Texas Supreme Court Accepts Certified Questions on Scope of Additional Insured Coverage

In re Deepwater Horizon,

No. 13-0670

Certified question from the U.S. Court of Appeals, Fifth Circuit,

No. 12-30230, — F.3d — (Aug. 29, 2013)

Today, the Texas Supreme Court has accepted the following certified questions from the U.S. Fifth Circuit Court of Appeals regarding the interplay between insurance policies and indemnity contracts with additional insured requirements:

1. 1. 1. 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”?
      1. 1. 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?

In certifying these two questions, the Fifth Circuit withdrew its March opinion in In re Deepwater Horizon, where it found that BP is entitled to additional insured coverage for losses arising from the April 2010 explosion of theDeepwater Horizon offshore drilling unit pursuant to a drilling contract between BP and Transocean. In its original opinion, the Fifth Circuit relied upon the Texas rule set forth in ATOFINA—that when a service contract has separate provisions for additional insured requirements and indemnity requirements, the court is constrained to use only the policy language to determine the scope of additional insured coverage. The Fifth Circuit determined that the drilling contract contained separate additional insured and indemnity provisions. The Fifth Circuit further found that the policies at issue did not impose any limitation on the extent of additional insured coverage—specifically, the policies were not limited according to the scope of coverage required in the drilling contract. Accordingly, the court initially concluded that BP was entitled to coverage as an additional insured. On the other hand, the insurers argued that the drilling contract limits the scope of additional insured coverage to liability Transocean assumed in that contract and this limitation should be read in conjunction with the policy language to determine the scope of additional insured coverage.

By withdrawing its initial opinion, the Fifth Circuit seems to acknowledge that the differences between the facts before it and those in ATOFINA, as well as the relative bargaining power of the contracting parties , may permit a result favorable to the insurers. With the contract at issue in ATOFINA, the Texas Supreme Court considered a simple requirement to provide additional insured coverage—this is in contrast to the specifically limited requirement in the drilling contract that Transocean provide additional insured coverage for BP, but only for liability assumed by Transocean. The Fifth Circuit was persuaded that this distinction coupled with the sophistication of the parties to the drilling contract may justify a different result than in ATOFINA.

These issues present the Texas Supreme Court an opportunity to tailor and revisit ATOFINA’s expansive holding and to evaluate how the rules of contract and policy interpretation may be affected in cases involving sophisticated insureds.