Responding to a certified question from the Fifth Circuit, the Texas Supreme Court determined that BP was not an additional insured under Transocean's liability policy and had no coverage under the policy for the deaths caused by the explosion of the Deepwater Horizon. In re Horizon, 2015 Tex. LEXIS 141 (Tex. Feb. 13, 2015). We have previously posted on this case in the federal courts here and here.
Transocean owned the Deepwater Horizon, a mobile offshore drilling unit operating in the Gulf of Mexico pursuant to a contract with BP. After an explosion in April 2010, the rig caught fire, killing eleven crew members. Both Transocean and BP sought coverage under Transocean's primary and excess policies. Although they did not dispute that BP was an additional insured, Transocean and its insurers argued that BP was not entitled to coverage for pollution-related liabilities arising from subsurface oil releases in connection with the Deepwater Horizon accident.
Under the Drilling Contract, Transocean agreed to indemnify BP for above-surface pollution regardless of fault. BP, on the other hand, agreed to indemnify Transocean for all pollution risk Transocean did not assume, i.e., subsurface pollution. Transocean was also required by the contract to carry liability and other policies, and to name BP and related entities,
as additional insureds in each of [Transocean's] policies, except Workers' Compensation for liabilities assumed by [Transocean] under the terms of [the Drilling] Contract.
(emphasis added).
BP was not specifically named as an insured in Transocean's policies. However, the policies extended "Insured" status to "any person or entity to whom the 'Insured' is obliged by oral or written 'Insured Contract' . . . to provide insurance such as afforded by the Policy." An "Insured Contract" was defined as,
"any written or oral contract or agreement entered into by the 'Insured' and pertaining to business under which the 'Insured' assumes the tort liability for another party to pay for 'Bodily Injury' or "Property Damage' . . . to a 'Third Party.'"
After BP demanded coverage, the insurers sought a declaration that BP was not an additional insured for subsurface-pollution claims because the Drilling Contract limited the additional-insured obligation to "liabilities assumed by [Transocean] under the terms of [the Drilling] Contract."
BP argued that under Texas law, coverage was determined exclusively from the four corners of the policy. Transocean and the insurers pointed out, however, that BP was an "insured" only by virtue of the status conferred to it under the Drilling Contract. The policies predicated additional-insured status on the existence of an "Insured Contract" requiring such coverage. BP's status as an "Insured" could not be ascertained without consulting the additional-insured provision in the Drilling Contract, which required Transocean to name BP as an additional insured only for the above-surface pollution risk that Transocean assumed. Therefore, BP lacked additional-insured status for subsurface pollution risks.
Again, the additional insured provision of the Drilling Contract read,
[BP and related entities] 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.
(emphasis added). BP's status as an insured was linked to the extent of Transocean's indemnity obligation. The dispute focused on intended breadth of the limiting language in the emphasized portion quoted above.
BP read the provision as a narrow and specific exception to the general obligation to name it as an additional insured, applying only to workers' compensation policies covering Transocean's employees. Transocean and the insurers, however, read the language as (1) excepting only workers' compensation policies from the general additional-insured obligation and (2) imposing a limitation on the general insurance obligation that was coterminous with all of Transocean's contractual indemnity obligations. BP argued this interpretation was unreasonable because there was a comma before, but not after, the phrase "except Workers' Compensation," and further contended that a comma could not be inserted where it did not exist when it would alter the plain meaning of the contract.
The court found BP's argument unreasonable because it was either inconsistent with other provisions in the Drilling Contract or rendered the words "liabilities assumed by [Transocean] under the terms of this contract" meaningless. BP was an additional insured only as to liabilities assumed by Transocean under the Drilling Contract and no others. Because Transocean did not assume liability for subsurface pollution, Transocean was not "obliged" to name BP as an additional insured as to that risk. Therefore, BP lacked status as an "insured" for this risk.
