You may recall our report that the Supreme Court of Texas was to take up the question of  whether an insurance policy required indemnification of over $100 million in defense costs related to the Macondo well blowout. The court has ruled in Anadarko Petroleum Corp. v. Houston Casualty Company. Anadarko, the insured, prevailed on the coverage question and the case was remanded to the trial court.

Rather than try to explain it myself, I direct your attention to this definitive summary of the opinion from Gray Reed’s insurance practice group:

Darin Brooks
Kristin Kelly
Brian Waters

I invite you to contact one of them for a more detailed explanation of the opinion.

Litigants and young lawyers, never been to federal court? Here is all you need to know.

 

Co-author Niloufar  “Nikki” Hafizi

The 2012 Macondo Well blowout and Deepwater Horizon rig explosion gave rise to a slew of lawsuits. Our subject today is one of them. In Houston Casualty Company v. Anadarko Petroleum Corp. the Beaumont court of appeals construed an insurance policy’s excess liability coverage provision. At stake was whether Underwriters had to indemnify Anadarko for over $100 million in defense costs. In an opinion much-decried by energy companies, the court thought not.

The Texas Supreme Court will review the decision, so let’s look at what the court of appeals said.  Continue Reading Texas Supreme Court to Consider Macondo Blowout Insurance Dispute

By Jim Reed and David Leonard

The Fifth Circuit has taken steps to fine-tune the interpretation and implementation of the agreement BP negotiated to settle its massive liabilities arising from the April 2010 oil spill following the explosion of the Deepwater Horizon. Interpretation of the 1,000- plus-page settlement agreement—which the court described as one of the “largest and most novel class actions in American history”—has led to several disputes between BP and the plaintiffs’ class counsel. This recent activity should not impact the ability of businesses that employ accrual accounting systems to recover qualified business economic losses under the settlement agreement.

The Issue

Business economic loss claimants must satisfy a complex causation standard established by the settlement agreement in order to recover economic losses. Determining whether a business passes causation requires an analysis of financial performance before and after the April 2010 spill. The financial data required for this causation analysis will rely on different accounting assumptions depending on which accounting system a business employs.

BP has taken specific issue with the treatment of claims submitted by businesses that employ cash (as opposed to accrual) accounting systems. BP argues that financial data generated by cash accounting systems may generate inflated business economic loss awards. BP therefore sought to enjoin the Settlement Administrator from paying business economic loss claims in order to give the court a chance to address these concerns regarding the interpretation and implementation of the settlement agreement with regards to cash accounting systems.

The Solution

Responding to BP’s concerns, the Fifth Circuit ordered the federal district court to ensure the Claims Administrator “is not applying the cash-in, cash-out interpretation to claims that are presented with matched revenues and expenses.” The Fifth Circuit also directed the federal district court to “expeditiously craft a narrowly-tailored injunction that allows the time necessary for deliberate reconsideration of these significant issues on remand.”

To this end, last Friday the federal district court in New Orleans targeted claimants employing cash accounting systems.  The court  ordered the Claims Administrator to immediately suspend payments with respect to those business economic loss claims in which the Claims Administrator determines that the matching of revenues and expenses is an issue. Although this order may jeopardize the ability of businesses employing cash accounting systems to recover under the settlement agreement, it should not endanger the viability of claims supported by accrual accounting systems.

By David Leonard and Julie Palmer

BP’s woes from the Deepwater Horizon disaster in the Gulf continue. The federal Fifth Circuit in In re: Deepwater Horizon, withdrew an opinion of a three-judge panel and certified questions for consideration by the Supreme Court of Texas. Resolution of this dispute could significantly impact insurance law in Texas, which would demand energy companies to immediately and carefully review their insurance programs.

Transocean paid substantial premiums to insure its worldwide drilling program. It is these insurance policies that BP—a self-insured corporation by its own design—would like to exhaust in order to offset its massive losses arising from the Deepwater Horizon disaster.

The BP and Transocean Drilling Contract

BP executed a drilling contract with Transocean for activities on the Macondo well in the Gulf of Mexico. The drilling contract required, among other things, that (i) Transocean maintain certain minimum insurance coverage for the benefit of BP and (ii) BP be named as an additional insured in each of Transocean’s insurance policies.

Transocean’s Insurance Policies

Transocean contracted with its insurers to obtain at least $700 million of additional general liability coverage related to its drilling activities. The policies broadly define an “Insured” to not only include Transocean, but also any entity with whom Transocean entered into an agreement to assume tort liability.

The Disaster

Following the Deepwater Horizon explosion in April 2010, BP sought coverage from Transocean’s insurers as an additional insured under Transocean’s policies. Transocean and its insurers disagreed and filed suit against BP in the U. S. District Court for the Eastern District of Louisiana seeking a declaration that BP did not qualify as an additional insured. The district court ruled that BP could not access Transocean’s policies because Transocean was only required to name BP as an additional insured as to the risks Transocean assumed in the indemnities provisions of the drilling contract which did not include oil pollution risks.

Fifth Circuit Punts

On BP’s appeal, a panel of the Fifth Circuit issued an opinion reversing the trial court, holding that Transocean’s policies covered BP as an additional insured.

Questions for the Texas Court

The Fifth Circuit’s en banc decision withdrew the panel’s opinion and certified two questions to the Supreme Court of Texas.

First: Which document governs the scope of BP’s coverage as an additional insured: Transocean’s umbrella insurance policies or the indemnity clauses in the drilling contract? This question will likely trigger an examination of the Supreme Court of Texas’ seminal decision in Evanston Ins. Co. v. ATOFINA Petrochems., Inc., which held that in determining the scope of an additional insured’s rights under a liability policy procured by its contractor, the court must look not to the indemnity agreement in the service contract but rather to the umbrella insurance policy itself.

Second: If the indemnity clauses govern the scope of BP’s coverage as an additional insured, the Texas court must then address a question related to the additional insured provision of the drilling contract. Resolution of this question would bring into play the sophisticated insured exception and the doctrine of contra proferentem (ambiguities in an insurance policy are strictly interpreted against the insurer).

The answers to these questions could significantly impact insurance law in Texas. Stay tuned.