The Fifth Circuit found that Transocean's policies, 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. Ranger Ins., Ltd v. Transocean Offshore Deepwater Drilling, Inc., 2013 U.S. App. Ct. LEXIS 4512 (5th Cir. March 1, 2013).
BP and Transocean entered a drilling contract for exploratory drilling activities at the Macondo Well in the Gulf of Mexico. The contract required Transocean to maintain certain minimum insurance coverage for the benefit of BP.
Transocean had primary coverage and excess coverage. The policies defined "Insured" as including the Named Insured, other parties, and "any person or entity to whom the "Insured" is obligated by . . . "Insured Contract" . . . entered into before any relevant "Occurrence" 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.
Looking to Texas law, the Fifth Circuit found that only the policy itself may establish limits upon the extent to which an additional insured was covered. BP was not seeking indemnity from Transocean, but was seeking coverage from the insurers. The policy did not contain any limitation on additional insured coverage nor incorporate any limits from the underlying Drilling Contract.
The court next considered whether the insurance provision and the indemnity clauses in the Drilling Contract were separate and independent. The provision in the Drilling Contract extending direct insured status to BP was separate and independent from BP's agreement to forgo contractual indemnity in various other circumstances. Therefore, BP was entitled to coverage under each of Transocean's policies as an additional insured.
