Recent Developments In Additional Insured Coverage In Texas

As part of the ongoing insurance coverage dispute following the sinking of the Transocean offshore drilling unit Deepwater Horizon, the Supreme Court of Texas has issued its response to the certified questions propounded by the Fifth Circuit.

On August 29, 2013, the Fifth Circuit, by unanimous decision, withdrew its March 1, 2013, opinion that had awarded "additional insured" coverage to BP under Transocean's umbrella insurance policies. In re Deepwater Horizon, Case No. 12-30230, Slip Op. (5th Cir. Aug. 29, 2013) ("Slip Op."). In its place, the Fifth Circuit certified two questions to the Supreme Court of Texas:

Whether Atofina 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"? Whether the doctrine of contra proferentum applies to the interpretation of the insurance coverage provision of the Drilling Contract under the Atofina case, given the facts of this case? Id. at 14.

The Supreme Court answered the first question in the negative, and therefore did not reach the second question. Specifically, the court held the Transocean insurance contracts included the language required to necessitate "consulting the drilling contract" to determine BP's status as an additional insured. The court then found that, under the drilling contract, BP's status as an additional insured was inextricably intertwined with the limitations on the extent of coverage to be provided by the Transocean policies. Further, the court found that the only reasonable interpretation of the drilling contract's additional insured provision is that BP's status as an additional insured is limited to liabilities assumed by Transocean in the drilling contract. As such, the court held BP is not entitled to coverage under Transocean's policies for subsurface pollution because BP had assumed liability for subsurface pollution under the contract.

In reaching its decision, the court distinguished the Deepwater Horizon facts from the facts in Evanston Ins. Co. v. Atofina Petrochems., Inc., 256 S.W.3d 660, 665 (Tex. 2008). In Atofina, the Supreme Court of Texas held that an oil refinery owner was an additional insured under a contractor's insurance policy, refusing to look beyond the terms of the policy itself in determining coverage. Here...