## Facts

- Transocean owned and operated the Deepwater Horizon, a mobile offshore drilling rig in the Gulf of Mexico.
- BP (as the oil-field developer) entered into a drilling contract with Transocean governing the rig’s work.
- The drilling contract allocated pollution responsibility by location: Transocean assumed responsibility for pollution above the surface, while BP assumed responsibility for pollution below the surface (subsurface pollution).
- The drilling contract required Transocean to indemnify BP for the liabilities Transocean assumed under the contract.
- The contract also required Transocean to obtain liability insurance for the benefit of both parties and to provide BP additional-insured coverage, tied to the liabilities Transocean assumed in the contract.
- Transocean bought primary and excess liability policies. The policies did not list BP by name but extended additional-insured status to parties Transocean was obligated to insure by written contract (or similar “where required by written contract” language).
- In April 2010, the Deepwater Horizon exploded, burned, and sank, killing 11 crew members and causing a sustained subsurface discharge of oil from the Macondo well, generating extensive environmental and economic losses.
- Numerous claims followed. BP demanded coverage from Transocean’s insurers as an additional insured under Transocean’s policies for liabilities connected to the subsurface discharge.
- Transocean and its insurers took the position that BP’s additional-insured coverage, if any, was limited to above-surface pollution because the drilling contract placed subsurface pollution responsibility on BP.
- The federal district court granted summary judgment for Transocean and the insurers, denying BP coverage for subsurface pollution.
- On appeal, the Fifth Circuit initially reversed, reasoning the policies did not themselves contain the contract’s pollution-location limitation; on rehearing, it withdrew that decision and certified Texas-law questions to the Supreme Court of Texas about the relationship between the policies’ additional-insured language and the drilling contract’s allocation of liabilities.

## Issues

1. When a policy grants additional-insured status “where required by written contract” (or similar language), may a court consider the underlying contract to determine not only who qualifies as an additional insured, but also the scope of coverage?
2. If the underlying contract may be consulted, did BP have additional-insured coverage under Transocean’s policies for liabilities arising from the Macondo well’s subsurface pollution?

## Decision

- The Supreme Court of Texas held that, under Texas law, the policies’ additional-insured provisions permitted consulting the drilling contract to determine the scope of BP’s additional-insured coverage.
- The court reasoned that the policies’ grant of additional-insured coverage depended on Transocean’s contractual obligation to provide that coverage, so the contract could define what Transocean was required to insure.
- Applying the drilling contract’s risk allocation, the court concluded BP was not entitled to coverage as an additional insured for liabilities arising from subsurface pollution because BP, not Transocean, assumed those liabilities in the contract.
- Because this analysis resolved the coverage dispute, the court did not reach the remaining contingent certified question.

## Legal Principles

- Insurance policies are interpreted under ordinary contract rules, giving effect to the parties’ intent as expressed in the policy language read as a whole.
- When an additional-insured endorsement extends coverage only if coverage is “required by written contract,” the referenced contract may be consulted to determine both eligibility for additional-insured status and the limits of that status.
- A policy that ties additional-insured coverage to the named insured’s contractual obligation does not provide broader coverage than the named insured agreed to provide in the underlying contract.
- Contractual allocation of liabilities (such as assigning subsurface pollution to one party) can limit additional-insured coverage when the insurance requirement is itself linked to that allocation.
- Texas law does not require special phrasing for a policy to incorporate limits from a referenced contract; incorporation may occur when the policy makes the contract a condition of additional-insured coverage.

## Conclusion

The Supreme Court of Texas answered the certified questions by holding that the additional-insured provisions in Transocean’s policies allowed reference to the BP–Transocean drilling contract to define the scope of BP’s coverage, and because the contract assigned subsurface pollution liability to BP rather than Transocean, BP was not covered as an additional insured for subsurface-pollution claims arising from the Deepwater Horizon disaster.


In re Deepwater Horizon, 470 S.W.3d 452 (2015)