As detailed in a recent Financial Post article about the oil spill liability, BP PLC is seeking to access nearly $750 million in coverage under Transocean Ltd.’s insurance policies for the Deepwater Horizon oil rig. The issue currently being litigated is whether the drilling contract limited coverage for environmental liability.

BP argues that the drilling contract omitted a necessary comma, and that the mistake either granted access to coverage or created ambiguity that must be interpreted in its favor under Texas contract law. The clause at issue in the drilling agreement states that BP, its subsidiaries and workers would be “named as additional insureds” in Transocean’s polices “except Workers’ Compensation for liabilities assumed by [Transocean] under the terms of this contract.”

BP maintains that the omission of a comma after the words “workers’ compensation” should be interpreted to trigger coverage liability for oil discharged from the well. Insurers could have added “standard language” to the drilling contract that would have limited coverage; however, they “cannot rewrite the policies to add those restrictions now,” BP argues in court documents.

Meanwhile, Transocean maintains that coverage for incidents like the Deepwater Horizon spill are expressly excluded from the drilling contract. “BP may not demonstrate an ambiguity by relying on missing punctuation,” it argues.

So far, the courts have failed to reach a consensus. In 2011, U.S. District Judge Carl Barbier held that access to Transocean’s insurance policies was precluded under the drilling contract. “The mere absence of a comma does not create an ambiguity,” he stated.

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

The Fifth Circuit Court of Appeals reversed the decision, holding that BP was entitled to coverage. However, the matter was recently referred to the Texas Supreme Court to address the contract issue.

If you have any questions about the BP litigation or would like to discuss how to improve your company’s business contracts, please contact me or the Scarinci Hollenbeck attorney with whom you work. 

Check out some of our previous posts regarding business contracts: