In re Horizon

• Citation: 470 S.W.3d 452
• Decision Date: 13 February 2015
• Docket Number: No. 13–0670,13–0670
• Parties: In re Deepwater Horizon, Relator
• Court: Texas Supreme Court

470 S.W.3d 452

In re Deepwater Horizon, Relator

No. 13–0670

Supreme Court of Texas.

Argued September 16, 2014

OPINION DELIVERED: February 13, 2015

David B. Goodwin, Covington & Burling LLP, San Francisco, CA, Allan B. Moore, Thomas L. Cubbage III, Covington & Burling LLP, Washington DC, Deborah G. Hankinson, Rick Thompson, Hankinson LLP, Dallas, for Appellant BP P.L.C.

Jeffrey Bentch, Hall Maines Lugrin, P.C., Houston, J. Clifton Hall III, Westmoreland Hall, P.C., Houston, William P. Maines, Fulbright & Jaworski L.L.P., Houston, for Amicus Curiae Allianz Global Corporate.

Kenneth G. Engerrand, Brown Sims, P.C., Houston, for Amicus Curiae International Association of Drilling Contractors.

Richard N. Dicharry, Phelps Dunbar LLP, New Orleans, LA, Kathleen Hopkins Alsina, George B. Hall Jr., Phelps Dunbar, LLP, Houston, for Appellee Certain Underwriters at Lloyd's London.

Steven L. Roberts, Rachel Giesber Clingman, Sutherland Asbill & Brennan LLP, Houston, Kent C. Sullivan, Sean D. Jordan, Sutherland Asbill & Brennan LLP, Austin, John M. Elsley, Royston, Rayzor, Vickery & Williams, L.L.P., Houston, Reagan W. Simpson, Yetter Coleman LLP, Houston, Brad D. Brian, Daniel B. Levin, Munger Tolles & Olson LLP, Los Angeles, CA, Harriet O'Neill, Law Office of Harriet O'Neill, PC, Austin, Daniel O. Goforth, Goforth Easterling, LLP, Houston, for Appellee Transocean Offshore Deepwater Drilling, Inc.

Byron C. Keeling, Ruth B. Downes, Keeling & Downes PC, Houston, Dwayne Richard Day, Dwayne R. Day, P.C., Houston, David W. Holman, Houston, Michael J. Maloney, Maloney Martin, L.L.P., Houston, for Appellee Ranger Insurance Limited.

Bradley A. Jackson, RJones Walker LLP, Houston, for Amicus Curiae B & G Risk Strategies LLC.

Jacob Esparza, Houston, Karen Ann Conticello, Glenn Richard Legge, Legge Farrow Kimmitt McGrath & Brown, LLP, Houston, for Amicus Curiae Lloyd's Market Association, International Underwriting Association, Property Casualty Insurers Association of America, and American Institute of Marine Underwriters.

Meredith A. Welch, Reed Smith LLP, Houston, for Amicus Curiae United Policyholders.

William A. Sherwood, Gordon Arata McCollam Duplantis Eagan LLC, Houston, Bruce M. Strikowsky, Barry S. Alexander, Schnader Harrison Segal & Lewis LLP, New York, NY, for Amicus Curiae Aviation Insurance Association.

Pamela Stanton Baron, Austin, for Amicus Curiae National Association of Manufacturers.

Opinion

Justice Guzman delivered the opinion of the Court in which Chief Justice Hecht, Justice Green, Justice Willett, Justice Lehrmann, Justice Boyd, Justice Devine, and Justice Brown joined.

This is an insurance-coverage dispute arising from the April 2010 explosion and sinking of the Deepwater Horizon oil-drilling rig, which claimed eleven lives and resulted in subsurface discharge of oil into the Gulf of Mexico at alarming rates for nearly three consecutive months. The ensuing damage spawned a spate of state and federal litigation, but the issue presented to this Court concerns only the extent of insurance coverage afforded to the oil-field developer, BP,¹ as an additional insured under primary- and excess-insurance policies procured by the drilling-rig owner, Transocean.² At issue is the interplay between the subject insurance policies and provisions in a drilling contract giving rise to Transocean's obligation to name BP as an additional insured. Regarding that matter, the U.S. Court of Appeals for the Fifth Circuit has certified the following two questions:

1. Whether Evanston Insurance Co. v. ATOFINA Petrochemicals, 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?³

In re Deepwater Horizon, 728 F.3d 491, 500 (5th Cir.2013).

