A Stormy Recovery for Loss of Hire

In August 26, 1992 Hurricane Andrew struck the U.S. Gulf Coast with such force that the Jack Bates – a semi-submersible drilling rig which was “stacked” at the time – broke free of its moorings, drifted 32 miles and went aground. The rig was extensively damaged and underwent repairs for three months. The owner of the rig, Reading & Bates Drilling Co., submitted insurance claims for damage and loss of hire and eventually was paid, but the route to recovery for the loss of hire was as stormy as Hurricane Andrew itself.

Reading & Bates Drilling Co. (R&B) obtained a Primary Package and an Excess Package policies for insurance of the Jack Bates from U.S. and London underwriters. The Primary Package included coverages for hull & machinery, physical damage, loss of hire, and excess liability. Each policy section was a separate policy of insurance, and each had its own terms and conditions including dispute resolution procedures. However, the Primary Package had a combined single limit for hull & machinery, loss of hire and other covered incidents of $20 million. The claims under the hull and loss of hire policies eventually would exceed that amount.

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