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contractdamageslitigationliabilityindemnitylease

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In re Deepwater Horizon, 470 S.W.3d 452, 2015 A.M.C. 1491, 58 Tex. Sup. Ct. J. 330

Facts

The Deepwater Horizon oil-drilling rig, owned by Transocean, exploded in April 2010, resulting in the discharge of millions of gallons of oil into the Gulf of Mexico. BP, the oil field developer, sought coverage under Transocean's insurance policies for damages related to subsurface pollution. The drilling contract between BP and Transocean included indemnity provisions that allocated liability for pollution risks, with BP assuming liability for subsurface pollution. The insurers contended that BP was not entitled to additional-insured coverage for these claims based on the terms of the drilling contract.

At the time of the events giving rise to the underlying litigation, Transocean owned the Deepwater Horizon, a mobile offshore drilling unit operating in the Gulf of Mexico pursuant to a drilling contract between Transocean's predecessor and BP's predecessor (the Drilling Contract). After an explosion, the rig caught fire and fully submersed after burning for more than a day. The incident killed eleven crew members, propagated numerous personal-injury claims, and begat a myriad of claims for environmental and economic damages stemming from the discharge of millions of gallons of oil into the Gulf of Mexico.

Issue

Whether BP is an additional insured under Transocean's insurance policies for subsurface pollution damages resulting from the Deepwater Horizon incident, given the terms of the drilling contract.

Whether Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008), compels a finding that BP is covered for the damages at issue, because the language of the umbrella policies alone determines the extent of BP's coverage as an additional insured if, and so long as, the additional insured and indemnity provisions of the Drilling Contract are 'separate and independent'?

Rule

The court determined that the drilling contract was necessarily incorporated into the insurance policies, and BP's status as an additional insured was limited to the liabilities Transocean assumed under the drilling contract.

The Transocean insurance policies include language that necessitates consulting the drilling contract to determine BP's status as an 'additional insured'; under the terms of the drilling contract, BP's status as an additional insured is inextricably intertwined with limitations on the extent of coverage to be afforded under the Transocean policies.

Analysis

The court analyzed the language of the insurance policies and the drilling contract, concluding that BP's additional-insured status was contingent upon the indemnity obligations outlined in the drilling contract. The court found that the only reasonable interpretation of the additional-insured provision was that BP was not entitled to coverage for subsurface pollution claims, as BP had expressly assumed liability for such claims in the drilling contract.

The only reasonable construction of the drilling contract's additional-insured provision is that BP's status as an additional insured is limited to the liabilities Transocean assumed in the drilling contract; BP is not entitled to coverage under the Transocean insurance policies for damages arising from subsurface pollution because BP, not Transocean, assumed liability for such claims.

Conclusion

The court held that BP was not an additional insured entitled to coverage for subsurface pollution damages under the terms of the drilling contract as incorporated into the insurance policies. The certified questions were answered in the negative.

We therefore answer the first certified question in the negative, and based on our analysis of that issue, do not reach the second question.

Who won?

Transocean and its insurers prevailed in the case, as the court determined that BP was not entitled to additional-insured coverage for subsurface pollution claims based on the terms of the drilling contract.

Transocean and its insurers contend that BP is not entitled to additional-insured coverage for pollution-related liabilities arising from subsurface oil releases in connection with the Deepwater Horizon incident.

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