No Coverage Under Transocean’s $750M Insurance Policy for BP Spill

BP Plc isn’t covered under Transocean Ltd.’s insurance policies for the undersea well blowout that caused the 2010 Gulf of Mexico disaster, the Texas Supreme Court said, blocking the oil company’s access to $750 million for spill costs.

The decision conflicts with an earlier ruling by a U.S. appeals court that Transocean’s carriers couldn’t deny coverage for pollution-related liabilities for a spill that has already cost BP more than $28 billion. The appeals court later withdrew the opinion and asked the Texas justices to rule on contract interpretation.

The Texas Supreme Court said Transocean’s insurance policy had to be read in context with the company’s drilling contract with BP, as the two documents “are inextricably intertwined.” BP can’t claim status as “an additional insured” because of limits in the drilling contract, the Texas court said.

“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,” the Texas court said on Friday.

Transocean owned the Deepwater Horizon drilling rig, which was hired by BP to drill the Macondo well off the Louisiana coast. The blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to thousands of lawsuits against BP and its partners and contractors. Cases over economic losses and personal injuries have been combined before U.S. District Judge Carl Barbier in New Orleans.

Pam Easton, Transocean’s spokeswoman, called the decision “welcome news” for the company. Transocean agrees that BP wasn’t entitled to coverage because BP had assumed liability for damages arising from “subsurface pollution,” she said in an e- mailed statement.

“We are disappointed and are considering our options,” Geoff Morrell, BP’s spokesman, said in an e-mailed statement.

BP filed claims with Transocean’s carriers in 2010, seeking to tap a $50 million primary policy issued by Ranger Insurance and $700 million in excess coverage from Lloyd’s of London and other underwriters. The carriers asked the court overseeing the spill litigation to rule that BP wasn’t entitled to unlimited access to Transocean’s insurance.

BP lost its battle for coverage at a lower court, won reversal on appeal, then saw that victory erased when the U.S. Court of Appeals in New Orleans withdrew its original opinion. The appellate panel asked the Texas Supreme Court to determine whether the reversal conflicted with state law.

The company has set aside $43.5 billion to cover all costs of the spill, BP said in a Feb. 3 regulatory filing. The ultimate amount is “subject to significant uncertainty,” BP said.

The case is In Re Deepwater Horizon, 13-0670, Supreme Court of Texas (Austin). The appeal is In Re Deepwater Horizon, 12-30230, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The lower-court case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).