Texas Supreme Court Finds Anadarko is Entitled to Over $100 Million in Deepwater Horizon Defense Costs Based on Undefined Term in Insurance Policy -

Insurance coverage litigation arising out of the 2010 Deepwater Horizon explosion continues to result in important precedents that will impact energy companies and policyholders with operations in Texas. On January 25, the Texas Supreme Court issued an opinion that opens the door for Anadarko, one of the entities that has been ensnared in costly Deepwater Horizon litigation for nearly a decade, to recover more than $100 million for defense costs. Anadarko’s insurers had refused to pay those defense costs based on their argument that a cap on recoverable damages in an endorsement to Anadarko’s policy applied to defense costs, and thus Anadarko was only entitled to recover $37.5 million. After carefully reviewing the insurance policy as a whole, in keeping with Texas rules of insurance policy construction, the Court rejected the insurers’ argument, finding that if the insurers had wanted to cap Anadarko’s right to recover defense costs, they should have said so in their policy. While this particular decision turned on the interpretation of words in a specific policy endorsement in Anadarko’s policy, the holding in this case is instructive for all policyholders who purchase liability policies that provide coverage for defense costs and indemnity.

Background

Anadarko owned a 25% interest in the Macondo Well in the Gulf of Mexico through a joint venture agreement. Anadarko and its partners garnered international attention when the Macondo Well blew out in April 2010 during drilling operations from the Deepwater Horizon rig, causing an explosion on the rig. Numerous third-parties sued Anadarko, seeking damages for bodily injury, wrongful death, and property damage. Following years of costly litigation and an adverse ruling, Anadarko entered a settlement agreement with co-defendant BP, and agreed to transfer its 25% ownership interest in the Macondo Well to BP and to pay BP $4 billion. In addition, Anadarko spent more than $100 million on defense expenses.