BP argues for access to Transocean spill insurance

BP should have access to $750 million in Transocean’s insurance to pay costs from the 2010 Gulf of Mexico oil spill, a lawyer for the British company told an appeals court.

The oil company Monday asked the U.S. Court of Appeals in New Orleans to reverse a decision by U.S. District Judge Carl Barbier barring it from using the policies. Barbier ruled last year that the drilling contract between the companies for the doomed Macondo well precluded BP from seeking coverage under the Transocean policies for pollution-related liabilities.

“BP’s position is that it has unlimited coverage for the accident,” its attorney David B. Goodwin told the court. “BP does not seek anything more.”

The company contends it should be considered an additional insured, with access to Transocean’s policies. The drilling contract didn’t limit access to coverage, BP argues.

Transocean and the insurance companies asked the appeals court to uphold Barbier’s decision.

The judge ruled that BP can be considered an “additional insured” under certain circumstances. The judge and the insurance companies agreed that BP can be an additional insured only if the policies and the drilling contract are construed together. Excess coverage would be used after the primary policy limits are surpassed by the costs of the event.

BP filed claims with Transocean’s carriers in 2010, seeking access to a $50 million primary policy issued by Ranger Insurance and to $700 million in excess coverage from Lloyd’s of London and other underwriters.

Transocean “has the most risk” if Barbier’s decision is reversed, Lloyd’s and the other excess carriers said in a court filing in July.

“If BP’s misinterpretation of the policies prevails, Transocean stands to lose $750 million in coverage that it secured for its own Macondo liabilities to a party — BP –whose chief executive has candidly admitted is self-insured and who has never expected its contractors to bear those self-insured risks,” attorneys George Hall and Richard Dicharry, lawyers for the insurers, told the appeals court in court papers.

The Macondo 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 hundreds of lawsuits against London-based BP and its partners and contractors. The lawsuits over economic losses and personal injuries have been combined before Barbier.

The lawsuits also name as defendants Transocean, the Vernier, Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded and sank; and Houston-based Halliburton Co., which provided cementing services to the well.

BP settled with most non-government plaintiffs in March, agreeing to pay an estimated $7.8 billion. That accord postponed the first trial to determine liability for the disaster. Barbier is considering whether to approve the settlement.

The judge, who is overseeing much of the spill litigation, has set Feb. 25 for a nonjury trial to apportion fault and decide whether BP is liable for gross negligence.

Barbier found in the insurance dispute that the carriers owed no duty to pay claims or defense costs for BP.

“The court finds that BP, under the drilling contract, assumed responsibility for Macondo well oil release pollution liabilities,” Barbier said in his November 2011 ruling. “Because Transocean did not assume these liabilities, there is no additional insurance obligation in favor of BP for these liabilities.”

The drilling contract “allocates to Transocean liabilities for pollution originating on or above the surface of the water,” Barbier said. “The Deepwater Horizon Incident entailed a subsurface release; thus, Transocean did not assume pollution liabilities arising from the incident.”

The drilling contract doesn’t control whether BP can tap into the insurance policies, the company said in its appeal of Barbier’s decision.

“Under Texas law, the court may not graft onto the policies purported limitations from the drilling contract that do not appear in, or are not expressly and unambiguously incorporated into, the policies themselves,” BP said in an Aug. 13 filing.

The policies “contain no language limiting the scope of BP’s coverage to the scope of Transocean’s indemnity obligations in the drilling contract,” BP told the appeals court. “The insurers are bound by the terms of the policies they issued and, having agreed to provide specific coverage to an ‘insured,’ they must provide BP that coverage.”

The insurance companies continue to oppose allowing BP any access to the policies.

“BP is mentioned nowhere in any of the policies,” lawyers for Lloyd’s and the other excess carriers said in the July filing with the appeals court.

BP has asked for “an expansive and unreasonable interpretation of the policies now because it was unprepared for and did not intend to insure against such extraordinary losses,” the lawyers said.