Adding the Insurance Run: Coverage Lessons from Deepwater Horizon

Transcription

1 Adding the Insurance Run: Coverage Lessons from Deepwater Horizon Edward M. Grauman

2 Introduction BP leased rig from TO under drilling contract. Undersea oil spill led to large losses for BP. BP and TO s insurers disputed BP s entitlement to coverage. In re Deepwater Horizon, 710 F.3d 338 (5th Cir. 2013)

3 Drilling Contract TO assumed liability for pollution originating on or above the surface of the... water. BP assumed liability for pollution originating below the surface of the water. BP to be named as an additional insured in each of [TO s] policies... for liabilities assumed by [TO] under the terms of this Contract.

4 Insurance Contracts TO had $750M in primary/umbrella CGL coverage. BP added: blanket additional insured endorsement Insured includes any person or entity to whom the Insured is obliged by any oral or written Insured Contract... to provide insurance such as is afforded by this Policy Insured Contract includes contracts under which the Insured assumes the tort liability of another party

5 DRILLING CONTRACT TO liable for pollution originating on or above surface of the water. BP liable for pollution originating below surface. TO required to name BP as an additional insured for liabilities assumed by TO. TRANSOCEAN INSURANCE POLICIES Insured includes any entity to whom TO is obligated by an Insured Contract to provide insurance such as is afforded by this Policy. Insured Contract is a contract under which Insured assumes the tort liability of another party. BP INSURERS No dispute that TO policies provided some additional-insured coverage to BP. Is BP an additional insured for all pollution-related liabilities or only those assumed by TO (i.e., originating on or above the surface)?

6 Fifth Circuit s Analysis Question presented: 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. Texas law governed.

7 ATOFINA Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) Service contract in which Triple S indemnified ATOFINA, but not for ATOFINA s sole negligence ATOFINA to be an additional insured, but not with respect to any obligations for which [ATOFINA] has specifically agreed to indemnify [Triple S]. ATOFINA claimed coverage for accident allegedly based on its sole negligence.

8 ATOFINA Court: analysis must begin with policy itself Because policy covered ATOFINA with respect to operations performed by Triple S and did not limit coverage based on fault, policy provided ATOFINA direct coverage even for its sole negligence. Had parties intended to insure ATOFINA for vicarious liability only, clear language was available.

9 Fireman s Fund Fireman s Fund Insurance Co. v. Commercial Standard Insurance Co., 490 S.W.2d 818 (Tex. 1972) Wallace agreed to indemnify GM for its own work and to obtain insurance to satisfy that obligation. Court found that contract evidenced Wallace s intent to indemnify GM only against losses arising from its own negligence, not GM s. But GM was not an additional insured; insurer s obligation to GM was purely derivative of Wallace s.

10 Getty Oil Getty Oil Co. v. Insurance Company of North America, 845 S.W.2d 794 (Tex. 1992) NL agreed to indemnify Getty from losses arising out of its own negligence and to obtain insurance. Getty required to be named an additional insured. Anti-Indemnity Statute did not apply to additionalinsurance requirement because it was separate and independent from indemnity provision.

11 ATOFINA ATOFINA court held: it is unmistakable that the agreement in this case to extend direct insured status to ATOFINA as an additional insured is separate and independent from ATOFINA s agreement to forego contractual indemnity for its own negligence. Additional-insured provision provided a separate and independent obligation for insuring liability.

12 Aubris Aubris Resources LP v. St. Paul Fire & Marine Insurance Co., 566 F.3d 483 (5th Cir. 2009) United indemnified J&R for United s own negligence. United to be named an additional insured except where it specifically agreed to indemnify J&R. Additional-insured, not indemnity, provision governs. Indemnity provision did not limit scope of coverage; was not a specific agreement to indemnify.

13 Pasadena Refining Pasadena Refining System, Inc. v. McCraven, 2012 Tex. App. LEXIS 3823, 2012 WL (Tex. App. May 15, 2012) Pasadena indemnified Austin for its own negligence. Pasadena to be named an additional insured only to the extent [Pasadena] is indemnified by [Austin]. Policy had blanket additional insured endorsement. Court looked only to policy language and found no limitation on scope of additional-insured coverage.

