UK: Buncefield – The Insurance Market’s Black Cloud?

Originally published in the Insurance Law Quarterly - Spring 2006 - Issue 62

On 11 December 2005, possibly the largest explosion ever to occur in Europe took place at the Buncefield Oil Depot near Hemel Hempstead. As might be expected, there was immediate speculation as to cause, with possibilities including arson, terrorism, fuel leak, storage tank failure and pipeline failure. Early estimates put the damage at £300 million; at the time of writing, some estimates have now reached £1 billion.

The Buncefield explosion made headlines around the world and cast a black cloud over much of southern England. For insurers, the consequences could be costly. BLG is already acting for over 40 separate claimants, either through insurers or directly from commercial insureds. Those claims alone look likely to be in excess of £100 million.

Experts expressed surprise that such a big bang should have been caused by a petrol leak. However, even at this early stage, it seems unlikely that the explosion was caused deliberately. This has reduced the alternative causes and suggests that a substantial leak occurred, possibly resulting in a vapour cloud which could have been ignited by any electrical spark. The progress report from the investigation board does not provide any conclusions on causation and we could be waiting some time for a final report.

The explosion occurred at 6.26am on a Sunday morning. Thankfully there was no loss of life. Also, the fire was largely contained on site and it is our understanding that, at least locally, soot and smoke damage was limited - presumably, rising and dispersing over south east England.

However, very substantial damage has been caused by pressure waves – shattering windows, causing damage to building cladding, stock and other damage. There was no consistency in the damage to buildings. In one street a building was severely damaged, but in the next, very little damage has occurred - it appears to have depended entirely upon the direction of the pressure wave. Early damage estimates are at £300 million or thereabouts, although the actual claims may exceed this considerably.

Clearly, those who have suffered damage will be seeking to recover their losses from someone. The obvious subrogation targets are the joint venture operators of the Depot, namely Total and Texaco, and possibly the pipeline operator. As it may be many months before forensic scientists are allowed on site by Health & Safety, conjecture as to who is ultimately responsible will continue.

It will be interesting to see whether the operators and their insurers will wish to dispute liability for any length of time. An early admission of liability (or at least an early settling of claims on a 100 per cent basis) would certainly avoid very substantial legal costs, but is it likely in this case? No doubt much will depend upon the overall estimate of damage and the interaction between the open market insurers, the oil mutual and the joint venture partners. However, if possible, in respect of such a large and politically sensitive disaster, a market solution to property damage claims would seem to be the sensible result. Total is, of course, familiar with this type of disaster management following its involvement in the Toulouse chemical plant disaster. If such is the intention of the joint venturers then it may be sensible for their adjusters to become involved in the adjusting of the property damage claims.

In addition to insured losses which are likely to be based primarily on repair costs and any consequential business interruption loss, both freeholders and leaseholders may have uninsured losses for diminution of value caused by blight if it is not transitory.

Various views have been expressed that the explosion and its results may well have a permanent effect on the land use in the area, and on property values. At the time of writing this article, a homeowner’s class action has been commenced focusing on loss of value of property in the immediate vicinity of the explosion.

It is too early to speculate about causes of action; however, they are likely to include negligence and nuisance. It used to be thought nuisance required ongoing interference with a neighbour’s enjoyment of its property. However, it now seems possible to establish nuisance even where the interference happens for a limited period of time.

There is no doubt that those acting for the owners of damaged properties will also be looking at a Rylands v Fletcher claim because of its advantage of strict liability. Rylands v Fletcher (1863) provides that "a person who for his own purposes brings on his land and collects and keeps there anything likely to do mischief, if it escapes, must keep it in at his peril and, if he does not do so is prima facie answerable for all the damage which is the natural consequence of its escape."

In addition, the "purpose" must be a nonnatural and/or extraordinary use of the land. Certainly, the fuel would amount to a necessary "thing". Also, one might expect that the bringing on to a site of such vast quantities of fuel would be considered to be a non-natural and/or unusual use of the site. For example, Lord Goff said in Cambridge Water Co Ltd v Eastern Counties Leather Plc (1994) "I feel bound to say that storage of substantial quantities of chemicals on industrial premises should be regarded as the classic case of non-natural use; I find it very difficult to think that it would be objectionable to impose strict liability for damage caused by their escape."

Also, it is clear that that which escapes and does the damage need not be the thing that the defendant actually accumulated. In fire cases, for example, the thing brought on to the land does not escape itself; it catches fire and the fire escapes. Smoke damage caused by a fire has been said to be sufficient if it escapes and we see no difference between smoke escaping and pressure waves escaping from an explosion. It is clearly foreseeable that if the fuel catches fire it will explode and cause damage through pressure waves.

Therefore, at this early stage, noting the large amount of fuel on site and the severe consequences resulting from the accumulation of fuel, (as demonstrated by the explosion and its effects) this may well be a loss where, unusually, the strict liability as imposed by Rylands v Fletcher applies. If this is accepted by the joint venture operators of the Depot, then it will make it more likely that liability will be accepted at an early date.

As BLG are representing a large number of those involved in property damage claims resulting from the Buncefield explosion, we cannot discuss specific cases or tactics in detail. However, we expect that in the near future, the various lawyers acting for property owners with claims will have met to discuss further action. We anticipate that all parties will benefit if channels of communication between the joint venturers and their insurers can soon be established with those whose property was damaged.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.