global

Corporate & Specialty

David HeathChartered Loss

AdjusterIntegra Technical

Services Ltd

Lee Ann ThigpenPartner

Carroll Warren& Parker

Refinery claims are increasing in frequency and severity, production levels are being in-creased, and demand for sufficient cover is high, creating a perfect storm from an under-writing perspective. Reviewing actual claims can be both informative and valuable in iden-tifying exposures and insurance solutions. This session will offer a recap of actual claimscenarios, identify various trends/issues, and discuss insurance policy evolution in re-sponding to these issues. Example case scenarios will include the Husky Refinery explo-sion/fire.

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Daniel A. CorreaSenior Forensic EngineerLWG Consulting UK Ltd.

Mr. Correa is a senior forensic engineer with LWG Consulting UK Ltd. He is responsible for investigatingcause of failure, scope of damage, and reinstatement options in large mechanical systems in manufactur-ing, construction, power generation, and energy applications in the Europe, Middle East, and Africa(EMEA) and Latin American (LATAM) regions. Prior to joining LWG, Mr. Correa was a senior associate at Al-varez & Marsal Global Forensics and Disputes in London. While at Alvarez & Marsal, he specialized in oiland gas construction disputes bringing a practical approach to solving complex delay and quantum issuesin infrastructure and construction disputes.

Prior to joining A&M, Mr. Correa worked with major oil and gas companies in Latin and North America onengineering, procurement, and construction projects. His specialty during those years was in mechanicalequipment design, project engineering, and management, in addition to planning for different upstreamand downstream projects.

Mr. Correa received his BSc Mechanical Engineering from Universidad Metropolitana, Venezuela, and hisMSc Engineering Project Management from University of Manchester.

Christopher DyeClaims Director

Allianz Global Corporate & Specialty

Mr. Dye is claims director at Allianz Global Corporate & Specialty. Prior to joining Allianz, Mr. Dye was pres-ident of Braemar Adjusting for over 12 years. He has also served as director at Bateman Chapman Ltd. (UK/Australia), loss adjuster for William Elmslie & Co. (London), and loss adjuster/warranty surveyor for Mat-thews Daniel in Abu Dhabi.

Mr. Dye received his bachelor’s degree in geology from the University of Lancaster. He is an Associate ofthe Chartered Institute of Insurance.

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David HeathChartered Loss Adjuster

Integra Technical Services Ltd

Mr. Heath began his career in insurance in 1975 working as claims executive for the Royal Insurance Groupbefore moving into loss adjusting with Thomas Howell Group in the UK, where he ran branch offices in Der-by, Exeter, and Bournemouth.

In 1990, Mr. Heath moved to the London Operations of Thomas Howell Group and prior to joining IntegraTechnical Services in January 1999 he held several senior positions with UK-based adjusters working oncomplex and technical claims on a home foreign basis.

For the last 17 years, Mr. Heath has continued to work internationally and has experience of handling largeand high-profile claims throughout most regions of the world, including Europe, the United States, Africa,and Asia. His areas of specialization include construction risks, engineering, oil/gas/petrochemicals, andmining and extraction.

Mr. Heath is a Fellow of the Chartered Institute of Loss Adjusters, an Associate of the Chartered InsuranceInstitute, a member of the Energy Institute, and a Fellow of the European Academy of Experts.

Lee Ann ThigpenPartner

Carroll Warren & Parker

Ms. Thigpen is a partner in the law firm of Carroll Warren & Parker PLLC. She has been practicing law fornearly 15 years. She is licensed to practice law in the state and federal courts of Texas and Mississippi. Ms.Thigpen’s practice is predominantly complex insurance coverage disputes representing both domestic andinternational insurers and reinsurers in energy and construction-related losses. Ms. Thigpen’s practice alsoincludes large loss subrogation in multiple venues, including Mississippi, Texas, and Florida, resulting in therecovery of more than $13 million for her clients in recent years.

Ms. Thigpen received her B.A. in political science and German, magna cum laude, and her J.D. from theUniversity of Mississippi.

