Insurance III

Exxon Valdez.

The inflammation that occurred was new. One ship, due to the troubles of the Officer of the Deck, foundered. You can blame Captain Hazelton as much as you wish, the problem is, the Officer of the Deck failed to follow the course charted. Let's assume I'm drunk now. The words you're reading are the words of a drunk. Does that make the truth, the honesty, or the accuracy of the words I'm typing false? If I'm Captain Hazelton, leaving the bridge, giving orders underway to the Officer of the Deck any more or less important?

Maritime law is a special province for legal professionals. Contract law is, again, a special province for  legal professionals. Why? Because so much of maritime law relies upon international agreements, and contract laws simply derive from the country in which those contracts are created and agreed. Regulatory change doesn't always come from regulating agencies. At times, regulatory changes come from courts. Should courts engage in regulatory change? Taking a look at the Constitutional roles played by the Courts, the Executive and the Legislature, it's obvious to the casual reader that regulatory changes can only occur in the Legislative branch of government. That is, only one branch of government creates, or proposes, law. The Executive's role is in the administration of that law, and the Court's role is one of ensuring enforcement of the Law.

If you were to be involved in insurance, what role would you play? Purchaser, provider, or underwriter? The most common role of participant in the market for insurance is as a purchaser. Concomitantly, to be a purchaser requires as a necessary component, a provider. What both parties rely upon is the underwriter.

Underwriters asses risk.

During World War II, thousands of ships carrying oil were sunk. If you were a crewman on a ship carrying oil during WWII, the idea of being sunk was not an attractive thought. No one wanted to be sunk at sea in the Northern Atlantic. But worse, the thought of fire starting on the oil floating on the water...when all the water around you was soaked in oil. Temperatures of burning ships reached hellish levels, and the men who were finding themselves abandoning ship found themselves entering the gates of Hell. The shores of Nova Scotia, England and Ireland, France, and United States' states of New York, New Jersey, Georgia, North and South Carolina, all were victims of sinking which were occurring daily during the years from 1939 to 1945. Hundreds of millions of barrels of oil were spilled in the Atlantic during those years.

One account lists 1554 ships under U.S. flag were sunk during WWII. That's just U.S. merchantmen. Add in German, French, British, Australian, Chinese, Indian, ships from all corner of the world, and you see that this is simply a tip, if you will, of an iceberg of incomparable size. 

When the Exxon Valdez found itself grounded due to a navigation error, 260- to 750-thousand barrels of oil were spilt. So, twelve million gallons. Or, about 789 swimming pools. We were told that the Exxon Valdez spill was the largest disaster of its kind. Which is demonstrably false. But headlines lead. And regulations change.

The Exxon Valdez is important in many ways. Regulations over ships' construction, regulations over ownership of vessels, regulations over implicit and explicit liabilities of carriers and contractors, all were changed within years, and most of these changes occurred outside of the legislative process. Those who would assert that "regulation isn't affecting commerce" are simply without any exposure to the real world of commerce. The whole concept of corporate law was affected as a result of Valdez. There is no longer an "arms length" available to charterers of ships, and in the main, when you rent or contract for carriage, you need to look at the rules promulgated after Valdez and then ask yourself, if you, or your company are truly divorced from the actions of your contracted providers?

Not all changes in regulations occur in the offices of federal or state bureaucrats. Some of the most significant changes, and I would assert, the most onerous changes in regulation, have occurred in the court system.

Within recent memory, the bankruptcy of General Motors should be at the fore-front. Secured holders of equity were bitch-slapped by the Obama administration in favour of the unions which support the Democrat Party. I haven't yet heard of any court case where the flaying of our nation's bankruptcy laws were taken to a court, and hear pleadings on either side. Whole chapters of law were demolished due to the abdication of the Courts. The recent Roberts' Court rulings on ObamaCare aren't the first examples of judicial malfeasance. Simply, the most recent.

The last few posts have been meant to be illustrative of the ways changes in regulation can or may occur. I think the knee jerk supposition is,  that bureaucrats in Washington, D.C. are the villains in the piece. They are, and in ways that are nefarious and at times, invisible. But insurance companies are able, in the main, to pace those types of changes. (Although, it must be said, that the acceleration of regulation, and the volatility  those changes have had, have led to an abrupt acceleration of bureaucratic regulation during the present administration.) Insurance companies' underwriters can attempt to read tea leaves when it comes to important judicial decisions. But as we've found, Courts are not predictable. The actions of courts can be the most expensive components in determining future costs, compared to legislative or regulatory changes.

The consequence of Exxon Valdez was profound. It is easy to say that requiring all vessels to be double-hulled is only "common sense."

Common sense, to whom? Coming from a common historical experience, losing millions of gallons of crude oil has never been know to create any type of long-term harm. It has been known to create millions of short-term pictures. And angst. But requiring an entire fleet of ships to change hull design? In a penstroke, judges created costs associated with the carriage of crude oil that have been passed on to you and I, the consumers for bulk oil Is the likelihood of  environmental disaster different today, than it was before Exxon Valdez?

EV was an extraordinary event. A combination of stupid and geography.

And politicians respond by legislating against stupidity.

They may as well legislate perpetual motion.

We'll look at "regulatory" costs next.