Fifth Circuit Reverses District Court In Deepwater Horizon Insurance Coverage Litigation And Grants BP Unlimited Access To Transocean’s $750 Million In Insurance As 'Additional Insured'

On March 1, 2013, a three-judge panel of the United States Court of Appeals for the Fifth Circuit, in In re Deepwater Horizon, No. 12-30230, 2013 WL 776354 (5th Cir. March 1, 2013), held that BP PLC ("BP") can access Transocean Holdings, Inc.'s ("Transocean") $750 million of liability insurance coverage for liability for damages caused by the oil spill from the Deepwater Horizon. The Fifth Circuit reversed the decision by the district court, holding that the drilling contract between BP and Transocean (the "Drilling Contract") only required Transocean to name BP as an additional insured with respect to liabilities specifically assumed by Transocean in the Drilling Contract, which did not include BP's liabilities for the Deepwater Horizon disaster.

The Fifth Circuit, relying primarily on Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008), and Pasadena Refining System, Inc. v. McCraven, Nos. 14-10-00837-CV, 14-10-00860-CV, 2012 WL 1693697 (Tex. App., May 15, 2012), found that, under Texas law, where the insurance procurement and indemnity provisions in an underlying contract are "separate and independent," the insurance policy, and not the indemnification agreement, determines the scope of coverage for an additional insured.

The Drilling Contract included indemnification provisions as well as a provision requiring that Transocean shall maintain insurance covering the operations to be performed pursuant to the contract, "as set forth in Exhibit C." Exhibit C established the minimum level of insurance that Transocean was required to maintain, and also required that Transocean name BP as an "additional insured" under its insurance policies. The court noted that, under Texas law, "to render an additional insured provision separate from an indemnity provision," it need only...