BP not entitled to insurance coverage under Transocean, Barbier rules

By Alejandro de los Rios | Nov 17, 2011

U.S. District Judge Carl Barbier has ruled that BP is not eligible for millions of dollars in coverage for the 2010 Deepwater Horizon oilrig explosion and oil spill under oilrig owner Transocean's insurance policies.

Transocean was leasing the Deepwater Horizon to BP when its blowout preventer failed and led to the largest offshore oil spill in U.S. history.

Thousands of claims from Gulf Coast residents, businesses and governments have been filed against BP, Transocean and their partners in the Deepwater Horizon.

Barbier is overseeing the massive multidistrict litigation surrounding the oilrig explosion and subsequent oil spill in the U.S. District Court for the Eastern District of Louisiana.

In a 42-page ruling, Barbier concluded that BP is not correct in its interpretation that the lease they signed with Transocean indemnifies the oil company for some $750 million for damages caused by the oil spill in the Gulf of Mexico.

"One cannot definitely conclude that there is, in fact, an insurance obligation," Barbier wrote. "Therefore, it is unreasonable to adopt BP's interpretation, that there is unlimited-in-scope coverage just because in the abstract Transocean is obligated to name BP as an additional insured."

BP argued that the drilling contract that it signed with Transocean means that it is insured for oil spill damages under policies Transocean has taken out on the Deepwater Horizon.

The key wording at issue in the drilling contract stated that "[BP], its subsidiaries and affiliated companies, co-owners, 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 term of this Contract."

Barbier wrote that it's "unclear how BP's proposed reading would make much sense" when reading the provision under Texas law, under which the contract must be examined.

"The insurance provision imposes an additional insurance obligation as to liabilities assumed by Transocean under the Drilling Contract, nothing more and nothing less," Barbier wrote.

Barbier found that Transocean did not agree to any sort of insurance obligation as to the risks related to a potential oil spill in its drilling contract with BP, then BP is not entitled to any coverage under Transocean's insurance policies.

"Because Transocean did not assume the oil pollution risks pertaining to the Deepwater Horizon Incident – BP did – Transocean was not required to name BP as an additional insured as to those risks."

Federal MDL 2:10-md-2179

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