Moderated by Speakers
David Goodwin Partner
Covington & Burling LLP
Covington & Burling LLP
The Deepwater Horizon insurance litigation before the Texas Supreme
Court is one of the most closely watched insurance cases in Texas
history. Hear from the same lawyers who have been handling the case
about the issues that the Texas Supreme Court is addressing and the
arguments for and against coverage for BP’s pollution losses. The
panelists will al- so talk about lessons learned from the insurance
litigation and then will focus on how a company engaged in
deepwater drilling can manage its risks in the current insurance
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David Goodwin Partner
Covington & Burling LLP
David Goodwin is partner in Covington & Burling’s San Francisco
office and a member of the In- surance Coverage, Arbitration, and
Appellate practice groups. Mr. Goodwin is one of the nation’s
leading insurance coverage practitioners, ranked in the highest
tier by Chambers USA both na- tionally and in California. Law360
has named him one of the country’s top three “most valuable
players” in the insurance practice area.
With nearly 30 years of experience representing corporate
policyholders in insurance coverage disputes and litigation, Mr.
Goodwin has served as a party arbitrator in numerous insurance
arbi- trations. He also is a highly experienced appellate advocate
who has argued more than 50 ap- peals.
Mr. Goodwin is a vice chair of Covington’s litigation practice. He
also has served as an adjunct professor at the University of
California at Berkeley Law School, where he taught courses on in-
Mr. Goodwin’s education includes University of California, Santa
Cruz (A.B., 1974); University of Oxford (B.A., 1976); University of
Oxford (M.A., 1981); and Stanford Law School (J.D., 1982).
John M. Elsley Of Counsel
Royston, Rayzor, Vickery & Williams, L.L.P.
John M. Elsley has practiced law for 35 years with the Houston
office of Royston, Rayzor, Vickery & Williams, L.L.P. He has
significant experience in civil litigation, arbitration, and
appeals with a specialty in admiralty law matters. Mr. Elsley has
represented Transocean in the Deepwater Hori- zon insurance
litigation pending before Judge Barbier in the Eastern District of
Louisiana, the US Court of Appeals for the Fifth Circuit, and the
Texas Supreme Court.
Mr. Elsley received his B.S. with honors and his J.D. with honors
from the University of Houston.
Bart Hall practices in the area of insurance and reinsurance and
concentrates on coverage and re- insurance issues arising out of a
wide range of claims, including environmental and latent injury
claims, business torts, intellectual property claims, labor and
employment-related claims, and construction defect claims, as well
as issues involving insured and additional insured status, self-
insured retentions, and general claims handling issues under
third-party and first-party policies.
Mr. Hall is a resident in the Houston and New Orleans offices.
However, he counsels insurers and represents them in litigation
throughout the country and has been admitted to practice pro hac
vice before state or federal courts in 23 other states.
He has been recognized by The Best Lawyers in America, Louisiana
Super Lawyers, and New Or- leans Magazine—Top Lawyers—Insurance
Mr. Hall received his B.A. from Tulane University, his M.S.P. from
the University of Tennessee, and his J.D. from Tulane University
Allan B. Moore Partner
Covington & Burling LLP
Allan B. Moore is a partner in the Washington, DC, office of
Covington & Burling LLP, where he has represented policyholders
in insurance coverage litigation and arbitration matters for nearly
25 years. Mr. Moore also serves as co-chair of the firm’s
Arbitration Practice Group. Currently, Mr. Moore represents BP
America, Inc., and its affiliates in the insurance coverage
litigation arising out of the explosion and sinking of the
Deepwater Horizon and the ensuing oil spill in the Gulf of Mexico
and Apache Corporation in connection with the Varanus Island
pipeline explosion in Aus- tralia.
Mr. Moore has represented policyholders in pursuing coverage for
large-scale environmental loss- es, industrial accidents, product
liability torts, storms and natural disasters, and fraud and theft
schemes. He regularly appears before federal and state courts
throughout the United States, as well as before international and
domestic arbitral tribunals.
