International reinsurers refuse Essar’s Rs. 900-crore terror claim

Oil and steel major Essar Group seems to be facing a double whammy over its Rs. 900-crore terror insurance claims for the damage and disruption caused by the Maoist attack on its steel production facilities.

While New India Assurance has rejected Essar’s terror claim, the company is also not able to renew the policy for lack of support from re-insures. Both domestic —Terror Pool managed by GIC Re — and international—led by Lloyd’s — are not ready to re-insure the policy. The terror policies need total re-insurance support for renewal.

The Ruias-controlled $15-billion group has knocked at the doors of ministry of finance with a plea that the domestic insurers including Terror Pool are duty-bound to give terror covers to the industry in the Maoist infested area. GIC Re the official re-insurer has cautioned other insurers about the complication involved in the renewal of the Essar’s terror policy which is already burdened with a large claim.

“The Terror Pool has manged large 26/11 terror claims worth over Rs. 500 crore from Oberoi and Taj Hotels. We are not prepared to deal with Essar case as this is a complicated one. They didn’t come to us in placing the cover in 2009-10,” said sources at GIC Re, on condition of anonymity.

Essar Steel had taken a stand-alone terror policy for covering unforeseen losses worth Rs. 1,500 crore in 2009-10 for its various steel plants and allied facilities in the country.

On March 24, 2010, Maoists blasted a pumphouse (at Chitrakonda located in Andhra Orissa border) attached to a 270-km pipeline, the second longest pipeline in the world which carries iron ore slurry from iron ore beneficiation plant at Bailadilla, Chattisgarh to Essar's pellet plant at Visakhapatnam in Andhra Pradesh. The Maoists attack had also inflicted heavy damage to other facilities and machinaries like large number of trucks, air-conditioning plant, furniture, cranes and other equipment at Chitrakonda

As part of its backward integration plan, Essar Steel has built an eight million tonne per annum (MTPA) iron ore pelletisation plant in Visakhapatnam which provides high quality iron ore to the Hazira Steel plant.

According to an Essar spokesperson, “There was a naxal attack on the slurry pipe line and allied facilities of the company and hence the pipeline operations remained suspended for about 10 months. Essar Steel has raised a claim as per the terms of the policy to cover the losses. We continue to pursue this claim under the policy which is tenable.”.

Sources point out that after the attack the Essar Steel had lodged the claim on the basis of losses due to the business interruption and consequential losses suffered by the the steel plants. But the international re-insurers have refused to settle the claim with the plea that Essar has supressed vital information about its plant. A senior New India Assurance Official said that both settling claims by the reinsurers and placing the renewal deal with Terror Pool are currently being discussed and nothing has been finalised yet, “Our people are still collecting information from the company to facilitate claim settlement,” said the official.