In Re: Deep Water Horizon; Ranger Ins. Ltd. v. TransOcean Offshore Deepwater Drilling, Inc. et. al. (5th Cir., March 1, 2013)
This environmental coverage action arises from the explosion and sinking of Transocean’s Deepwater Horizon oil platform in April 2010. At issue were the obligations of Transocean’s primary and excess liability insurer to cover BP’s pollution-related environmental liabilities resulting from the ensuing oil spill. Transocean owned the subject offshore oil platform and at the time of the incident and was engaged in exploratory drilling activities under a drilling contract between BP and Transocean’s predecessor.
The excess insurers and Ranger each filed declaratory actions against BP seeking a declaration that the insurers have no additional insured obligation to BP with respect to pollution claims against BP. All parties conceded that the Drilling Contract is an “insured contract” and that BP qualified as an additional insured. At issue was the scope of BP’s insurance coverage under the subject policies as an additional insured. BP argued that the insurance policies alone, and not the indemnities detailed in the Drilling Contract, governed the scope of BP’s coverage rights as an additional insured. The district court ruled in favor of the insurers and BP appealed.
In relying extensively on Texas precedent under Evanston Ins. Co. v. ATOFINA Petrochems. Inc. 256 S.W.3d 660 (Tex. 2008), the circuit court, noted “that to discern ‘whether a commercial umbrella insurance policy that was purchased to secure the insured’s indemnity obligation in a service contract with a third party also provides direct liability coverage for the third party,’ we look to the ‘terms of the umbrella insurance policy itself,’ instead of looking to the indemnity agreement in the underlying service contract. ATOFINA, 256 S.W.3d at 662, 664; see also Aubris, 566 F.3d at 488-89.”
The insurers argued, however, that that the additional insured provision in the drilling contract specifically limits BP’s status as an additional insured to circumstances involving those liabilities Transocean specifically assumed under the contract.
The circuit court dismissed this argument noting that Texaslaw “makes clear … that only the umbrella policy itself may establish limits upon the extent to which an additional insured is covered in situations such as the one now before us.” As an initial matter the court noted that here, as in ATOFINA and Aubris, BP was not seeking indemnity from Transocean, but was seeking coverage from the Insurers. As such, the court ruled that Texas law establishes that “‘where an additional insured provision is separate from and additional to an indemnity provision, the scope of the insurance requirement is not limited by the indemnity claims.'” (citations omitted). Accordingly, the court held that where the umbrella policies between the insurers and Transocean did not impose any relevant limitation upon the extent to which BP is an additional insured, and because the additional insured provision in the drilling contract was separate from and additional to the indemnity provisions therein, BP was entitled to coverage under each of Transocean’s policies as an additional insured, as a matter of law.