Mr. Moore received his undergraduate and law degrees from Harvard
University. He is recognized and recommended for insurance, energy
litigation, and international arbitration in The Legal 500 and
Decision and Its Implications Presented by
David B. Goodwin George B. Hall, Jr. Allan B. Moore Phelps Dunbar
Covington & Burling LLP Counsel for Underwriters Counsel for
John M. Elsley Royston, Rayzor, Vickery & Williams, LLP Counsel
• The Deepwater Horizon Insurance Litigation – Background to the
Dispute – District Court and Fifth Circuit
• The Texas Supreme Court Reference • What Did the Texas Supreme
Court Say? • What’s Next? • Implications for Other Cases?
The Drilling Contract
• Drilling contract negotiated in 1998 between predecessors of
Transocean and BP
• Contract amended frequently to cover a variety of operations,
including the use of the Deepwater Horizon rig
• Transocean agreed in the drilling contract to procure insurance,
and the parties gave each other knock-for-knock indemnities
• In exchange, BP paid day rates to Transocean
The “Insurance Actions”: A Recap
• After the April 20, 2010, accident, BP tendered its claim to the
commercial general liability (CGL) insurers as an additional
• The insurers filed two parallel declaratory judgment actions, one
filed by the primary insurer (Ranger) and the other by the excess
• Texas law governed the insurance policies • Transferred to New
Orleans multi-district litigation • Transocean intervened • All
agreed: BP was an “additional insured” • Issue was not existence of
BP’s coverage but whether the CGL policies
provided coverage for BP’s subsurface pollution liabilities
Four Sets of Contractual Provisions
• The insurance policies: “Who is insured?” • The insurance
policies: “What coverage is the insured entitled
to receive?” • The drilling contract: “What indemnities has the
promised to the owner/operator?” • The drilling contract: “What
insurance must the contractor
BP’s Arguments in a Nutshell
• The scope of coverage depended upon what the insurance policies
provided, and the policies did not limit coverage to the scope of
the indemnities that Transocean gave BP
• The policies did not incorporate the drilling contract • And if
they did, the drilling contract did not limit the scope of
“additional insured” coverage to the indemnities
The Insurers’ (and Transocean’s) Arguments in a Nutshell
• The sole purpose of BP’s “additional insured” coverage was to
“backstop” Transocean’s indemnities
• To the extent the court must look at the contract language, the
drilling contract limited the scope of BP’s “additional insured”
coverage to the “backstop”
• The policies incorporated the drilling contract
So What Happened?
• BP asked the District Court to decide on a motion for judgment on
the pleadings whether BP or the insurers were right as a matter of
law. All parties agreed that the motion presented a pure question
• Based on the plain language of Transocean’s policies, the scope
of BP’s coverage as an additional insured must be determined by the
additional insured provision in the drilling contract.
• Because BP and not Transocean assumed liability for subsurface
pollution under the drilling contract, and because BP was an
additional insured only “for liabilities assumed by [Transocean]
under the terms of th[e] [drilling] Contract,” BP was not insured
for subsurface pollution.
• Judge Barbier distinguished ATOFINA and AUBRIS, holding that the
result in each was compelled by the underlying contract and policy
language, rather than a “policies alone” rule, which had been
advocated by BP.
1. The ATOFINA case was “Distinguishable” and Aubris did not apply
2. The additional insured provision was not separate and additional
to the indemnity
provisions 3. The policies and the drilling contract were not
ambiguous; therefore, contra
proferentem did not apply 4. The drilling contract limited the
additional insured’s coverage rights to a backstop
to the indemnities
The Fifth Circuit Decision
• Opinion issued March 2013, ruling in favor of BP • Holding: under
Texas law, insurance coverage depends upon what
the insurance policies provide, not on what the drilling contract
says, unless the insurance policies expressly limit coverage to the
minimums set forth in the drilling contract – The policies imposed
no such limitations on coverage – The insurance and indemnity
provisions in the drilling contract were separate and
independent promises that Transocean made to BP – The panel ruled
that BP was entitled to coverage as a matter of law and remanded
case to Judge Barbier for entry of judgment in favor of BP – Court
did not reach the scope of the indemnities in the drilling
1. Under ATOFINA and Aubris, look only to the policies, not to the
drilling contract in determining additional insured coverage.
