Course Correction For The General Maritime Law Of Indemnity Contracts?

Vincent Foley and Christopher Nolan are Partners in our New York office

On the Eve of a Historic Trial, the Court in the Deepwater Horizon Litigation Extends Indemnity in the BP-Transocean Drilling Contract to Include Transocean's Gross Negligence

Before the most anticipated maritime trial so far this century begins on Monday, it is important to consider the indemnity ruling reached a few weeks ago that substantially impacts the litigation and potentially has far-reaching implications for maritime indemnity contracts. In this alert, we also look ahead to the parameters of the anticipated trial should a settlement not be reached.

A New Framework Suggested for Interpreting Maritime Indemnity Clauses

On January 26, 2012, the United States District Court for the Eastern District of Louisiana issued its order and reasons requiring BP American Production Co., BP Exploration and Production, Inc. and BP p.l.c. (collectively referred to as BP) to indemnify Transocean Offshore Deepwater Drilling Inc. (et al.) (Transocean), as owner of the Deepwater Horizon rig, for pollution claims asserted by third parties, even if the claims were caused by Transocean's own gross negligence. The court also held that the indemnity was unenforceable as against public policy for punitive damages, as well as Clean Water Act (CWA) civil fines and penalties.1

The decision was one of several pre-trial motions pending before Judge Carl Barbier in the multi-district litigation (MDL). The MDL is comprised of the thousands of claims for death, personal injury and pollution damage that arose from the April 20, 2010 explosion and fire on the Deepwater Horizon and the subsequent discharge of millions of barrels of oil into the Gulf of Mexico.2 Transocean's motion was filed in the context of two actions: (1) a limitation action filed by Transocean as owner of the Deepwater Horizon pursuant to the Shipowner's Limitation of Liability Act (the Act)3; and (2) the U.S. government action by way of the Department of Justice seeking a declaration of unlimited liability for legal costs and damages under the Oil Pollution Act of 1990 (OPA 90) against both the BP and Transocean related entities, and for civil penalties under Section 311(b)(7) of the CWA.

Transocean's motion for partial summary judgment requested that the court uphold its indemnity against BP from claims and liabilities relating to pollution originating below the surface of the water "even if Transocean is strictly liable or the pollution was caused by Transocean's fault or gross negligence."4 BP admitted that the contract required it to indemnify Transocean for such pollution claims arising from Transocean's "fault or negligence," but argued that there was no reference in the indemnity...