• Fifth Circuit Seeks Clarification from Texas Supreme Court Concerning Deepwater Horizon Insurance Dispute
  • October 10, 2013 | Authors: John Almy; William W. Pugh
  • Law Firm: Liskow & Lewis A Professional Law Corporation - Houston Office
  • In Ranger Ins., Ltd. v. Transocean Offshore Deepwater Drilling, Inc. (In re Deepwater Horizon), 710 F.3d 338 (5th Cir. 2013), the Fifth Circuit held, relying on Texas law, that the operator (BP) (having been named as an additional insured in Transocean’s liability policies) was entitled to full coverage under the Transocean policy even though the drilling contract only required Transocean to make BP an additional insured for liabilities assumed by Transocean. The Fifth Circuit ruled that the decision by the Texas Supreme Court in Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008), provides that a party named as additional insured is entitled to full additional insured coverage (despite the restrictions expressed in the contract) if the contractual restrictions were contained in a separate indemnity and there were no other applicable restrictions articulated in the policy. Concluding that the contractual indemnity restrictions were separate and independent, the Fifth Circuit reversed the district court and held that BP was entitled to $750 million in pollution liability coverage under several Transocean policies.

    On Motion for Rehearing and Rehearing en Banc, the Fifth Circuit elected to withdraw its March 1, 2013 opinion in the matter, and certified the following two questions to the Texas Supreme Court:

    1. Whether Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008), compels a finding that BP is covered for the damages at issue, because the language of the umbrella policies alone determines 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 are “separate and independent”?
    2. Whether the doctrine of contra proferentem applies to the interpretation of the insurance coverage provision of the Drilling Contract under the ATOFINA case, 256 S.W.3d at 668, given the facts of this case?

    Ranger Ins., Ltd. v. Transocean Offshore Deepwater Drilling, Inc. (In re Deepwater Horizon), 2013 U.S. App. LEXIS 18087 (August 29, 2013).

    The Fifth Circuit’s panel decision in Ranger has raised a number of questions in the oilfield and insurance industries concerning the potential effect of a contractual provision requiring that a party be named as additional insured. One question is whether - and if so, how - can a contract provide additional insured coverage but limit the scope of that additional insured coverage to something less than full coverage under the applicable policy. A related question is what policy language is required to provide a named insured with that discretion.

    On September 6, 2013, the Texas Supreme Court accepted certification from the Fifth Circuit. Briefs are due between November 6, 2013 and December 11, 2013, so we should soon see how the Court responds to the certified questions and whether those answers bring clarity to what is now a somewhat murky area.