2. The ATOFINA case was controlling because the language of
Transocean’s policies was “very similar” to the policy in ATOFINA,
as well as to the policy in Aubris. The BP/Transocean insurance
policies contained no limit on BP’s coverage.
3. The drilling contract’s additional insured provision was
separate and additional to the indemnity provisions because it was
a discrete requirement.
4. Because BP offered a reasonable interpretation, an ambiguity was
present; therefore, contra proferentem applied, with the panel
adopting BP’s interpretation in favor of coverage.
• Ranger, Excess Underwriters, and Transocean petitioned for
rehearing or rehearing en banc. – Also asked for certification to
Texas Supreme Court
• BP opposed rehearing en banc • The Fifth Circuit denied
rehearing, withdrew first opinion, found that the law was
unsettled, and certified two questions to the Texas Supreme
The Certified Questions
1. Whether Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256
S.W.3d 660 (Tex. 2008), compelled a finding that BP was covered for
the damages at issue, because the language of the umbrella policies
alone determined the extent of BP’s coverage as an additional
insured if, and so long as, the additional insured and indemnity
provisions of the drilling contract were “separate and
2. Whether the doctrine of contra proferentem applied to the
interpretation of the insurance coverage provision of the drilling
contract under the ATOFINA case, 256 S.W.3d at 668, given the facts
of this case
• Opinion issued on February 13, 2015. • Justice Guzman delivered
the opinion, and Chief Justice Hecht, Justice Greene,
Justice Willett, Justice Lehrmann, Justice Boyd, Justice Devine,
and Justice Brown joined.
• Justice Johnson filed a dissenting opinion. • The court answered
the first certified question in the negative and, based on
analysis of the first certified question, did not reach the second
1. The Transocean insurance policies included language that
necessitated consulting the drilling contract to determine BP’s
status as an “additional insured”;
2. under the terms of the drilling contract, BP’s status as an
“additional insured” was inextricably intertwined with limitations
on the extent of coverage to be afforded under the Transocean
3. the only reasonable construction of the drilling contract’s
additional insured provision was that BP’s status as an “additional
insured” was limited to the liabilities Transocean assumed in the
drilling contract; and
Summary of Texas Supreme Court’s Holdings
4. BP was not entitled to coverage under the Transocean insurance
policies for damages arising from subsurface pollution because BP,
not Transocean, assumed liability for such claims.
• Four-corners rule: Whether BP’s additional insured coverage was
co-extensive with Transocean’s coverage began with the four corners
of the policies.
• Policies may incorporate coverage limitations in extrinsic
documents: Although the supreme court began with a four-corners
review, it also held that “[w]e have long held insurance policies
can incorporate limitations on coverage encompassed in extrinsic
documents by reference to those documents.”
• Magic words not required: The Texas Supreme Court does not
require “magic” words to incorporate a restriction from another
contract into an insurance policy; rather, it is enough that the
policy clearly manifests an intent to include the contract as part
of the policy.
The Texas Supreme Court’s Policy: Construction Principles
• “Thus, while our inquiry must begin with the language in an
insurance policy, it does not necessarily end there. In other
words, we determine the scope of coverage from the language
employed in the insurance policy, incorporated document to the
extent required by the policies. Unless obligated to do so by terms
of the policy, however, we do not consider coverage limitations in
underlying transactional documents.”
