Court Opinion

ID: 2831456
Source: CourtListenerOpinion
Date Created: 2015-08-27 04:46:37.466716+00
Date Added: 2024-06-11T11:31:42.429773
License: Public Domain

IN THE SUPREME COURT OF TEXAS
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                                                     NO . 13-0670
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                                IN RE DEEPWATER HORIZON, RELATOR

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                                ON CERTIFIED QUESTIONS FROM THE
                       UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
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         JUSTICE JOHNSON , dissenting.

         I do not materially disagree with the Court’s explication of principles applicable to construing

insurance contracts, but I disagree with how it applies them in this case. I would hold that BP’s

coverage under the policy1 is the coverage provided in the policy’s “COVERAGE” section, and the

coverage is not limited to liabilities Transocean assumed in the drilling contract.

                                             I. The Drilling Contract

         In the drilling contract,2 BP and Transocean agreed that Transocean would maintain certain

specified types of insurance. Part of the agreement was that the insurance requirements would not

limit the liability of Transocean’s insurer:

         20.1 INSURANCE

         1
           Multiple insurance policies are involved. For ease of reference and for the reasons expressed by the Court,
I will do as the Court does and reference all the policies by the term “the policy” and all the insurers as “the insurers.”
The policies were effective from May 1, 2009 to May 1, 2010; the Deepwater Horizon exploded and sank in April 2010.

         2
          The drilling contract between BP and Transocean was dated December 9, 1998, and was executed by their
predecessors in interest.
        Without limiting the indemnity obligation or liability 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. (emphasis added)

Exhibit C to the drilling contract, which is referenced in paragraph 20.1, lists nine different types of

insurance. One type is Comprehensive General Liability Insurance, including—but notably not

limiting coverage to—coverage for Transocean’s contractual indemnity:

        [1.]c. Comprehensive General Liability Insurance, including contractual liability
        insuring the indemnity agreement as set forth in the Contract and products-
        completed operations coverage . . . . (emphasis added)

A separate paragraph in Exhibit C provides that

        3. [BP], its subsidiaries and affiliated companies . . . shall be named as additional
        insureds in each of [Transocean’s] policies, except Worker’s Compensation for
        liabilities assumed by [Transocean] under the terms of this Contract.

                                     II. The Policy Language

        Despite this latter requirement in Exhibit C, paragraph 3 of the drilling contract, neither the

policy nor an endorsement to it named BP as an additional insured. However, the policy provided

in its GENERAL CONDITIONS section that additional insureds would be automatically covered

“where required” by written contract, and/or subrogation waivers provided “as may be required by

contract”:

        3. ADDITIONAL INSURED/WAIVER OF SUBROGATION
        Underwriters agree where required by written contract, bid or work order, additional
        insureds are automatically included hereunder, and/or waiver(s) of subrogation are
        provided as may be required by contract.

The first phrase of the one-sentence paragraph specifies who will be covered as additional insureds

under the policy: those parties where a written contract, bid, or work order requires the Insured to

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provide additional insured coverage. The second phrase specifies that waivers of subrogation are

provided as a contract requires them to be. Additional insured status and waivers of subrogation are

two different matters. Additional insured status provides for defense against and payment of covered

claims made against an insured, while waiver of subrogation effectively provides for release of third

parties from claims the insurer might have as a result of payments to or on behalf of an insured. And

even if the paragraph does not unambiguously distinguish between the two, it is reasonable to

construe its language as specifying who will be an additional insured while separately specifying that

waivers of subrogation will be provided only as specified in a contract.

       In addition to the foregoing ADDITIONAL INSURED/WAIVER OF SUBROGATION

provision, the policy’s definitions of “Insured” and “Insured Contract” bring BP within the policy’s

coverage as an Insured:

       IV. DEFINITIONS:

       INSURED
            Only the following are included in the definition of the “Insured”
            under this Policy:
            ...
            (c) any person or entity to whom the “Insured” is obliged by any oral
            or written “Insured Contract” . . . to provide insurance such as is
            afforded by this Policy;
            ...

       INSURED CONTRACT
            The words “Insured Contract”, whenever used in this Policy, shall
            mean any written or oral contract or agreement entered into by the
            “Insured” . . . under which the “Insured” assumes the tort liability of
            another party . . . . Tort Liability means a liability that would be
            imposed by law in the absence of any contract or agreement.

