Refinery Dock Allision - More than Just Property Damage Implications

Litigation, South & Central America

Damage to a refinery dock caused an extended interruption for repairs, resulting in lost production and costly non-routine logistics to meet customer needs. We were requested to evaluate lost profits and mitigation costs which, as monthly operating plans were no longer available, was a challenge. Therefore, we presented expert opinions based on an alternative approach using historical refinery operating results.

In this matter, a refinery dock was damaged by a marine tanker just prior to the delivery of a crude oil shipment. Due to the extended time to carry out the dock repairs, the refinery had insufficient crude oil inventory with which to continue processing at minimum feed rate and, therefore, had no alternative but to completely shut down. During this time, the refinery was forced to rely upon its existing product inventories to meet customer needs. This incident led to a business interruption claim submitted to the refinery's insurers.

Baker & O'Brien was requested to assess: (1) the lost profits due to lower production; and (2) the costs associated with mitigating the loss at the refinery. In order to complete our assessment, we calculated the lost production of gasoline, distillate, and fuel oil produced at the refinery and their historical variable margins to arrive at the lost profit from operations. Typically, when calculating the lost volumes for reconciliation, the actual outcome is compared to the monthly operating plan ("but for" without the incident). Unfortunately, since this claim was presented many years after the incident, the monthly operating plans were no longer available. Therefore, this required an alternative approach to establish a reasonable basis for comparison, which relied upon earlier comparable historical refinery operating results.

Following the development of an expert report, the matter was settled.

Gary N. Devenish

Vice President

Petroleum Refining
Insurance Claims / Litigation / LP Planning / Practice / Quantum/Damages Assessment
South and Central America