• The court said it was guided by the holdings and the foundational
principles set forth in its decisions in Urrutia v. Decker, 992
S.W.2d 440 (Tex. 1999), and Evanston Ins. Co. v. ATOFINA
Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008).
• The issue was whether a vehicle rental agreement was effective to
limit an additional insured’s liability insurance to $20,000
instead of the $1 million policy limits available under the leasing
company’s commercial business automobile policy.
• The policy covered “[b]oth lessees and rentees of covered autos
as insured, but only to the extent and for the limits of liability
agreed to under contractual agreement with the named
Urrutia v. Decker, 992 S.W.2d 440 (Tex. 1999)
• The supreme court held that the customer’s status as an
additional insured depended on the existence of a rental agreement,
and coverage was expressly limited to the amount specified in such
agreement. Thus, coverage was limited to $20,000.
• The supreme court held that the external limit was, in effect, an
endorsement to the insurance policy.
• By tying additional insured coverage to the terms of an
underlying agreement, the parties procured only the coverage the
insured was contractually obligated to provide, thereby minimizing
the insurer’s exposure under the policy.
• In ATOFINA, the supreme court considered two independent coverage
provisions in an excess insurance policy.
• The first provision (Section III.B.6) extended coverage to “[a]
person or organization for whom [the insured has] agreed to provide
insurance as is afforded by this policy; but that person or
organization is an insured only with respect to operations
performed by you or on your behalf, or facilities owned or used by
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660
• Section III.B.6 of the policy in ATOFINA made no reference to the
service contract in determining the scope of additional insured
coverage; rather, the only restriction on the scope of additional
insured coverage under Section III.B.6 was the requirement that
claims involved the contractor’s operations or facilities.
• Because the accident was related to the contractor’s operations,
the claim for which ATOFINA sought coverage was within the scope of
the coverage afforded under Section III.B.6 of the policy.
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660
• The second insurance provision at issue in ATOFINA (Section
III.B.5) defined an insured as “[a]ny other person or organization
who is an insured under a policy of ‘underlying insurance’” but
stated that “[t]he coverage afforded such insureds under this
policy would be no broader than the ‘underlying insurance’ except
for this policy’s Liability of Insurance.”
• The Texas Supreme Court enforced Section III.B.5 as written, and
because the underlying CGL policy excluded losses caused by
ATOFINA’s sole negligence, the Texas Supreme Court held that the
limitation also applied to the excess policy.
• Thus, the Texas Supreme Court affirmed the principle from Urrutia
that an insurance policy may refer to another document to determine
the extent to which an additional insured is covered.
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660
• The question before the court: Did the Transocean insurance
policies incorporate any limitations in the drilling contract with
respect to the extent of BP’s status as an additional
• Turning to the policy language at issue, BP was not named in any
of the insurance policies as an additional insured by the policy
language or an endorsement.
• Instead, the policies conferred coverage by reference to the
drilling contract in which (1) Transocean assumed some liability
for pollution that might otherwise be imposed on BP (making that
contract an “insured contract”) and (2) Transocean was “obliged” to
procure insurance coverage for BP as an additional insured.
• Moreover, additional insureds were automatically included under
the policy only “where required by written contract, bid or work
• The Texas Supreme Court held that the language in the insurance
policies providing additional insured coverage “where required” and
as “obliged” required the court to consult the drilling contract’s
additional insured clause to determine to what extent BP was an
The Texas Supreme Court’s Incorporation by Reference Analysis
• Subsection 3 of Exhibit C stated that BP was an additional
insured but only for “liabilities assumed by [Transocean] under the
terms of this contract.”
• The court ruled, “It is immediately apparent from the plain
language of this provision that BP’s status as an insured is
inexorably linked, at least in some respect, to the extent of
Transocean’s indemnity obligations.”
• BP read the emphasized language as a specific exception to the
general obligations to name it as an additional insured, applying
only to the workers compensation policies covering Transocean’s
employees since that would be the only indemnity obligation
implicated under BP’s construction.
