BP V Transocean

On 1 March 2013, the US court of Appeal for the 5th circuit held that BP had coverage under Transocean’s umbrella insurance policy, as an additional assured, for the pollution related liabilities arising out of the Deepwater Horizon Incident. The Court held this to be the case despite an apportionment of liability under the drilling contract between BP and Transocean.

Applying Texas law, the court felt bound by precedents to conclude that:

I.    The umbrella insurance policy controlled the extent to which BP was covered for its operation under the drilling contract. There was no need to look at the indemnity provision in the drilling contract to establish limits upon the extent to which an additional insured was covered under the umbrella policy.

II.    BP agreed to assume pollution liability arising out of a blow-out including circumstances whereby Transocean may be sued for that risk – Transocean would have an indirect risk for BP’s liability under the drilling contract. The drilling contract obliged Transocean to name BP as an additional assured on its insurance policies for that risk.

III.    The additional assured provision for BP  in the umbrella contract was separate and independent. The fact that BP, under the terms of the drilling contract, were to have additional assured status for Transocean’s indirect risk was irrelevant.

IV.    That fact did not affect BP’s direct rights under the umbrella policy.

Thus the court refused to limit the coverage afforded to BP by mere reference to the liability provisions under the drilling contract. The court read the provisions requiring the placement of insurance separate from the apportionment of liability agreed between the parties.

This case is being appealed.

Members are reminded to review the obligations in their contracts to name a contractor as an additional assured and make sure their insurance policies reflects the underlying agreement.