As to the first question, we hold that (1) the Transocean insurance policies include language that necessitates consulting the drilling contract to determine BP's status as an “additional insured”; (2) under the terms of the drilling contract, BP's status as an additional insured is inextricably intertwined with limitations on the extent of coverage to be afforded under the Transocean policies; (3) the only reasonable construction of the drilling contract's additional-insured provision is that BP's status as an additional insured is limited to the liabilities Transocean assumed in the drilling contract; and (4) BP is not entitled to coverage under the Transocean insurance policies for damages arising from subsurface pollution because BP, not Transocean, assumed liability for such claims. We therefore answer the first certified question in the negative, and based on our analysis of that issue, do not reach the second question.

I. Background

At the time of the events giving rise to the underlying litigation, Transocean owned the Deepwater Horizon, a mobile offshore drilling unit operating in the Gulf of Mexico pursuant to a drilling contract between Transocean's predecessor and BP's predecessor (the Drilling Contract).⁴ After an explosion, the rig caught fire and fully submersed after burning for more than a day. The incident killed eleven crew members, propagated numerous personal-injury claims, and begat a myriad of claims for environmental and economic damages stemming from the discharge of millions of gallons of oil into the Gulf of Mexico.

Both BP and Transocean sought coverage under Transocean's primary- and excess-insurance policies for claims related to this catastrophic event. Although not disputing that BP is an additional insured under the Transocean policies, Transocean and its insurers dispute that BP is entitled to coverage for liabilities it expressly assumed in the Drilling Contract. Based on the parties' respective assumptions of liability in the Drilling Contract, Transocean and its insurers contend that BP is not entitled to additional-insured coverage for pollution-related liabilities arising from subsurface oil releases in connection with the Deepwater Horizon incident.

In the Drilling Contract, BP and Transocean agreed to a “knock-for-knock” allocation of risk that is standard in the oil and gas industry.⁵ Among other indemnity provisions, Transocean agreed to indemnify BP for above-surface pollution regardless of fault,⁶ and BP agreed to indemnify Transocean for all pollution risk Transocean did not assume, i.e., subsurface pollution. ⁷

Without limiting Transocean's indemnity obligations, the Drilling Contract further required Transocean to carry multiple types of insurance at its own expense.⁸ Among the required policies, Transocean was obliged to carry comprehensive general liability insurance, including contractual liability insurance for the indemnity agreement, of at least $10 million. Transocean was also charged with naming BP, its affiliates, officers, employees, and a host of other related individuals and 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.)

To the extent the terms of the Drilling Contract are incorporated into Transocean's insurance policies, the proper construction of the emphasized portion of the foregoing additional-insured provision becomes central to the resolution of the coverage issue before us. Before reaching that issue, however, we must first consider the insurance-policy terms under which BP claims additional-insured status.

To cover Transocean's worldwide drilling operations, including its obligations under the Drilling Contract with BP, Transocean maintained (1) a $50 million general-liability policy with Ranger Insurance, Ltd. as its primary policy and (2) four layers of excess insurance from a multitude of additional insurers with an additional $700 million in coverage (Ranger and the excess insurers, collectively, are referred to herein as “the Insurers”).

Under the operative provisions of the insurance policies, each insurer is obligated to pay for a loss “on behalf of the ‘Insured’ ” for liability:

(a) imposed upon the “Insured” by law or

(b) assumed by the “Insured” under an “Insured Contract.”⁹

As the named insured, Transocean is an “Insured” under the policies. BP is not specifically named as an insured in the policies, an endorsement, or a certificate of coverage. However, the policies extend “Insured” status to “[a]ny 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” is 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 of another party to pay for ‘Bodily Injury’ [or] ‘Property Damage’ ... to a ‘Third Party’ or organization.”¹⁰ Thus, under the express terms of the policies, additional-insured status hinges on (1) the existence of an oral or written contract, (2) pertaining to the business of an “Insured”, and (3) under which an “Insured” assumes the tort-liability of another party and is “obliged” to provide insurance to such other party. The policy further specifies that “where required by written contract, bid or work order, additional insureds are automatically included hereunder....”

After BP made a demand for coverage, the Insurers sought a declaration that BP would not be entitled to additional-insured coverage for subsurface-pollution claims arising from the Deepwater Horizon incident because the Drilling Contract limits the additional-insured obligation to “liabilities assumed by [Transocean]...