Fifth Circuit asks Texas high court for clarification in BP oil spill insurance case

NEW ORLEANS — The U.S. Court of Appeals for the Fifth Circuit has filed a ruling withdrawing a previous opinion on a lawsuit against insurance companies that provided coverage to companies at the center of the 2010 Deepwater Horizon explosion and resulting oil spill.

Plaintiffs in the original case are Ranger Insurance Limited, represented by Michael John Maloney of Maloney, Martin & Associates; Transocean Offshore Deepwater Drilling, Inc., etc., represented by Steven Lynn Roberts of Sutherland, Asbill & Brennan, L.L.P.; and Certain Underwriters at Lloyd’s London, represented by Richard N. Dicharry of Phelps Dunbar, L.L.P.

The defendant is BP P.L.C., represented by David B. Goodwin of Covington & Burling, L.L.P.

In April 2010, the Deepwater Horizon, owned by Transocean, sank into the Gulf of Mexico. BP notified insurers of its loss and insurers each filed claims against BP. While all parties agree that BP had some coverage as additional insured, the scope of BP’s coverage is in contention.

In July 2011, BP filed a motion against the insurers arguing that it was an “additional insured” under the umbrella policy at issue and that the insurance policies alone (not including indemnities from the drilling contract) should determine the extent of its coverage.

In November 2011, the district court denied BP’s motion, finding two precedents distinct from the case in question. In addition, the district court concluded that BP was not covered under Transocean’s policy for pollution-related liabilities as the spill emanated from below the surface of the water.

According to background information, Article 24.1 of the drilling contract provides indemnity for BP “for pollution or contamination, including control and removal thereof, originating on or above the surface of the land or water.” Article 24.2 provides indemnity for Transocean “for pollution or contamination, including control and removal thereof, arising out of or connected with operations under this contract hereunder and not assumed by contractor in Article 24.1 above.”

The district court denied BP’s motion and passed judgment on the pleading in favor of the plaintiff insurers against BP, effective March 1, 2012. BP appealed.

A unanimous panel of the U. S. 5^th Circuit Court of Appeals reversed the district court’s judgments.  The insurers and Transocean both petitioned for a rehearing, which the Court of Appeals withdrew to certify two questions with the Texas Supreme Court.

BP applied a precedent case in support of its claim that the additional insured provision and the indemnities provisions in the drilling contract are “separate and independent.” BP seeks coverage from the insurers under the umbrella policy, not indemnification from Transocean as stated in the drilling contract.

The insurers and Transocean focused on the differences between the precedent case and the case at issue, namely where the obligation to name BP as an additional insured only applies to liabilities Transocean assumed in the contract. They further argue that the umbrella policy requires that an insured contract exist between the named insured and the third party, while no such contract was required in the precedent case. The plaintiffs contend that the indemnities provisions of the drilling contract and the umbrella policy are indivisible from one another.

The second question is made in regards to the doctrine of contra proferentem, in which any ambiguous term will be determined against the drafter of the contract, and whether it applies if the drilling contract does indeed place limitation on BP’s coverage as additional insured under the precedent case.

The motion filing details how “Texas law has consistently held that, if an insurance coverage provision is susceptible to more than one reasonable interpretation, the court must interpret that provision in favor of the insured, so long as that interpretation is reasonable […]. The court must do so even if the insurer’s interpretation is more reasonable than the insured’s.”

The Fifth Circuit held that the drafting of the drilling contract did not involve the insurers so that “construing ambiguities in that contract against them might be inappropriate.” However, insurers were involved in the drafting of the umbrella policy, which failed to limit coverage in any insured contract.

The Fifth Circuit certifies these questions to the Supreme Court of Texas as “these policy factors are better gauged by the state high court than by a federal court."

Case no. 12-30230.