The Fifth Circuit certified questions to the Texas Supreme Court regarding BP's status as an additional insured under policies issued to Transocean. In Re Deepwater Horizon, Ranger Ins. , Ltd. v. Transocean Offshore Deepwater Drilling, Inc., 2013 U.S. App. Ct. LEXIS 18087. The Fifth Circuit determined in March that the polices, and not the indemnity provisions of Transocean's and BP's drilling contract, controlled the extent to which BP was covered as an additional insured for its operations under the drilling contract. [post on Fifth Circuit's prior decision is here]. On a petition for rehearing, the Fifth Circuit withdrew the previous opinion and submitted certified questions to the Texas Supreme Court.
Transocean owned the Deepwater Horizon, a mobile offshore drilling unit. In April 2010, the Deepwater Horizon sank into the Gulf of Mexico after burning for two days following an on board explosion. The Deepwater Horizon was engaged in exploratory drilling under a Drilling Contract between BP and Transocean. The contract required Transocean to maintain minimum insurance coverage for the benefit of BP.
Transocean had primary coverage and excess coverage. The policies defined "Insured" to include the Named Insured, other parties, and "any person or entity to whom the 'Insured' is obligated by . . . 'Insured Contract' . . . entered into before any relevant Occurence to provide insurance such as is afforded by this Policy. . . ." "Insured Contract" was defined as any agreement "entered into by the 'Insured' . . . and pertaining to business under which the 'insured' assumes the tort liability of any other party to pay for 'Bodily Injury' or 'Property Damage.'"
Meanwhile, the Drilling Contract required Transocean to "maintain insurance covering the operations to be performed under the Contract as set forth in Exhibit C. Exhibit C required that BP "shall be named as additional insureds in each of [Transocean's] policies, except Workers' Compensation for liabilities assumed by [Transocean] under the terms of this Contract."
Following the explosion of the Deep Water Horizon, BP sought coverage from Transocean's insurers. The insurers filed for declaratory judgment against BP. The district court reasoned that the Drilling Contract only required Transocean to name BP as an insured for liabilities Transocean explicitly assumed under the contract. The court then looked to the Drilling Contract to conclude that BP was not covered under Transocean's policies for the pollution-related liabilities deriving from the accident because the pollution originated below the surface of the water. The Drilling Contract only provided that liability would be assumed for pollution originating on or above the surface of the water.
BP appealed the district court's conclusion that it was not entitled to coverage under the policies. Looking to Texas law, the Fifth Circuit initially reversed the district court's judgment.
Now the Fifth Circuit turned to the Texas Supreme Court with certified questions. The first issue was the scope of BP's coverage as an additional insured, and whether the umbrella policy itself determined the extent of coverage, or the indemnity clauses in the Drilling Contract effectively limited BP's coverage.
Next, the question of how to interpret the additional insured provision of the Contract arose. The Texas Supreme Court had never recognized a sophisticated insured exception to the general rule of interpreting insurance coverage clauses, nor had it ever indicated contra proferentem would not apply in construing these clauses. But it was possible that an exception may be recognized where all the parties involved highly capable business entities.
Accordingly, the following questions were certified:
1. Whether Texas law compelled a finding that BP was covered for the damages at issue, because the language of the umbrella policies alone determined the extent of BP's coverage as an additional insured if, and so long as, the additional insured and indemnity provisions of the Drilling Contract were "separate and independent"?
2. Whether the doctrine of contra proferentem applied to the interpretation of the insurance provision of the Drilling Contract under Texas law, given the facts of this case.