Deepwater Horizon Liability Fight Drags On

NEW ORLEANS (CN) - The legal battle continues between BP and Transocean over insurance policies held by the latter for its Deepwater Horizon drilling rig, which exploded a year ago last April, unleashing the worst oil spill in history.

The issue of financial liability for the explosion has trickled down to at least one third-party company that had operated aboard the drilling rig after Transocean turned to it for indemnification related to the disaster.

BP filed a motion last week to dismiss a complaint filed in intervention by Transocean, the owner of the rig. Transocean "is not in a position to advocate on behalf of the insurers," according to BP, which says that is the net effect since Transocean failed in its complaint to name the insurance companies with which it holds policies for the Deepwater Horizon.

Transocean responded with a motion Monday that says BP is trying to "proportionally decrease the rights of Transocean in a finite thing - Transocean's own, discrete sum of insurance."

The specific "finite" and "discrete" sum of insurance is not listed in either party's motion, but previous court allegations placed value on Transocean's insurance liability at $750 million.

Since that sum was quoted, Transocean has turned to at least one company that operated aboard the Deepwater Horizon, Art Catering Inc., for indemnification related to the rig explosion. Art Catering, in turn, filed a lawsuit against its insurance company in April, saying the company caused it to be underinsured.

BP leased the Deepwater Horizon from Transocean, which owned and operated the rig.

Transocean held two insurance policies for the rig and its crew through Ranger Insurance Limited and another insurer. Both policies listed BP as "additional insured."

The controversy at hand relates to whether the insurance policies offered pollution-related insurance coverage.

After the two insurance companies filed complaints seeking a declaration that their insurance policies had limits with regard to how much BP, as an "additional insured" on the policy could claim, Transocean filed a complaint in intervention seeking a court declaration that BP, Anadarko and MOEX, as co-owners of the lease of the Deepwater Horizon, have no rights as "additional insureds" for pollution-related liabilities.

The insurers seek a declaration that the "additional insurance" coverage they are obligated to provide to BP is limited by the express terms of the coverage policy. Another factor limiting that coverage, the say, is the scope of certain indemnities that Transocean Holdings agreed to provide to BP in the drilling contract for the rig and its crew.

Transocean's complaint also sought a declaration that "BP assumed full responsibility in the drilling contract for any and all liabilities arising out of or in any way related to the release of oil from BP's well."

In turn, BP filed a counterclaim against the insurance companies, seeking a declaration that the insurance companies are obligated to pay for the spill, and must do so without any limitations.

BP says Transocean's complaint should be dismissed "because it does not seek a declaration of any insurance rights or obligations to Transocean itself. ... Further, Transocean has failed to name as defendants any of the insurers whose rights and obligations it seeks to have declared, and the insurers are necessary parties to the dispute it has pleaded. Their absence from Transocean's claims is independently fatal to the complaint."

BP says Transocean "is not in a position to advocate on behalf of the insurers, particularly insofar as the insurers have a legal duty of good faith requiring them to treat co-insureds equally."

In response, Transocean filed a claim saying "the rights sought by BP, Anadarko and MOEX, if established, proportionally decrease the rights of Transocean in a finite thing - Transocean's own, discrete sum of insurance. These parties establish their rights only at the expense of Transocean. It would be an odd result if Transocean, of all parties, lacks constitutional standing to defend such interests."

Transocean additionally said it "is not at present in disagreement with its insurers over the interpretation and operation of the policies in this regard. This is why it has not sued its insurers; they are not the proper defendants to Transocean's suit."

Attorneys for the rig owner also wrote: "While Transocean's interests are not perfectly aligned with its insurers (as noted in support of its motion to intervene), there is at present no controversy between them. ... Here, Transocean has sought a declaration as to the rights and obligations of the parties - the parties who disagree - under the contracts in which they all have some claim." (Parentheses in original)

Attorneys for the parties did not immediately return calls seeking comment.

Art Catering, which also failed to return a call, held insurance coverage for its business on the Deepwater Horizon as a result of a contract with Transocean.

In April, Art Catering filed a lawsuit against the insurance company Marsh USA in Plaquemines Parish court, saying the company undersold it insurance by $1 million.

"On April 20, 2010, 14 employees of Art were working aboard the Deepwater Horizon operated by Transocean which sank resulting in claims being made against Transocean and Art in excess of fifty (50) million dollars," according to that complaint.

Since then, "Transocean has made demand against Art and its insurance carriers to defend and indemnify Transocean for all claims made by employees of Art of up to and including insurance limits of one million primary coverage for Employers Liability and five million for excess/ umbrella coverage according to the insurance provisions of the contract Art entered with Transocean," the suit also says.

As a result of that "coverage under the insurance policies produced by P&G, Art is underinsured by the sum of one million dollars."

The suit, which was removed to the consolidated oil-spill litigation in federal court by New Orleans attorney Stephen Bruno, seeks $1 million for Marsh and Transocean.

U.S. District Judge Carl Barbier is overseeing all cases in the ongoing consolidated oil-spill litigation.

David Goodwin with Covington & Burlington of San Francisco filed BP's memorandum last Friday.

Kerry Miller with Frilot LLC of New Orleans filed Transocean's response Monday.

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