The Marine & Energy News Alert: Important Decision Released in BP Macondo Oil Spill Litigation

August 29, 2013

The U.S. Court of Appeals for the Fifth Circuit issued an important decision today in the BP Macondo Oil Spill litigation in which the court reversed its prior decision on the issue of whether BP was entitled to additional insured status under Transocean’s insurance policies for its well pollution liabilities arising out of the BP Macondo oil spill. 

At the district court, Judge Carl J. Barbier held that BP was not entitled to additional insured status under Transocean’s policies because the parties’ Drilling Contract provided that BP was an additional insured only for liabilities that Transocean assumed under the Drilling Contract. Because Transocean did not assume liability for Macondo well pollution, Judge Barbier held that BP had no additional insured coverage under Transocean’s policies.

BP appealed, and the Fifth Circuit reversed on the basis of Texas insurance law, specifically the rule of contra preferentem, which is the principle that if an insurance coverage provision is susceptible to more than one reasonable interpretation, then the court must interpret the provision in favor the insured (BP). Because BP purportedly offered one reasonable interpretation, the Fifth Circuit examined only the insurance policies and did not construe the Drilling Contract and the insurance policies together to determine the parties’ intent.

Transocean’s underwriters then sought a rehearing en banc before the Fifth Circuit, and, in so doing, contended that because the case involved important issues of Texas insurance law, the legal issues should be certified to the Texas Supreme Court for decision.

In response, the same Fifth Circuit panel that previously ruled in BP’s favor agreed with Transocean’s underwriters, withdrew its prior opinion, and certified these legal issues to the Texas Supreme Court. 

Importantly, the Fifth Circuit requested that the Texas Supreme Court answer the question as to whether the doctrine of contra preferentem applies to the interpretation of the insurance coverage provision of the Drilling Contract given the facts of the case. In addition, the Fifth Circuit raised the issue of whether Texas insurance law recognizes the sophisticated insured exception to the contra preferentem doctrine because it appeared that all contracting parties were highly capable. 

The outcome of this matter is significant because it continues to impact the contractual relations among marine and energy companies and their contractors and underwriters where the policies are governed by Texas insurance law.

Richard Dicharry, Kyle Moran, and Marty McLeod represent Transocean’s underwriters. The case is Ranger Insurance, Limited v. BP, P.L.C. et al, No. 12-cv-30230.