BP can’t tap $750M from Transocean insurance policies, Texas SC rules

On Friday The Texas Supreme Court blocked BP from collecting $750 million from Transocean insurance policies.

Sine the April 2010 Deepwater Horizon oil spill, BP has paid tens of billions in claims. In order to recover some of its losses, BP filed claims of its own with Transocean’s insurance carriers.

The insurance providers pushed back, disputing that BP is entitled to coverage for liabilities it expressly assumed in its drilling contract with Transocean.

Court records show that on Aug. 29, 2013, the U.S. Fifth Circuit of Appeals, on behalf of the State Office of Risk Management, filed the two following certified questions with the Texas high court:

- Whether Evanston Insurance Co. v. ATOFINA Petrochemicals 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; and

- Whether the doctrine of contra proferentem applies to the interpretation of the insurance coverage provision of the drilling contract under the ATOFINA case?

“Texas law has long allowed insurance policies to incorporate other documents by reference, and policy language dictates the extent to which another document is so incorporated,” writes Justice Eva Guzman in the high court’s Feb. 13 opinion.

“The policies here provide additional-insured coverage automatically where required and as obligated by written contract in which an insured has agreed to assume the tort liability of another party. Because BP is not named as an insured in the Transocean policies or any certificates of insurance, the insurance policies direct us to the additional-insured provision in the Drilling Contract to determine the existence and scope of coverage.

“Applying the only reasonable construction of that provision, we conclude that, as it pertains to the damages at issue, BP is an additional insured under the Transocean policies only to the extent of the liability Transocean assumed for above-surface pollution. We therefore answer the first certified question in the negative and refrain from answering the second question.”

In dissent was Justice Phil Johnson, who wrote: “I would hold that BP’s coverage under the policy is the coverage provided in the policy’s ‘COVERAGE’ section, and the coverage is not limited to liabilities Transocean assumed in the drilling contract.”

Case No. 13-0670