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Plainly, in the drilling contract Transocean assumed the obligation to provide BP with

Comprehensive General Liability Insurance, including “contractual liability insuring the indemnity

agreement as set forth in the Contract.” Just as plainly, Transocean assumed the tort liability of BP

to some degree under the drilling contract. So, BP is an insured under the policy’s language.

       Notably, neither the definition of “Insured” nor “Insured Contract” limit the terms to the

scope of the obligation assumed by the “Insured” in a written contract or agreement, such as the

language of the original policy would have done when it extended additional insured coverage to

insureds of underlying policies. In regard to insureds in underlying policies, the language in

Transocean’s basic policy provided that coverage would be “not for broader coverage than is

available to such person or organization under such underlying policies.” This language was

amended by an endorsement to read that an insured is “any person or organization, other than the

Named Insured, included as an additional insured in the policies listed in the Schedule of Underlying

Insurance.” Nevertheless, the original policy language demonstrates that Transocean’s insurer knew

exactly how to restrict coverage of persons or entities who were covered because of a collateral

agreement, but chose not to use restrictive language that would apply to persons or entities in

situations similar to that of BP. And such language, as was in the original policy, is not unusual in

insurance policies. See, e.g., Urrutia v. Decker, 992 S.W.2d 440, 441 (Tex. 1999) (policy language

provided additional insured coverage “only to the extent and for the limits of liability agreed to under

contractual agreement with the named insured”); United Nat’l Ins. Co. v. Motiva Enters., L.L.C.,

No. Civ. A. H-04-2924, 2006 WL 83482, at *3 (S.D. Tex. Jan. 12, 2006) (construing policy language

that states “the extent and scope of coverage under this insurance for the additional insured will be

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no greater than the extent and scope of indemnification of the additional insured which was agreed

to by the named insured”).

       Which brings us to the policy’s INSURING AGREEMENTS section. There, coverage for

an “Insured” is specified to be for both liabilities imposed by general law and liabilities assumed by

an “Insured” under an “Insured Contract”:

       I. INSURING AGREEMENTS

               1. COVERAGE
                            In consideration of the payment of the
                    premium set out in Item 7 of the declarations and in
                    reliance upon the proposal for this policy (hereinafter
                    Policy), statements made, and any supplementary
                    information pertaining to the proposal which are all
                    deemed incorporated herein, Underwriters agree,
                    subject to the Insuring Agreements, Conditions,
                    Exclusions, Definitions and Declarations contained in
                    this Policy, to pay on behalf of the “Insured” in
                    respect of their operations anywhere in the World, for
                    “Ultimate Net Loss” by reason of liability:

                               (a) imposed upon the “Insured” by law
                               or
                               (b) assumed by the “Insured” under an
                               “Insured Contract,” for damages . . . .

                                          III. Discussion

       As the Court explains, when the scope of coverage for an insured such as BP is in question,

the language of the policy itself determines whether a contract other than the policy expands or

restricts coverage. ___ S.W.3d at ___ (citing Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256
S.W.3d 660 (Tex. 2008)); see Urrutia, 992 S.W.2d at 442 (language external to a policy is

incorporated into the policy only “by an explicit reference clearly indicating the parties’ intention

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to include that contract as part of their agreement”). The Court says that the policy’s reference to

the drilling contract in two places effectively incorporates the drilling contract’s language. In the

first, paragraph 3 of the GENERAL CONDITIONS, the insurer agreed that “where required by

written contract . . . additional insureds are automatically included hereunder.” The Court concludes

that the phrase “where required by written contract” is specific enough to limit BP’s coverage under

the policy to only those liabilities Transocean assumed in the drilling contract. The Court also points

to the policy definition of “Insured” which includes “any person or entity to whom the ‘Insured’ is

obliged by an oral or written ‘Insured Contract’ . . . to provide insurance such as is afforded by this

Policy.” The Court states that this language requires the Drilling Contract to be consulted in order

to interpret those clauses, effectively incorporating a limitation of coverage to the liabilities

Transocean agreed to assume. I disagree.

       As set out above, the basic policy language demonstrates that the insurer was familiar with

and had previously used language limiting coverages it provided in connection with relevant

extrinsic agreements when it desired to do so. Further, language in the COVERAGE provision of

the policy explicitly “deemed incorporated” documents external to the policy when they were to be

considered as part of the policy, but the policy did not “deem incorporated” any part of the drilling

contract that would limit BP’s coverage as an “Additional Insured” or “Insured.”

