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Company ordered to pay $1 million claim on oil well

The Supreme Court has ordered a Bermuda-registered reinsurance company to pay a $1 million claim for an Indonesian oil well which the company argued was not insured.

Maple Insurance Ltd., Gulf Oil's Bermuda captive, must pay the Indonesian state insurance company PT Tugu Pratama $1.1 million -- representing the claim plus interest, Puisne Judge the Hon. Mrs. Justice Wade said on Wednesday.

Costs were also awarded.

During the trial in September, court was told that insurance company manager Sedgwick (Bermuda) Ltd. signed an insurance contract that did not reflect the risk that Maple wished to assume.

The claim related to the blow-out of a well in north Sumatra, Indonesia on April 3, 1992. The onshore well was operated by Asamera Indonesia Ltd., a wholly-owned subsidiary of Gulf.

Tugu paid the initial claim of about $4.5 million then put a $1-million reinsurance claim to Maple.

Mr. Claude Smith, director of risk management at Gulf Canada Resources Ltd. in Toronto and a director of Maple Insurance, testified he believed Maple was only at risk for damage to offshore oil wells. And he believed Tugu Pratama's London insurance broker, with whom he negotiated the reinsurance, had the same understanding.

Maple relied on letters, mainly between its Bermuda manager Sedgwick and Mr.

Simon Cartwright of Tugu's London broker TRB Ltd. They refer to coverage "for offshore only,'' and "no involvement in the onshore programme''.

But reinsurance contracts for five Asamera oil companies signed by Ms Mary Barnes of Sedgwick, which were entered as evidence at the trial, specified risk and premiums for Maple for onshore wells.

Maple, represented at trial by lawyer the Hon. Jerome Dill of Appleby, Spurling & Kempe, said the insurance contracts were wrong and unenforceable.

The company asked Mrs. Justice Wade to order them "rectified'' to show Maple only at risk for offshore claims.

But Mr. Cartwright testified Tugu had reinsured nearly 200 wells with Maple, and only one of them was offshore. If Maple's risk was limited to what the company claimed, "they would be receiving premiums for absolutely no risk,'' he said.

"That is no doubt a comfortable state of affairs for reinsurers,'' Tugu lawyer Mr. Narinder Hargun of Conyers, Dill & Pearman told court. "But that is not the way it works.'' Mrs. Justice Wade ruled there was "no doubt'' that Tugu Pratama intended that onshore wells be insured under the policy. If there was a mistake made, it was Maple's, and Tugu was not aware of it, she said in a 20-page judgment.

And she could "find nothing to support (Maple's) contention'' that the reinsurance contract did not include coverage for onshore wells.

The trial heard about confusion over the terms used to describe onshore and offshore risks.

Mr. Smith noted that the insurance slip described Maple's "onshore,'' or "section one'' risk as "nil,'' while all of Maple's risk was "offshore,'' or "section two.'' However, the breakdown of risks under section two included well control for onshore oil wells. Tugu, through broker TRB, contends that it was standard practice to include all well control under offshore risk, because oil wells are normally insured in the marine market.

Mr. Smith testified he relied on officials at Sedgwick to scrutinise the documents and did not examine them himself until after the claim dispute arose.

TRB acknowledged a seven-month delay in notifying Maple of Tugu's claim, but Mrs. Justice Wade said the delay did not constitute "unconscionable conduct'' by Tugu, which would have to be proven for her to order the contract changed.

Mr. Hargun argued Maple's defence was "so improbable'' that one would conclude "this position has been taken because they simply don't want to pay.''