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Oil Refinery Claims

Presented by: Daniel Correa (PTC/LWG)Chris Dye (Allianz)David Heath (Integra)Lee Ann Thigpen (CWP)

#IRMI2016

Oil Refinery ClaimsLatest Trends in Oil & Gas Claims

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AGENDA1. Latest Trends in Oil & Gas Claims

- Carriers’ Views: Underwriters perfect storm2. Physical Damage Assessment

- Loss Adjusters Views- Expert / Engineers’ Views: causation and extent of damage- Legal Considerations

3. Time Element- Loss Adjusters Views- Expert / Engineer’s Views: reinstatement assessment, timeline forensics- Carriers’ and Legal Views on Time Element

4. Questions#IRMI2016

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LATEST TRENDS

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Oil Refinery Losses

Refinery Property Damage by Year

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Type of causes• Natural Catastrophes

Hurricanes, Earthquakes• Vapour Cloud Explosions• Fires• Mechanical Breakdowns• Maintenance Issues• Problems during Startup• Others

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Oil Refinery Losses

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Oil Refinery Losses

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Oil Refinery Losses

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Oil Refinery Losses

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• The Underwriter’s Perfect Storm: Refinery Claims are increasing in Frequency and Severity, Production Levels are being increased and demand for sufficient cover is high .

• Declared values -v- claimed values (no Co-Insurance clauses in soft market and a huge disparity is not conducive to a speedy settlement)

Carriers’ Views

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PHYSICAL DAMAGE

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• Refinery claims can be technically complex and involve significant financial exposures for the operators

• The course and direction of a major claim is likely to be irrevocably defined by actions taken and initiatives adopted in the first few weeks following the loss event

• Issues to be considered are safe access, environmental aspects and state or governmental involvement for code and related compliances, e.g. OSHA in the USA

• Need to formulate a clear road map (loss management plan) agreeing key activities, responsibilities and milestones

Loss Adjusters View

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• Key to handling claims in this sector is the early establishment of cause and origin in order to facilitate confirmation of policy engagement

• Prime requirement is also agreement on damage assessment and work scope development

• Collective decisions on work approach and methodology for cost capture

• The most successful outcomes usually flow from a collaborative approach rather than confrontation

• Active management of the claim process is a prerequisite for this to occur #IRMI2016

Loss Adjusters View

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PETRO INC .- 100k BPD daily crude processing capabilities- Fire at Ground Floor centrifugal pump- Substantial damage- Insured initially estimated repair period 2 months- Throughput reduction to 50k BPD- Property Damage and BI coverage- Harsh winter considerations

Case Study

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• How to assess the root cause

• What evidence to keep

• How to identify the extent of damage

• What documents to request and activities to organise

Expert – Engineer’s Views

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Refinery Damages

Can this be repaired in 2 months?? #IRMI201616

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Case Study : Refinery Fire

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Case Study: Refinery Fire

Causation Investigation

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Fractured pipe (SA-53GrB)

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Diesel is operated at 244°C and a pressure of 13,75 kg/cm2G; while its auto ignition temperature is around 210°C.

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P&IDCausation Investigation

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• ASTM A-53 Gr. A piping low in Silicon content and installed in 1975 which suffered sulfidation corrosion and reduced its wall width.

• Fatigue caused by mechanical vibrations. Use of local laboratory for metallurgical analysis.

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Other similar cases?

- Chevron Richmond Refinery, 2012- Petroecuador Esmeraldas Refinery, 2013

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Contributing Causes

• Vibration in the system caused by a variety of plant shut downs in the same year;

• Increased flow rate due to issue with plate in distillation column and potential diesel product merge with jet-fuel;

• Functionality problems with parallel pumps.

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Assessing the damageUnderstand the process

Steps for assessing the damage• Develop assessment plan• Map a heat envelope or heat exposure zones• List damaged equipment• Scope of inspections and timelines• Prioritize critical activities and equipment

(long lead time)• Staffing plan, coordination• Communication channels• Involve all parties: owners, operators,

manufacturers, lawyers, insurers, etc.