14 Fifth Circuit s Analysis To determine if policy purchased to secure indemnity obligation provides direct coverage: Court must look to the terms of the umbrella insurance policy itself, instead of looking to the indemnity agreement in the underlying service contract. (quoting ATOFINA) Court must apply this analysis so long as the indemnity agreement and the insurance coverage provision are separate and independent.

15 DRILLING CONTRACT TO liable for pollution originating on or above surface of the water. BP liable for pollution originating below surface. TO required to name BP as an additional insured for liabilities assumed by TO. TRANSOCEAN INSURANCE POLICIES Insured includes any entity to whom TO is obligated by an Insured Contract to provide insurance such as is afforded by this Policy. Insured Contract is a contract under which Insured assumes the tort liability of another party. BP INSURERS No dispute that TO policies provided some additional-insured coverage to BP. Is BP an additional insured for all pollution-related liabilities or only those assumed by TO (i.e., originating on or above the surface)?

16 Lessons Learned Must play close attention to language of additionalinsured/indemnity provisions and policies. Indemnifying parties might consider (a) expressly limiting additional-insured coverage in policy and (b) combining additional-insured/indemnity provisions in underlying contract so they are not separate and independent.

17 Lessons Learned Indemnified parties might prefer that (a) additionalinsured provision in policy contains no reference to limitations on liability (direct or by reference to underlying contract) and (b) underlying contract contains separate and independent additionalinsured and indemnity requirements. After catastrophic loss, indemnified parties might qualify for unrestricted additional-insured coverage.

18 Thank you! Edward M. Grauman (512)

19 Edward M. Grauman Edward Grauman is an Associate in the Texas office of Beveridge & Diamond, P.C., with a practice focused on environmental law and complex commercial litigation. Associate 98 San Jacinto Boulevard Suite 1420 Austin, TX (T) (512) egrauman@bdlaw.com EDUCATION Massachusetts Institute of Technology (S.B./Political Science, 1996; Phi Beta Kappa) Harvard Law School (J.D., 2003, cum laude) BAR ADMISSIONS & MEMBERSHIPS Texas New York District of Columbia U.S. District Courts: Southern, Northern and Eastern Districts of New York; District of Colorado U.S. Court of Appeals for the Second Circuit U.S. Court of Appeals for the Third Circuit American Bar Association, Section of Environment, Energy, and Resources Environmental Law Institute LANGUAGES Spanish Mr. Grauman s recent matters include the defense of a product liability action related to alleged groundwater contamination from a gasoline additive, the representation of a municipality in an arbitration arising from a contract to construct a waste-to-ethanol facility, and the representation of a Canadian federal nuclear laboratory in a challenge to the issuance of letters rogatory by a U.S. federal court. A substantial part of his litigation practice involves the representation of policyholders in insurance coverage disputes. Proficient in Spanish, Mr. Grauman is also a member of the Firm s Latin American practice group, through which he advises clients on environmental legal issues in the region. Mr. Grauman s pro bono work includes obtaining asylum for a client in proceedings before the U.S. Immigration Court and representing a nonprofit organization in litigation challenging regulations promulgated by the U.S. Department of Agriculture. Mr. Grauman served as a law clerk for the Honorable William H. Walls of the U.S. District Court for the District of New Jersey. Prior to joining the Firm, he was a litigation associate at a large international law firm, where he practiced in a variety of areas, including antitrust, contracts, securities, commodities, and anti-corruption law. While at Harvard Law School, Mr. Grauman served as an Executive Editor of the Harvard Human Rights Journal. PUBLICATIONS The Rise of Environmental Insurance Requirements in Latin America, Newsletter of the ABA Section of International Law, International Environmental Law Committee (Oct. Dec. 2012) The Fourth Circuit Wades In: Applying the Rapanos Significant Nexus Test for Clean Water Act Jurisdiction to Wetlands Adjacent to Nonnavigable Tributaries, Eastern Water Law & Policy Reporter (March 2011) Latin American Region Environmental Report Texas Environmental Update WASHINGTON, D.C. MARYLAND NEW YORK MASSACHUSETTS NEW JERSEY TEXAS CALIFORNIA