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Group of insurers offers water pollution coverage and oil spill cleanup services

It isn't listed in the Fortune 500. It doesn't trade on the New York or Nasdaq stock exchanges. And it hasn't crowned itself in glory with its name on a gleaming skyscraper or some spectacular sports palace. But with $25 billion in backing, it's one of the largest financial institutions in the world. It's the Water Quality Insurance Syndicate (WQIS)-a pool of 17 major property and casualty insurers that invests its dollars everyday to protect the world's waterways and marine life against pollution.

But providing marine pollution insurance is only part of the WQIS story. It's companion organization-the Marine Pollution Response Group (MPRG)-manages on site the cleanup of oil and other hazardous spills, guaranteeing that waters, beaches and marine life will be restored quickly and efficiently to their pristine state.

This one-two punch has earned WQIS and MPRG credentials as true guardians of the sea and has made the insurance industry a visible, influential and respected part of the solution for a cleaner, healthier and safer environment.

As WQIS celebrates its 30th anniversary, Richard Hobbie, president, reflects on its role and future-a future he sees tied, in part, to expanded contacts with agents and brokers.

WQIS, says Hobbie, was founded in the wake of two devastating oil spills. The first involved the Torrey Canyon off the Scilly Isles in 1967 in England that contaminated more than 200 square miles of sea and 90 miles of coastline. If the spill was a horror, says Hobbie, the cleanup was downright frightening: Royal Air Force planes dropped napalm bombs to burn off the oil and sink the ship. Tailor-made for television's fastgrowing international news coverage, the shocking pictures beamed around the world set off alarms among environmentalists from the Arctic to the Amazon. "If there was one event that set in motion the worldwide

environmental movement, this spill was probably it," says Hobbie, a former Coast Guard officer.

Two years later the United States grabbed the headlines with a blowout from an oil platform off Santa Barbara in California. While not on the scale of the Torrey Canyon, the spill had farreaching implications. Because there were no marine pollution laws, local residents were stuck with the cleanup costs. That would soon change. Over the next two decades marine pollution would be wrapped in layers and layers of legislation: providing strict liability for cleanup costs, third-party liability damages and civil and criminal penalties-all of which would become core WQIS coverages.

"For the first time, if you spilled oil, you had to pay for cleanup," says Hobbie, noting that vessel owners previously were liable only if the spill was intentional or involved gross negligence.

For insurers, the challenge was to provide the cleanup coverage needed by clients without exposing themselves to huge individual payouts. But their concerns went beyond just payouts. They began to see marine pollution coverage as a highly-specialized line requiring expertise in vessel risk management, sizeable financial guarantees and responsibility for cleanup management. So WQIS decided that this emerging market would be best served by a syndicate dedicated solely to marine pollution insurance, staffed by specialists, with the costs of cleanups spread proportionately among its members.

The result was WQIS, which opened for business in 1971. The organization rapidly rose to prominence in the industry-spurred by its ability to quickly create coverages for the ever-expanding and legally-driven areas for costly claims.

Today, WQIS is the largest underwriter of marine pollution insurance in the United States. Generating more than $20 million in annual premiums, its policies cover some 40,000 vessels: tugboats, oil, cargo and work barges, ferries, fishing and pleasure boats. Called brown water vessels, they ply mainly inland waterways teeming with other commercial and pleasure traffic-providing real tests for underwriters. But WQIS also has had its share of "glamour" accounts. One was the Howard Hughes-owned Glomar Explorer which secretly salvaged a sunken Russian submarine during the Cold War. Another was the Andrea Gail, a commercial fishing boat that went down with all hands off The Grand Banks in Nova Scotia and was memorialized in the book and film "The Perfect Storm."

The policies also cover related facilities such as shipyards and marinas. In addition, WQIS is the leading provider of the Certificate of Financial Responsibility (COFR) requiring owners and operators of vessels over 300 GRT (gross registered tons) carrying oil in U.S. waters to demonstrate that they can pay for a prescribed amount of a cleanup. Despite the high risks involved, WQIS continues to offer policies with a fixed premium, has not raised rates in five years, and still returns a profit to its subscribers-due in part to selective underwriting as well effective loss prevention programs conducted for its clients.

As much as its sweeping coverages, WQIS' cleanup management component, MPRG, is just as valued by clients, not to mention environmental and governmental groups. It was formed by Hobbie following the catastrophic spill by the Exxon Valdez in 1989 in Alaska and the seat-of-the-pants cleanup that was vilified by environmentalists. The cleanup stretched over three years and cost $2.5 billion. Calling the Exxon Valdez spill a "case study in the need for spill management," Hobbie set about building such a team for WQISrecruiting top talent from the insurance, maritime and oil industries, among others, and molding them into a quick-striking cohesive team to manage spill cleanups.

MPRG got its baptism in 1994 in a nasty oil barge spill off the coast of a high-priced resort area in Puerto Rico, which Hobbie called "a defining moment." Despite problems in getting workers and coordinating the various business, government and environmental groups, MPRG drew high praise from Puerto Rican officials for helping minimize damage to the beach area, and it validated the use of a trained and organized response team. The lessons learned helped form the template for today's use of sophisticated tracking and monitoring software, not only for cleanups, but for controlling costs and expediting claims. Through the years, MPRG has managed more spill cleanups than any other organization in the country, with the exception of the Coast Guard.

Harry E. Yerkes IV, vice president of WQIS, who responds to many of the spills, says MPRG has spill management teams in strategic locations around the country-able to reach a spill site within 24 hours. After setting up a command center, the team makes a quick assessment of the spill to determine how best to utilize both workers and equipment to accomplish the twin goals of containing and cleaning up the spill and protecting other areas in harm's way. While big spills make the evening TV news, small spills can be just as costly - particularly if they hit in an area of endangered species or protected wetlands. Each spill, he says, takes on a life of its own, presenting different and often unique problems and challenges.

For example, one spill splattered a literal forest of mangroves-tropical trees and bushes which have a mass of tangled roots rising above ground. Talk about "hands-on." Each root had to be hand-wiped clean.

Another spill involved tons of chemically-treated wood chips, which if left to rot in the water, would have killed all forms of marine life.

Then there was the spill in the Arctic that hit smack in the middle of the mating season of a herd of walruses. MPRG and its contractors had to schedule the cleanup around these romantic interludes. But it had its rewards. While waiting for their cue to clean up, the crews had a ringside seat for the mating ritual. According to crew members, it was like watching a heavyweight championship fight as the male walruses, weighing more than 2,000 pounds, beat the daylights out of each other to win the female mates of their choice.

WQIS and MPRG draw high praise from Sean McCarthy, senior vice president of Durham & Bates Agencies in Portland, Oregon, which has been placing marine pollution business with them for more than 20 years. "Year in and year out," says McCarthy, "WQIS stays on the leading edge, always ahead of the competition in anticipating trends and broadening polices to cover the needs of clients." In this connection, WQIS recently doubled its optional limits for oil spills to $10 million for all vessels and increased its overall limits for the biggest vessels to $34.1 million. The higher limits offer greater flexibility for clients and allow MPRG to stay with a spill cleanup longer, before the excess market takes over.