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Steps for assessing the damage• Involve Licensor from the beginning• Segregate betterment and works non-fire

related works• Expediting opportunities• Change the Insured’s mind-set in terms of

procurement and engineering• What planning software will be used?• Does the Insured has enough resources• Subrogation potential • Estimated re-build: 12 months!

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Detailed inspections• Code inspection – design issues• Hardness testing• Crack detection• Photograph documentation• Material analysis• Sequence of events and process simulation

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What documents to request

• P&IDs, Isometrics, Mechanical Data Sheets, As-Built Drawings, PFD’s

• Refinery maintenance plans• DCS records• Piping, instrumentation and mechanical

equipment lists• List of all local contractors• Licenses, restrictions• Linear programming (model)

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Heat Exposure Zone

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Heat Exposure Zone

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Heat Exposure Zone

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Reinstatement Assessment - Emergency Shut Down

Affected Zone Level 1

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Affected Zone Level 3

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• Identify and interview all contractors and departments involved:

a) Pipingb) Static and Rotating Equipmentc) Instrumentation and Controld) Powere) Planning and Cost Controle) Complementary

• Separate equipment and works not related to the fire• Detailed analysis of manhours• Cost evaluation/estimation

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• List all Equipment

Item Type of Equipment Equipment No. QTY. Location

1 Air-coolers CE-11C1 1 Level 3: 7850mm2 Air-coolers CE-11C2 1 Level 3: 7850mm3 Air-coolers CE-11D1 1 Level 3: 7850mm4 Air-coolers CE-11D2 1 Level 3: 7850mm5 Crude Column C-V1 1 Level 1: 0 a 4350mm6 Piping racks Lines = 2”? ? 387 Piping racks Lines ½” and 1½” ? 178 Pumps CP-8A 1 Level 1: 0 a 4350mm9 Pumps CP-8B 1 Level 1: 0 a 4350mm10 Pumps CP-9 1 Level 1: 0 a 4350mm11 Pumps CP-14A 1 Level 1: 0 a 4350mm12 Pumps CP-14B 1 Level 1: 0 a 4350mm13 Pumps C-P35 1 Level 1: 0 a 4350mm14 Shell & Tube HE CE-1B 1 Level 1: 0 a 4350mm15 Shell & Tube HE CE-42 1 Level 1: 0 a 4350mm16 Shell & Tube HE CE-48 A/B 2 Level 1: 0 a 4350mm17 Column and Vessel CV-12 1 Level 1: 0 a 4350mm18 Column and Vessel CV-28 1 Level 1: 0 a 4350mm19 Valves Control Valves 620 Valves Gate Valves 4921 Valves Check Valves 422 Valves Globe Valves23 Valves Security Valves

24 Structures Structural columns, walkways, grated floor

25 Ovens Crude Oven C-H126 Ovens Crude Oven V-H127 E&I Cables and Trays 24 pairs Crude Unit 128 E&I Button panels Crude Unit 129 E&I Lightning Crude Unit 130 E&I Cables and Trays Crude Unit 231 E&I Others Crude Unit 2 #IRMI201634

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• Inspect all arrangements in details

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Legal View

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• Legal involvement• Early Reservation of Rights if warranted• Update Reservation of Rights as needed• Review of all policy language

• Get policies/slips from all Insurers• Different wordings may have different choice

of law provisions• Different states may require specific or time

sensitive response36

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Legal View

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• Key provisions to review:• “Occurrence” definition and other key definitions• Use of words like “indirect” and/or “direct”• Insuring provision• Exclusionary language, particularly excluded perils such

as “faulty workmanship, corrosion, erosion, wear andtear, etc…”

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Legal View

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• Coordination with adjustment team.• Timely review of technical information from insured.• Dissemination of information amongst adjustment team

and with Insurers.• Privilege issues.

