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Judge Rules BP Not Covered by Transocean's Insurer in Gulf Oil Spill

Source: Dow Jones

Posted on 16 Nov 2011

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A U.S. judge said Tuesday that BP PLC isn't entitled to receive money from Transocean Ltd.'s insurers for costs related to the Deepwater Horizon oil spill.

The U.K. oil giant had sought U.S. courts to rule that it was covered under Transocean's insurance for the doomed Deepwater Horizon rig, even though its contract with the drilling company stated that BP would assume responsibility for spill costs.

U.S. District Judge Carl Barbier, of Louisiana's Eastern District, said "BP is not entitled to the declarations of coverage it seeks," because in the drilling contract it signed both BP and Transocean split responsibilities. The court found that Transocean agreed to bear the cost of any accidents occurring above the surface of the water from spills, leaks or fuel discharges, while BP assumed full responsibility for oil released from the well.

"BP is not entitled to the declarations of coverage it seeks," the judge ruled. The policies included about $750 million of coverage, the court filing said.

Under federal laws, the oil company in charge of a lease--in this case, BP--assumes the cost of stopping a spill and cleaning it up, to the limit of $75 million. But the unprecedented nature of the Deepwater Horizon disaster--which on April 20, 2010, killed 11 people, destroyed Transocean's rig and unleashed the worst accidental marine oils pill in history--sent all the parties involved into new legal territory. BP waived the $75 million limit, spending billions in clean-up activity and in settling claims from businesses affected by the environmental catastrophe. But a wave of legal finger-pointing followed, as BP, its partners and other companies involved in the disaster, such as Transocean and cementing contractor Halliburton Co., sued each other.

Both Halliburton and Transocean have said their service contracts with BP protect them from liability associated with the spill. In a conference with investors Tuesday, Transocean CEO Steven Newman said the company has "an ironclad contract (with BP) with very clear comprehensive and broad indemnity."

In a statement, BP said Tuesday's decision "doesn't in any way address the causes of the accident or any of BP's defenses to Transocean's claims against BP." The company added that enforceability of the indemnification provision in the drilling contract will depend on the court's determination at trial of Transocean's conduct. "To allow Transocean to avoid paying its share of any damages or governmental fines and penalties in these circumstances would be against applicable law and sound public policy," BP said.