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Fifth Circuit Court of Appeals Finds BP Entitled to Coverage under Transocean’s Insurance Policies

In Ranger Insurance v. Transocean, the Fifth Circuit Court of Appeals reversed the District Court’s grant of partial final judgment on the Insurers’ complaints, finding that, under Texas law, the terms of an umbrella insurance policy in which a claimant is included as an “additional insured” control the extent to which the claimant is covered. Further, the Court held that the insurance coverage provision and the indemnity agreement between BP America Production Company (“BP”) and Transocean Holdings, Inc. (“Transocean”) were separate and independent contracts and, as a result, BP was entitled to coverage under each of Transocean’s policies as an “additional insured.”

Transocean owned the Deepwater Horizon, a semi-submersible, mobile offshore drilling unit. In April 2010, the Deepwater Horizon sank in the Gulf of Mexico after burning for two (2) days following an onboard explosion. At the time of the incident, the Deepwater Horizon was engaged in exploratory drilling activities under a drilling contract between BP and Transocean. The drilling contract required Transocean to maintain certain minimum insurance coverage for the benefit of BP. Ranger Insurance Ltd. (“Ranger”) was the primary liability insurer, providing at least $50 million of general liability coverage. Transocean also had several excess liability insurers (“Excess Insurers”) providing four layers of excess coverage of at least $700 million above the Ranger policy coverage. 

Following the incident, BP notified the insurers of its Deepwater Horizon related losses. Ranger and the Excess Insurers both filed one-count declaratory judgment actions against BP requesting a declaration that the insurers have “no additional insured obligation to BP with respect to pollution claims against BP for oil emanating from BP’s well” as a result of the Deepwater Horizon incident. In the District Court, BP argued that they were an additional insured under the policies and the insurance policies alone - and not the indemnity clause in the drilling contract – should govern the scope of BP’s coverage rights as an “additional insured.” 

The Fifth Circuit reasoned that, under Texas law, only the umbrella policy itself could establish limits upon the extent to which an “additional insured” is covered. The Fifth Circuit analyzed a number of Texas cases in which language substantially similar to the “additional insured” definition contained in the Ranger and Excess Insurer policies was found to not limit coverage. The umbrella policy in this case defined an “additional insured” as “any person or entity to whom the insured is obliged by any oral or written insurance contract to provide insurance such as is afforded by this policy.” The Fifth Circuit held that nothing in the policy itself contained any limitation on “additional insured” coverage and did not incorporate any coverage limits that may have been in the drilling contract between BP and Transocean. 

Accordingly, the Fifth Circuit held that the umbrella insurance policy contained no limitation to BP’s coverage under the policy as an “additional insured.” Further, the Court held that the provision of the drilling contract extending direct insured status to BP was separate from, and additional to, the indemnity provisions in the drilling contract. Therefore, BP was entitled to coverage under each of Transocean’s policies as an “additional insured.”

Read a copy of the Fifth Circuit’s decision

For more information about this case and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

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