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TIME ELEMENT

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• Time element or business interruption is generally the major exposure

• Even partial refinery outages can generate daily margin losses well in excess of US$ 1 M, which means the clock is always ticking

• Mitigation is a primary and critical consideration and can be achieved by

• Expediting repairs – time line ad project execution tracking• Containing or reducing on-going financial losses

• Economic test - measures introduced generally have to pass an economic test and be economically sustainable

• Not always clear at the time a decision needs to be taken and a cost benefit judgement is often required based upon limited information

Loss Adjusters View

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• PD vs BI

• Timeline Forensics

• Project Management

• Management of Expectations

Expert – Engineer’s Views

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Time - Months1 2 3 4 5 6 7 8 9 10 11 12

Project ManagementDemolition

Process EngineeringCivil Engineering

Mechanical EngineeringElectrical Engineering

Instrumentation EngineeringMechanical Procurement

Electrical ProcurementInstrumentation Procurement

Civil ConstructionStructural Erection

Mechanical ConstructionElectrical Construction

Instrumentation ConstructionCommissioning

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Timeline Assessment

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Timeline Assessment

• Main goal is to accelerate the completion of the rebuild project• Identify critical activities, such as procurement, E&I, piping, etc• Identify the longest path in the programme• Identify expediting opportunities• Change the Insured’s mindset• Accelerate all internal activities• Pay premium acceleration costs• Balance BI vs PD!

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Timeline Assessment

Longest Critical Path

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Timeline Assessment

Typical Expediting Opportunities• Reduce the procurement process• Accelerate critical activities and long lead items• Create incentives and penalties for contractors• Monitor the project closely • Have regular meetings with the project team and document

adequately• Create notional programmes

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Timeline Assessment

Typical Expediting Opportunities• Increase the amount of resources, including shift patterns• Expand the most critical activities in the schedule for adequate

review• List activities that can be completed at a later stage, e.g. punch lists• Interrogate the programme, check for constraints, relationships,

resources, etc and adjust accordingly

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Timeline Assessment

Typical Expediting Opportunities• Increase concurrency in activities e.g.:

Pipe FabricationPipe installation

HidrotestingInsulation

4 months

Pipe FabricationPipe installation

HidrotestingInsulation

2.5 months

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Timeline Assessment

Typical Expediting Opportunities

Original Schedule

Expedited Schedule

2.5 months

2.5 months x $1m/day – Expediting Costs = $75millions – 10% of PD

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Legal View

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• Review business interruption insuring provision• What does it cover?• What is not covered or included?

• Review any time element endorsements such as extra expense, expediting expense, EPOI, etc…

• Confirm that all endorsements for each insurer are reviewed.

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Subrogation

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• Review of agreements between Insured and potentially responsible party. • Are there subrogation waivers?• What notice requirements are there?

• Preservation of physical evidence is vital.• Litigation hold letters to all potentially involved parties.• Statute of Limitations issues.• Certificate of Compliance/Engineer’s Affidavit • Preservation of emails and other E.S.I. is vital.

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Carriers’ Views

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Extra Expenses incurred in the Waiting Period - a commonsensical equitable approach;

Indemnity measurement not a science - spirit of co-operation on both sides necessary for fair settlements and lasting relationships;

Every claim has its nuances - need for experienced brokers, adjusters, claim preparers and experts.

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Be more proactive rather than reactive!

Thank you for your attention

ANY QUESTIONS?

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T3. LATEST TRENDS IN OIL AND GAS CLAIMS: THE UNDERWRITER’S PERFECT STORM

Rating scale for all questions:

4 = Excellent 3 = Very Good 2 = Average 1 = Somewhat Disappointing 0 = Very Disappointing

Overall rating for this workshop? 4 3 2 1 0 Daniel Correa Preparation and quality of information 4 3 2 1 0

Energy and enthusiasm of delivery 4 3 2 1 0

Educational focus (not a sales pitch) 4 3 2 1 0

Christopher Dye Preparation and quality of information 4 3 2 1 0



David Heath

Preparation and quality of information 4 3 2 1 0



Lee Ann Thigpen Preparation and quality of information 4 3 2 1 0



Comments: _____________________________________________________________________________________________

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tuesday, march 1, 2016 houston, tx 1:45–3:00 p.m. latest

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