Are Michigan’s Residents, Communities, and Businesses Insured if Line 5 Fails in the Straits?

Line 5 Pipeline

A FLOW Investigation Reveals Critical Omissions and Finds that the Aging Pipelines Might be Uninsurable


If the 66-year-old Enbridge Line 5 pipelines fail in the Straits of Mackinac, who will pay for the oil spill clean-up costs and damages to residents, coastal communities, businesses, and our public waters?

Michigan citizens may believe they are protected, at least at some level, by the insurance Enbridge should be required to have in place to pay the costs of cleaning up an oil spill disaster in the Straits, where Lake Michigan meets Lake Huron.

Unfortunately, that may not be the case.

A FLOW investigation has revealed potential holes in Michigan’s financial protections against a Line 5 pipeline rupture into the Great Lakes. The potential shortcomings could prove ruinous to communities, residents, and businesses that suffer losses at the hands of a Line 5 oil spill in the Straits.

The problems can be traced to last year when environmental regulators were largely sidelined by the Snyder administration, which negotiated four Line 5 agreements directly with Line 5-owner Enbridge from the executive offices of the governor.

Now FLOW’s findings come as Governor Gretchen Whitmer has issued an executive order and new directives aimed at strengthening the state’s regulatory and administrative oversight capabilities for the Great Lakes, although Republican legislators are seeking to overturn the governor’s order in favor of delegating oversight in part to the businesses being regulated by the state.

A Rush to Cut a Deal

The Snyder Administration’s inexplicable, rushed effort to sign agreements with Enbridge to replace Line 5, the dual 20-inch pipelines transporting crude oil and natural gas liquids through the Straits of Mackinac, has left the State of Michigan with potential catastrophic and unfunded financial liabilities.

The recent agreements between Governor Snyder and Enbridge allow the continued operation of the existing Line 5 pipeline for a period of 7 – 10 years, the estimated construction time required to design and build a tunnel to house a proposed new oil pipeline across the Straits of Mackinac.

Under the “Second Agreement,” the potential damages resulting from a disastrous pipeline break are supposed to be addressed by liability insurance Enbridge carries that would, if an oil spill occurred, pay for economic harm, clean-up and restoration costs, and natural resource damages.

The Snyder Administration Failed to Conduct a Risk Management Review

In its haste to sign agreements with Enbridge, the state failed to conduct a study that would evaluate the financial capacity of Enbridge to address a worst-case scenario for damages and claims that may result from an existing Line 5 failure. The purpose of a detailed quantitative and qualitative assessment of Enbridge’s capacity to perform in the event of a pipeline failure is make sure that Enbridge has the ready financial capacity to:

  • Immediately address and remediate environmental damages over the next seven to ten years;
  • Pay for economic damages that citizens, businesses, and affected coastal communities may incur as a result of a spill; and
  • Ensure that the State of Michigan is protected from future liabilities and expenses that third parties may bring against the state.

An appropriate examination of measures necessary to manage the risks and exposure state and local governments may face from pipeline failures is an essential precaution necessary to evaluate the risks posed by pipeline failures.

Minnesota and Wisconsin Expert Reviews Found Enbridge’s Insurance Coverage Deficient

Recently, the State of Minnesota and Dade County, Wisconsin, retained insurance experts to determine the adequacy of the financial assurances Enbridge has in place for pipeline related projects in their states.

Both expert analyses determined that the insurance Enbridge carried was deficient. The General Counsel to Minnesota’s Department of Commerce stated that they “found no meaningful coverage for damages caused by oil spills.” The Wisconsin analysis revealed Enbridge did not carry Environmental Impairment Liability (EIL) insurance, explaining:

An EIL policy designed specifically to cover claims arising from pollutants provides broader coverage for environmental losses than a GL [General Liability] policy does. A good quality EIL insurance specifically insures Cleanup Costs, Emergency Response Costs, Restoration Costs and Natural Resources Damages within the insuring obligations of the policy. GL policies do not reference these important elements of coverage which will always come into play as a source of damages in a pipeline spill.

Unlike our sister states dealing with Enbridge, there is no evidence that the State of Michigan conducted a risk management and insurance review of any kind, nor does it appear that the State sought any assistance from qualified experts to determine whether the financial assurances Enbridge has proffered would, in fact, protect the State of Michigan and its natural resources as well as coastal communities, citizens, property owners, and businesses.

FLOW’s communications with the experts who conducted the Minnesota and Wisconsin reviews has raised the concern that the Line 5 pipeline may never have been adequately insured.  Even worse, Line 5 may be potentially uninsurable.  Given its age and known condition — anchor strikes, coating loss, abrasion, dents, cracks, bending, and deformities — Environmental Impairment Liability insurance may be unavailable in the international insurance market.

Inadequacies of Enbridge’s Financial Assurances to the State of Michigan

A preliminary review raises many questions regarding the adequacy of Enbridge’s financial assurances that are supposed to mitigate the economic harm if Line 5 fails:

  • Enbridge’s General Liability insurance may not cover clean-up costs, restoration costs, natural resource damages, or claims by third-parties who have been injured by a spill.
  • Enbridge does not carry “environmental impairment liability” insurance that would cover clean-up costs, natural resources damages and claims by injured third-parties.
  • Enbridge’s financial assurances are capped at $1.878 billion dollars, far less that the $6.3 billion estimate of worst-case damages determined by a study by Michigan State University, and a potential $45 billion loss to the nation’s Gross Domestic Product in after just 15 days from disrupting Great Lakes commercial shipping and steel production.
  • Enbridge Inc., the parent company, is not a signatory to the agreement relating to financial assurances; instead three Enbridge subsidiaries signed the agreement. It is unknown whether these subsidiaries are insured.
  • The State of Michigan may not be named as an “additional insured” on the insurance policies. If not, then the State of Michigan would have no direct right of recovery against an insurer, but instead would only have a derivative right to a recovery through Enbridge or one of its subsidiaries, assuming the subsidiary was an insured party.

An expert risk management review would have analyzed, quantitatively and qualitatively, the adequacy of Enbridge’s financial assurances and determined whether they afforded real economic protections to Michigan’s coastal communities, property owners and businesses.  It is imperative that an expert review be conducted immediately.

FLOW’s Recommendations for the State of Michigan

Based upon the preliminary review of the financial assurances intended to mitigate the present economic risks posed by a Line 5 failure and the ensuing questions and issues that have been identified by FLOW and independent insurance experts, the State of Michigan should:

  • Retain qualified experts to determine the adequacy of Enbridge’s financial assurances and to make appropriate recommendations regarding mitigating the magnitude of the financial risks posed by Line 5;
  • Determine to what extent the State of Michigan is bound by the indefinite and inadequate terms and provisions of the “Second Agreement;”
  • Require Enbridge, Inc., to name the State of Michigan as an “additional insured” and/or “named insured” on its insurance coverage for Line 5; and
  • Seek the termination of operation of Line 5 until all financial assurance deficiencies are fully cured and satisfied.

The Snyder Administration appears to have placed the people of the State of Michigan at great risk by its failure to exercise due diligence and assess the financial assurances proffered by Enbridge.

The Whitmer Administration and Attorney General Nessel have the opportunity to correct this critical omission.


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A FLOW Investigation Reveals Critical Omissions and Finds that the Aging Pipelines Might be Uninsurable