       Further, in ATOFINA, an insured was defined as “[a] person or organization for whom you

have agreed to provide insurance as is afforded by this policy.” 256 S.W.3d at 664. We concluded

that this provision provided “direct insurance coverage to ATOFINA.” Id. at 667. In ATOFINA we

determined the scope of coverage based on the terms of the policy, not the collateral indemnity

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agreement. Id. at 664. Here, we should do the same. BP is an insured under the unambiguous

language of the policy because it is “an entity to whom the ‘insured’ [Transocean] is obliged by any

oral or written ‘insured contract’ to provide insurance coverage as is provided by this policy,” and

the drilling contract is an “Insured Contract” because in it Transocean assumes tort liability of BP.

And there is no language in either the policy or the drilling contract demonstrating intent to alter

BP’s status as to that part of the policy covering an “Insured” for “liability [] imposed upon the

‘Insured’ by law.”

        In sum, I disagree with the Court’s holding for several reasons. First, the policy explicitly

covers liability either “imposed upon the ‘Insured’ by law” or “assumed by the ‘Insured’ under an

‘Insured Contract.’” The policy language providing that parties will be covered as additional

insureds “where required by written contract . . . and/or waiver(s) of subrogation are provided as

required by contract” arguably and reasonably describes coverage by designating who is an

additional insured, and that subrogation waivers are automatically provided as required by contract.

But even if such language is construed to limit BP’s coverage, the drilling contract’s language is not

explicitly incorporated into the policy, nor is it “deemed” incorporated as the policy provides for

other documents intended to become part of the policy. See Urrutia, 992 S.W.2d at 442 (“Texas law

has long provided that a separate contract can be incorporated into an insurance policy by an explicit

reference clearly indicating the parties’ intention to include that contract as part of their agreement.”)

(emphasis added); Phillips Petroleum Co. v. St. Paul Fire & Marine Ins. Co., 113 S.W.3d 37, 44

(Tex. App.—Houston [1st Dist.] 2003, pet. denied) (policy language naming Phillips Petroleum as

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an additional insured “as required by contract” was not “‘an explicit reference clearly indicating the

parties’ intention’ to include the terms and provisions of the M.S.A. as part of the policy”).

       Second, BP qualifies as an “Insured” under the policy’s definition of “Insured” as well as

being an “additional insured” under the policy. And as an “Insured” BP is entitled to all coverages

the policy affords. Even assuming the policy’s “where required by contract” or “as provided by

contract” language incorporates the drilling contract’s language as to what insurance Transocean

must provide for BP, not just who is an additional insured, there still is no language in the policy or

the drilling contract precluding BP from being insured under the policy for greater coverage than

what Transocean agreed to provide. See ___ S.W.3d at ___ (recognizing ATOFINA made clear that

a named insured contractor may provide more coverage than it was required to provide in an

underlying contract). In other words, there is simply no agreement in the drilling contract that would

preclude Transocean’s insurer from providing the coverage that this policy says it provides to an

“Insured”: coverage for “liability (a) imposed upon [BP] by law or (b) assumed by [Transocean]

under [the drilling contract].”

       Third, assuming BP’s coverage as an “additional insured” is limited to Transocean’s

liabilities under its indemnity obligation as the Court holds, BP also has the status of an “Insured”

as defined in the policy and that status affords it full coverage. And under such circumstances one

of the insurance policy’s GENERAL CONDITIONS paragraphs resolves the conflict as to different

coverages in favor of BP’s being covered as an “Insured” without our having to resort to canons of

construction to resolve the conflict:

       GENERAL CONDITIONS

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               2. CONFLICTING CONDITIONS CLAUSE
               In the event of a conflict between the clauses contained in the General
               Conditions, Sections I and II, and endorsements, the broadest
               interpretation will inure to the benefit of the Insured.

                                         IV. Conclusion

       I would hold that BP is covered by the policy and its coverage is not limited to liabilities

assumed by Transocean in the drilling contract. I would answer the first certified question “yes” and

would not answer the second. Because the Court holds otherwise, I respectfully dissent.

                                              ________________________________________
                                              Phil Johnson
                                              Justice

OPINION DELIVERED: February 13, 2015

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