George B. "Bart" Hall, Jr. of Phelps Dunbar discussed the significance of the U.S. Fifth Circuit's decision in Ranger Ins., Ltd. v. Transocean Offshore Deepwater Drilling, Inc. ( In re Deepwater Horizon ), No. 12-30230, involving the obligations of Transocean's primary and excess liability insurers to cover BP's pollution-related liabilities. The Fifth Circuit initially reversed Judge Carl Barbier's ruling against BP, holding that the language of the insurance policies-- and not the indemnity provisions in the drilling contract between Transocean and BP-- controlled the extent to which BP was covered for its pollution-related liabilities. The Fifth Circuit relied on Texas and Fifth Circuit precedent in Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S. W. 3d 660 (Tex. 2008) and Aubris Resources LP v. St. Paul Fire & Marine Ins. Co., 556 F. 3d 483 ( 5th Cir. 2009), which adopted Texas' so-called "separate and independent" analysis to the interpretation of "additional insured" requirements in service agreements. The Fifth Circuit also relied on the doctrine of contra preferentem ( although not specifically using that phraseology ), which is a rule of insurance policy interpretation that requires the court to favor the insured's interpretation, so long as that interpretation is reasonable.
On petition for rehearing, the Fifth Circuit withdrew its decision and has certified the issues to the Texas Supreme Court; namely, the proper analysis for the interpretation of the insurance and indemnity requirements in the drilling contract, and whether the doctrine of contra preferentem applies to the interpretation of the insurance coverage provision in the drilling contract. The parties have filed appellate briefs and several amicus briefs have been filed by interested industry groups. Adjudication of the dispute could have far-reaching implications for the energy industry, which has negotiated and developed the indemnity and insurance provisions in drilling contracts over an extended period of time, and must rely on these contracts to establish the rights and obligations of the parties as respects allocation of risks associated with drilling operations. The Texas Supreme Court is expected to schedule oral arguments in the near future.