As insurers retreat from oil projects, Enbridge says coverage will be harder to get

Enbridge will have a tougher time finding insurance for its controversial Line 3 pipeline as insurers increasingly limit coverage of oil and pipeline projects — particularly those tied to Canada.

That was the upshot of filings Enbridge made last week with the Minnesota Public Utilities Commission (PUC). The Calgary, Alberta-based company reported that it has the coverage required by the PUC.

But the insurance market has an increasing aversion to oil projects due to carbon emission concerns and the low profitability of insurers hit by pollution-related losses, according to a report done for Enbridge by Marsh, one the world's largest insurance brokerages.

"As we continue to see insurers reduce participation or withdraw from the crude oil infrastructure coverage, replacing their participation will become extremely challenging, and it is unlikely that a $900 million limit will continue to be available for Enbridge and other pipeline risks in the near future," the Marsh report said.

The PUC has assumed that Enbridge will maintain general corporate liability coverage of $900 million, which would backstop specific insurance requirements for Line 3. The PUC also required Enbridge to buy a specialized "environmental impairment liability" policy with aggregate annual coverage of $200 million.

Getting a $200 million damage limit for that environmental impairment policy will also become "more challenging," the Marsh report said. "This is a challenge for all pipeline companies, particularly those with Oil Sands connections."

Alberta's oil sands, also called tar sands, are the source of most oil exported from Canada. Extracting such oil is particularly carbon intensive, and it's often mined from open pits.

In a statement, Enbridge said "it maintains significant amounts of insurance and is appropriately insured for its operations." The amount of Enbridge's general liability coverage "is at the high end of amounts carried by our peer group," the company said.

"Also, like any organization, we adjust our insurance based on the evolving market conditions we face each year when we renew," Enbridge said. "As the market evolves, we make decisions to ensure we are appropriately insured."

The company noted that it would be responsible for any oil spill clean-up, "regardless of the ability to later recover those expenses under an insurance policy."

Enbridge's last major oil spill in Minnesota was in 2002, when Line 3 ruptured and leaked 252,000 gallons. In 2010, an Enbridge pipeline in southwestern Michigan spilled 834,000 gallons of oil into a tributary of the Kalamazoo River.

The Michigan leak was one of the worst oil onshore oil spills in U.S. history and cost Enbridge $1.2 billion to clean up. A worst-case spill in Minnesota would cost $1.4 billion to mop up and remediate, according to a 2018 Enbridge analysis required by the Minnesota Department of Commerce.

Environmental and Indigenous groups have been waging campaigns against the financiers and insurers of oil projects. Some have also faced pressure from their own shareholders.

The efforts have had an effect: At least 14 insurance companies have pulled out of providing coverage for the Trans Mountain pipeline, which will carry oil from Alberta to the British Columbia coast.

Enbridge runs six pipelines, including the current Line 3, from Alberta through northern Minnesota to Superior, Wis., which is the largest conduit of Canadian oil into the United States. The new $3 billion-plus new pipeline will replace Enbridge's corroding old Line 3.

When the PUC approved Line 3, it mandated protections to deal with an oil spill. Enbridge had to give a corporate guarantee. It has to supply annual commercial liability coverage of up to $200 million specifically for Line 3, which can be met by its overall $900 million general liability policy.

Enbridge had to purchase an environmental impairment policy, or show that such coverage isn't available, because Enbridge told the PUC at the time it would be difficult to obtain.

Environment impairment policies have proven particularly difficult to negotiate, according to another Enbridge filing last week with the PUC.

"It is possible that, in the unlikely event of a release for[Line 3], these policies will not respond in a manner the Commission anticipated, and they undoubtedly will require Enbridge to take steps in the event of release that the Commission likely did not contemplate," the filing said.

Also, environmental impairment liability coverage is "far more expensive" than the $450,000 to $900,000 per year that was originally estimated by the Minnesota Department of Commerce, the filing continued. Enbridge's actual cost was redacted.

With North American and European insurance markets increasingly pulling back on oil-related policies, Enbridge has also looked to Asia and the Middle East for coverage, but without success, partly due to "limited appetite for United States pipeline exposures," the Marsh report said.

Construction of Line 3 is more than 90% complete, and it is expected to start moving oil during the fourth quarter.

Enbridge says the new line is a major safety improvement. Environmental groups and Indian bands say it will open new regions of Minnesota waters to environmental degradation from oil spills, and exacerbate climate change.