U.S. Judge Denies BP's Bid to Access $750 Million of Insurance Coverage

By MarEx 2011-11-21 12:30:21

U.S. District Court Judge, Carl Barbier, issued a forty-two (42) page Order ruling against BP on its motion for final judgment on the pleadings in respect to all claims presented in the pending insurance actions arising from the DEEPWATER HORIZON incident.  BP requested the Court issue two (2) declaratory awards in its favor, specifically seeking the Court to identify BP as an “additional insured” under the Transocean insurance policies and to broadly define BP’s coverage rights under the policies themselves, rather than limit its coverage rights pursuant to the underlying Drilling Contract.

The Court held that the Drilling Contract between the parties: defines BP’s and Transocean’s respective obligations; identifies liabilities that each separately assumed; and sets forth the minimum amounts of coverage that Transocean was required to purchase and maintain.  BP argued that under Texas law, the Court is required to find that its coverage rights were controlled by the “terms of the Policies” and “not the scope” of Transocean’s indemnification of BP in the underlying Drilling Contract. Citing Evanston Insurance Co. v. Atofina Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008); Aubris Resources LP v. St. Paul Fire and Marine Insurance Co., 566 F.3d 483 (5th Cir. 2009).

The Court agreed that Texas law controlled the decision.  However, Judge Barbier held that Texas law, as interpreted by Atofina, did not prevent reference and review of the underlying Drilling Contract to determine the scope of additional insurance coverage. Rather, the Court found that because the policies at issue state that BP is an “Insured” where Transocean is obliged by the Drilling Contract to provide insurance, the Court must read the entire insurance provision in the Drilling Contract to determine the scope of coverage. The Court found that the Fifth Circuit did the same analysis in Aubris.

The Court ultimately held that under the policies, the only reasonable interpretation was that BP is an additional insured only for liabilities assumed by Transocean under the terms of the Drilling Contract. Thus, the Court was obligated to look to the terms of the Drilling Contract to determine the scope of coverage. Judge Barbier stated that the Drilling Contract’s indemnity provisions were the only provisions that establish which liabilities Transocean assumed.  Specifically, the Drilling Contract indemnity provision allocated toTransocean liabilities for pollution originating above the surface of the water, and that BP assumed subsurface liabilities.

Under the contract interpretation and analysis, the Court held that: as the Deepwater Horizon Incident entailed a subsurface release, Transocean did not assume pollution liabilities arising from the Incident.  Accordingly, “Transocean was not required to name BP as an additional insured as to those risks. Because there is no insurance obligation as to those risks, BP is not an “Insured” (or“additional insured”) for those risks. Therefore, BP is not entitled to the declarations of coverageit seeks under Section II of the Policies.”

To read the Court’s decision, click here.