Breaking News on Deepwater Horizon Coverage Issues: Excess Insurers Sue Over Oil Spill Liabilities

On May 21, 2010, several insurers
that issued excess liability insurance policies to Transocean Ltd. filed a
declaratory judgment action in the United States District Court for the
Southern District of Texas against BP PLC and its subsidiaries seeking a
judgment that they have no obligation to cover pollution claims arising out of
the Gulf of Mexico oil spill. 

On April 20, 2010, the Deepwater
Horizon rig owned by Transocean Ltd. and under contract to BP PLC exploded,
causing a massive oil leak that has resulted in more than 130 lawsuits by
property owners, shareholders, workers, and the commercial fishing industry,
$800 million spent on cleanup and $30 million in paid claims.  On May 14, 2010, BP PLC provided notice of
claim to the insurers, which include Certain Underwriters at Lloyd’s, London;
Axis Specialty Europe Ltd.; Arch Insurance Co., Ltd.; Berkeley Insurance Co.;
Houston Casualty Insurance Co.; National Union Fire Insurance Co. of
Pittsburgh, Pa.; Navigators Insurance Co.; Infrassure Ltd.; Great American
Insurance Co. of New York; Liberty Mutual Insurance Co.; New York Marine and
General Insurance Co.; Valiant Insurance Co.; Max America Insurance Co.; XL
Specialty Insurance Co.; and Zurich American Insurance Co.


Transocean’s drilling agreement
with BP requires additional insured protection in favor of BP.  Article 24.1 addressed Transocean’s
pollution-related liabilities to BP and provides that Transocean “shall assume
full responsibility for . . . and hold [BP] harmless from demand or liability
for pollution or contamination, including control and removal thereof,
originating above the surface of the land or water from spills, leaks or
discharges of fuels . . . in the possession and control of [Transocean].”  Article 24.2 of the agreement sets forth BP’s
pollution-related liabilities to Transocean, stating that BP assumes full
responsibility for and holds Transocean harmless from pollution claims “arising
out of or connected with operation under this contract hereunder and not
assumed by Transocean.”

The excess insurers claim that the liabilities BP
faces for pollution emanating from BP’s well are not within the scope of the
additional insured protection because they are emanating from below the surface
and from BP’s well.  Accordingly, the
excess insurers seek declarations that BP assumed full responsibility in the
drilling contract for any and all liabilities arising out of or related to the
release of oil from its well, that the insurers have no obligation to BP under
any of the policies for pollution liabilities, and that BP is not entitled to
coverage under any of the policies for current or future pollution liabilities.

For a copy of the complaint click here

Toni Frain and Tom Segalla

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