AUSTIN, Texas (CN) - An offshore oil-rig operator need not cover BP for undersea pollution tied to the 2010 Deepwater Horizon explosion, the Texas Supreme Court ruled
Though BP's drilling contract with Transocean, the rig operator, contained additional-insured language, the court ruled 8-1 Friday that BP is insured only for above-surface pollution, not for pollution underwater, under Texas law.
Deepwater Horizon exploded and sank off the coast of Louisiana in April 2010. The explosion killed 11 crewmembers and dumped millions of gallons of oil in the Gulf of Mexico over a three-month period.
BP sought coverage after the explosion saddled it with "myriad" claims for personal injury, economic and environmental damages, according to the high court's ruling.
The justices looked at the case upon certification of questions by the state's 5th Circuit Appeals Court.
One issue concerned the Texas Supreme Court's opinion in Evanston Insurance Co. v ATOFINA Petrochemicals Inc., a decision that afforded the petrochemical company coverage for the drowning death of a contracted employee by the contractor's general insurance policy.
In that case, the petrochemical company was included as an additional insured by a certificate of insurance, and the contractor's general insurance policy did not contain language limiting the scope of ATOFINA's coverage.
A differing interpretation of ATOFINA would have barred Transocean's from limiting BP's coverage under the drilling contract, in which the companies shared a "knock-for-knock" allocation of risk.
The majority found Friday that Transocean agreed to indemnify BP for above-surface pollution regardless of fault, and BP agreed to cover Transocean for all the pollution risks Transocean had not assumed.
Allan Moore, a BP attorney with Covington & Burling, had told the court that Transocean's insurance contract did not specifically restrict BP's coverage to above-ground pollution.
"The policy must contain clear and explicit language that unmistakably incorporates that restriction," Moore said during oral arguments heard last September. "That has been Texas law for 125 years."
Writing for the majority, Justice Eva Guzman summarized Transocean position of BP's position: that it glossed over the "inconvenient reality" of its status as insured coming solely through the drilling contract.
BP was not named in the insurance contract or in a certificate, but it argued the drilling contract made it an "insured" party in the insurance contract.
"What BP wants to argue is that if there is a sliver of assumed liability, (then) that's an insured contract that makes them insured for all liabilities," Regan Simpson, an attorney with Yetter Coleman, said during oral arguments. "That's an untenable position."
The court agreed with this position that the policy incorporated the drilling contract by reference restricts BP's coverage because BP was not named in as an insured in Transocean's blanket insurance policy.
"Under BP's interpretation, those other persons or entities would also meet the definition of an 'Insured,' with the potential for an endless chain of 'Insureds' that each in turn has with someone else," Guzman wrote. "The validity of a construction of the policy that would permit such a scenario is facially suspect."
Justice Phil Johnson wrote in dissent that Transocean assumed tort liability of BP and that Transocean's insurance contract does not explicitly incorporate the drilling contract's limiting language.
"There is no language in the policy or the drilling contract precluding BP from being insured under the policy for greater coverage than what Transocean agreed to provide," Johnson wrote.
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