BP Can’t Use Transocean Insurance for Oil Spill, Judge Rules

BP Plc (BP/) can’t use Transocean Ltd. (RIG)’s insurance coverage to pay costs related to the 2010 oil spill in the Gulf of Mexico, a judge in New Orleans ruled.

BP filed claims with Transocean’s carriers last year, seeking access to $750 million in coverage under multiple policies. Lloyd’s of London, along with other excess underwriters, and Ranger Insurance, Transocean’s primary insurer, opposed the claims, contending the rig owner’s contract with BP didn’t provide such coverage.

The carriers owe no duty to pay claims or defense costs to BP, U.S. District Judge Carl Barbier said today.

“The court finds that BP, under the drilling contract, assumed responsibility for Macondo well oil release pollution liabilities,” Barbier said in a 42-page ruling. “Because Transocean did not assume these liabilities, there is no additional insurance obligation in favor of BP for these liabilities.”

The Macondo blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against London-based BP and its partners and contractors. The lawsuits over economic losses and personal injuries have been combined before Barbier.

The lawsuits also name as defendants Transocean, the Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded and sank; Houston-based Halliburton Co. (HAL), which provided cementing services to the well; and Cameron International, which provided blowout-prevention equipment.

Anadarko, Mitsui

BP’s minority partners in the well, Anadarko Petroleum Corp. (APC) and Mitsui & Co.’s Moex Offshore LLC unit, were also sued. Anadarko and Moex joined BP in seeking coverage from Transocean’s insurance.

Brian Kennedy, a spokesman for Transocean, said the company was “pleased with the outcome.” He declined to comment further. “We will let the court’s decision speak for itself.”

The judge’s decision on insurance coverage “doesn’t in any way address the causes of the accident or any of BP’s defenses to Transocean’s claims against BP,” Scott Dean, a BP spokesman, said in an e-mail.

“The enforceability of the indemnification provision in the drilling contract will depend on the court’s determination at trial of Transocean’s conduct,” Dean said. “To allow Transocean to avoid paying its share of any damages or governmental fines and penalties in these circumstances would be against applicable law and sound public policy.”

Trial Next Year

A nonjury trial on liability for the incident is set for Feb. 27 before Barbier.

BP agreed in its contract with Transocean that the rig’s owner wouldn’t be responsible for pollution that originated below the surface of the land or water from spills, leaks or discharges, Lloyd’s argued in court papers.

“Because liabilities BP faces for pollution emanating from BP’s well are from below the surface and from BP’s well, those liabilities are not within the scope of the additional insured protection,” Lloyd’s said in a 2010 filing.

The underwriters asked Barbier to rule that BP wasn’t entitled to pollution liability coverage under the Transocean policies.

“BP wants to ignore traditional risk allocation,” George Gilly, an attorney for Transocean’s excess carriers, said at a Sept. 16 hearing before the judge.

BP Coverage

BP is entitled to coverage as an additional insured even though it isn’t named in the insurance policies, company lawyer Allan Moore said at that hearing.

“Nobody disputes BP is an additional insured,” Moore told Barbier. “You should enter a declaratory judgment in BP’s favor on that point.”

BP can tap into the Transocean policies for coverage of pollution liabilities under Texas law, the company argued in court papers. “The scope of BP’s insurance rights is determined by the insurance policies themselves, not by the drilling contract,” BP said in a Sept. 7 filing.

“BP has the status of an insured for some purposes,” Barbier said in today’s ruling. “BP would have the court stop here and grant its motion: the drilling contract’s insurance provision provides that BP is an ‘insured.’”

“The scope of Transocean’s insurance obligation in the drilling contract determines the scope of additional coverage available to BP,” Barbier said.

Surface Waters

The drilling contract “allocates to Transocean liabilities for pollution originating on or above the surface of the water,” Barbier said. “The Deepwater Horizon Incident entailed a subsurface release; thus, Transocean did not assume pollution liabilities arising from the incident.”

The insurance disputes by Lloyd’s and Ranger are combined with other spill-related lawsuits in In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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