Insurers Should Re-Examine Additional Insured Liability Coverage Wording in Light of BP Oil Spill Decision

What you need to know: The US Court of Appeals for the Fifth Circuit ruled that the insurance policy, rather than the indemnity provision of an underlying service contract, determined whether BP was an additional insured for pollution-related liabilities stemming from the Deepwater Horizon oil spill.

What you need to do: Insurance companies should consider drafting narrow additional insured wording to limit the scope of additional insured coverage under their policies.

Background -

Transocean Holdings, Inc. and BP America Production Company entered into a drilling contract for exploratory drilling at the Macondo Well in the Gulf of Mexico. The drilling contract required that Transocean maintain insurance for the operations to be performed under the contract, and that BP be named as an additional insured under Transocean’s insurance policies. The contract further provided that Transocean would indemnify BP for liability for pollution “originating on or above the surface of the land or water.” Transocean’s insurance policies defined “Insured” as any entity to whom the Insured is obliged by an Insured Contract to provide insurance. They defined “Insured Contract” as any contract “entered into by the ‘Insured’ . . . and pertaining to business under which the ‘Insured’ assumes the tort liability of another party to pay for . . . ‘Property Damage’ . . . to a ‘Third Party.’”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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