BP Wins Bid for Access to Transocean Oil-Spill Insurance

BP Plc won an appeals court ruling giving it access to $750 million in Transocean Ltd.’s insurance to pay costs from the 2010 Gulf of Mexico oil spill.

The U.S. Court of Appeals in New Orleans yesterday reversed a decision by U.S. District Judge Carl Barbier barring BP from using the policies. Barbier had ruled that the drilling contract between the companies for the Macondo well precluded BP from seeking coverage under the Transocean policies for pollution-related liabilities.

The London-based oil company contended it should be considered an additional insured, with access to Transocean’s policies. BP also argued that the drilling contract didn’t limit access to coverage. Transocean, the owner and operator of the Deepwater Horizon drilling rig that exploded and sank, and its insurers asked the appeals court to uphold Barbier’s decision.

“BP is entitled to coverage under each of Transocean’s policies as an additional insured as a matter of law,” the three-member appeals court panel said in its unanimous decision.

BP filed claims with Transocean’s carriers in 2010, seeking access to a $50 million primary policy issued by Ranger Insurance and to $700 million in excess coverage from Lloyd’s of London and other underwriters.

‘Additional Insured’

Barbier had ruled that BP can be considered an “additional insured” under certain circumstances.

The judge and the insurance companies agreed, however, that BP can be an additional insured only if the policies and the drilling contract are construed together. Excess coverage would be used after the primary policy limits are surpassed by the costs of the event.

Brian Kennedy, a spokesman for Vernier, Switzerland-based Transocean, said he couldn’t comment on yesterday’s decision before it was reviewed by the company’s lawyers. Scott Dean, a BP spokesman, declined to comment on it.

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 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 and Houston-based Halliburton Co., which provided cementing services for the Macondo well.

Liability Trial

BP settled with most non-government plaintiffs in March, agreeing to pay an estimated $7.8 billion. That accord postponed the first trial to determine liability for the disaster. Barbier, who approved the settlement in two parts in December and January, began a nonjury trial on Feb. 25 to apportion fault and decide whether BP is liable for gross negligence.

Barbier found in the insurance dispute that the carriers owed no duty to pay claims or defense costs for BP.

“The court finds that BP, under the drilling contract, assumed responsibility for Macondo well oil release pollution liabilities,” Barbier said in his November 2011 ruling. “Because Transocean did not assume these liabilities, there is no additional insurance obligation in favor of BP for these liabilities.”

Drilling Contract

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 drilling contract doesn’t control whether BP can tap into the insurance policies, the company said in its appeal of Barbier’s decision.

“Under Texas law, the court may not graft onto the policies purported limitations from the drilling contract that do not appear in, or are not expressly and unambiguously incorporated into, the policies themselves,” BP said in an Aug. 13 filing.

The policies “contain no language limiting the scope of BP’s coverage to the scope of Transocean’s indemnity obligations in the drilling contract,” BP told the appeals court. “The insurers are bound by the terms of the policies they issued and, having agreed to provide specific coverage to an ‘insured,’ they must provide BP that coverage.”

BP ‘Unprepared’

The insurance companies opposed BP’s attempt to access Transocean’s coverage. “BP is mentioned nowhere in any of the policies,” lawyers for Lloyd’s and the other excess carriers said in a July filing with the appeals court.

BP asked for “an expansive and unreasonable interpretation of the policies now because it was unprepared for and did not intend to insure against such extraordinary losses,” the lawyers said.

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); the appeal is In re Deepwater Horizon, 12-30230, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

Before it's here, it's on the Bloomberg Terminal.