• Transocean and the insurers read the language as (1) accepting
only workers compensation policies from the general additional
insured obligation and (2) imposing a limitation on the general
insurance obligation that was coterminous with all of Transocean’s
contractual indemnity obligations.
Subsection 3 of Section 3: The “Missing Comma”
• The Texas Supreme Court held that BP’s construction of the
contract was not reasonable because it either was inconsistent with
other provisions in the drilling contract or rendered the words
“liabilities assumed by [Transocean] under the terms of this
• To construe the additional insured provision to require BP to be
named as an insured under such policies for its own employees’
work-related losses was in tension with the employee indemnity
clause in which BP assumed responsibility for these claims.
• The court held that BP’s construction was also in tension with
the provisions in Exhibit C that imposed an obligation on
Transocean to obtain workers compensation insurance for
“employees”; it did not mention acquiring insurance for workers
“employed” by someone other than the contractor, Transocean.
• Article 20.1 of the drilling contract provided that “[w]ithout
limiting the indemnity obligation or liabilities of [Transocean] or
its Insurer, at all times during the term of this CONTRACT,
[TRANSOCEAN] shall maintain insurance covering the operations to be
performed under this CONTRACT as set forth in Exhibit C.”
• For two reasons, the Texas Supreme Court rejected BP’s argument
that the insurers’ indemnity obligations conferred by the insurance
policy were not limited by Exhibit C to the drilling
• First, Transocean’s insurers owed no indemnity obligation to BP
except on the terms stated in subsection 3 of Exhibit C; so while
Article 20.1 might generally be read as saying that the insurers’
indemnity obligation was not limited by the requirements in Exhibit
C, the insurers’ indemnity obligation did not arise in the first
instance except on the conditions stated.
The Insurance Provision of the Drilling Contract: Article
• Second, simply because the duties to indemnify and maintain
insurance may be separate and independent does not prevent them
from also being congruent; that is, a contract may reasonably be
construed as extending the insured’s additional insured status only
to the extent of a risk the insured agreed to assume.
• The Texas Supreme Court held that, while indemnity and insurance
clauses can impose separate and independent duties, Article 20.1
did not provide that the scopes of the indemnity and insurance
duties were different; instead, the additional insured clause
confirmed they were congruent regarding the risk at issue by
requiring Transocean to insure BP “for liabilities assumed by
[Transocean] under the terms of this Contract.”
• In summary, the scope of Transocean’s duty to indemnify governed
the scope of Transocean’s duty to insure BP.
• The ambiguity rule comes into play only if there is more than one
reasonable interpretation of an insurance policy.
• The Texas Supreme Court held that BP’s interpretation was
unreasonable. • Because the court concluded there was only one
reasonable interpretation of the
insurance policies, it declined to answer the second certified
The Texas Supreme Court’s (Non-) Holding on Contra
The Texas Supreme Court Decision: The Dissenting Opinion
• The majority confused “status” as an additional insured with the
“scope” of coverage afforded an additional insured. – Court should
look to the drilling contract for status, but the policy did
not incorporate any claimed limitations in the drilling contract on
– The three words from the policy that the majority invoked for
incorporation said no such thing.
• The majority misread Article 20.1 of the drilling contract, which
provided expressly that the insurance provisions of that contract
did not limit the coverage that the insurers provided.
The Texas Supreme Court’s Ruling: Implications for Other
• What happens with the next case? When is the service contract
incorporated into the insurance policy?
• What are its implications for policyholders and insurers more
• What should insurers/insureds do the next time? • What happens
next in the Deepwater Horizon insurance
Questions, Final Comments, and Contact Information
John M. Elsley David B. Goodwin Royston, Rayzor, Vickery &
Williams LLP Covington & Burling LLP [email protected]
George B. Hall, Jr. Allan B. Moore Phelps Dunbar LLP Covington
& Burling LLP [email protected] [email protected]