Court Reverses OK for BP to Access Transocean Insurance to Pay Oil Spill Costs

A U.S. appeals court withdrew its decision finding BP Plc had access to $750 million in Transocean Ltd.’s insurance to pay costs of the 2010 oil spill, to ask the Texas Supreme Court a question on coverage.

The U.S. Court of Appeals in New Orleans in March reversed a decision by U.S. District Judge Carl Barbier barring BP from using the policies. Barbier 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 appeals court, agreeing with BP, found that the company was “entitled to coverage under each of Transocean’s policies as an additional insured as a matter of law.” The court withdrew the opinion today, saying the Texas Supreme Court needs to interpret how ambiguities in insurance provisions should be considered under state law.

“The Texas Supreme Court has never recognized a sophisticated insured exception to the general rule of interpreting insurance coverage clauses” in favor of the insured, the federal appeals court said today.

“However, it is possible that such an exception may be deemed appropriate in a case like this, where all the parties involved are highly capable contractors,” the three-judge panel said.

‘Not Involved’

The panel asked the Texas Supreme Court to determine whether an earlier decision by that court “compels a finding that BP is covered for the damages at issue,” and whether the doctrine of interpreting contracts in favor of the insured applies, given the facts of the BP case.

“The facts here indicate insurers were not involved in drafting the drilling contract, and thus construing ambiguities in that contract against them might be inappropriate,” the court said.

“We continue to believe that the Fifth Circuit got it right in its previous unanimous opinion and think that result will be confirmed,” Geoff Morrell, a BP spokesman, said in an e-mailed statement.

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

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 case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Editors: Glenn Holdcraft, Mary Romano

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