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The $750 Million Comma? Texas Supreme Court Rules BP Is Not Entitled to Coverage for the Gulf Oil Spill as an Additional Insured Under Policies Issued to Transocean.

February 19, 2015 Published Work
Insurance Ltiigation Reporter, Vol. 37, No. 2

The Supreme Court of Texas ruled on February13, 2015, that BP is not entitled to coverage as an additional insured under insurance policies Trans-ocean procured for the Deepwater Horizon. In re Deepwater Horizon, Relator, 2015 WL 674744. We previously wrote about the insurance coverage dispute concerning subsurface pollution that resulted from the 2010 oil spill in the Gulf of Mexico in the following Insurance Litigation Reporter articles:

IN RE: OIL SPILL BY THE OIL RIG"DEEPWATER HORIZON" IN THE GULF OFMEXICO ON APRIL 20, 2010,vol. 33,No. 20,Dec. 8, 2011

IN RE: DEEPWATER HORIZON INSURANCELITIGATION - FIFTH CIRCUIT REVERSES INFAVOR OF BP'S ADDITIONAL INSUREDCLAIM, vol.35, No. 4, Mar. 18, 2013

IN RE: DEEPWATER HORIZON INSURANCELITIGATION - THE FIFTH CIRCUITREVERSES THE DISTRICT COURT'SADDITIONAL INSURED DECISION BUTTHEN WITHDRAWS ITS DECISION ANDCERTIFIES ISSUES TO THE TEXAS SUPREMECOURT, vol 33, no. 1 Feb 20, 2011, vol 32, no.14, Aug. 30, 2010

Readers may recall that the federal district court in Louisiana originally ruled that the Transocean policies did not afford coverage to BP. The Fifth Circuit Court of Appeals reversed the trial court and ruled that BP was entitled to coverage, but that court then withdrew its opinion and certified two questions to the Supreme Court of Texas.

Upon certification, the principal question before the Supreme Court of Texas was whether, in deciding the scope of coverage provided to an additional insured, a trial court may look only to the insurance policy at issue or whether it may also consider other documents (in this case, the drilling contract between Transocean and BP). (The court also considered a second question as to the applicability of the sophisticated insured exception to the general rule that policies are construed in favor of insureds.)

The parties had agreed in the drilling contract that Transocean would indemnify BP for above-surface pollution regardless of fault and that BP would indemnify Transocean for subsurface pollution. The drilling contract also obligated Transocean to name BP as an additional insured under its policies.

BP was not specifically named in the policies, but the policies extended coverage to "[a]ny person or entity to whom the ‘Insured' is obligated by oral or written ‘Insured Contract' . . . to provide insurance such as afforded by [the] Policy." Transocean was an Insured under the policies.

After the catastrophic blow-out, BP sought insurance coverage under the Transocean policies.

The parties agreed that BP was an additional insured; thus the dispute involved only the extent of coverage afforded to BP. Transocean and its insurers argued that BP's coverage extended only to the indemnity obligations Transocean assumed in the drilling contract. BP argued that the language in the insurance policy afforded coverage that was broader than the contractual indemnity in the drilling contract and that it is improper to narrow coverage terms by referring to limitations outside the four corners of the policy.

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