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Insurance Law

Perkins Coie LLP on Fifth Circuit Holds That Terms of Insurance Policy, Not Indemnification Provision of Contract, Controls Coverage for BP in Deepwater Horizon Insurance Dispute

   By James G. Bernald, Associate, Perkins Coie LLP

Many different civil suits arose out of the April 2010 explosion of the Deepwater Horizon, a semi-submersible, mobile offshore drilling unit, and the resulting oil spill in the Gulf of Mexico. This commentary analyzes an important decision in one of those cases.

At the time of the accident, the Transocean-owned Deepwater Horizon was engaged in exploratory drilling activities pursuant to a service contract between Transocean and BP. The Drilling Contract required Transocean to maintain liability insurance for the benefit of BP, as follows:

"Without limiting the indemnity obligations or liabilities of CONTRACTOR [Transocean] or its insurer, at all times during the term of this CONTRACT, CONTRACTOR shall maintain insurance covering the operations to be per-formed under this CONTRACT as set forth in Exhibit C."

Exhibit C to the Drilling Contract stated in pertinent part that:

"[¶1] The insurance required to be carried by [Transocean] under this Contract is as follows: ....
Comprehensive General Liability Insurance, including contractual liability insuring the indemnity agreement as set forth in the Contract...."

Exhibit C also contained a provision that BP be named as an additional insured:

"[¶3] [BP], its subsidiaries and affiliated companies, coowners, and joint venturers, if any, and their employees, officers and agents shall be named as additional insureds in each of [Transocean's] policies, except Workers' Compensation for liabilities assumed by [Transocean] under the terms of this Contract."

In its long-awaited decision, the Fifth Circuit Court of Appeals addressed the obligations of Transocean's primary and excess liability insurers to cover BP's pollution-related liabilities in the case of Ranger Ins., Ltd. v. Transocean Offshore Deepwater Drilling, Inc. (In re Deepwater Horizon), No. 12-30230, 2013 U.S. App. LEXIS 4512 (5th Cir. March 1, 2013) [enhanced version available to subscribers].  In deciding in BP's favor, the Fifth Circuit held that the language of the insurance policies - and not the indemnity provisions of Transocean's and BP's contract, as the insurers argued - controlled the extent to which BP was covered for its pollution-related liabilities. The court relied on Texas state court and Fifth Circuit precedent in reaching that decision. This commentary analyzes the court's reasoning.

James G. Bernald is an associate in the law firm of Perkins Coie LLP.  He is a member of the firm's Insurance Coverage Litigation Group.  He has litigated claims on behalf of insureds arising from loss under a broad range of policies including commercial general liability, property, business interruption, directors' and officers', errors and omissions, employment practices liability, media liability, life, and disability.

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