Judge: Transocean Insurance not Available to BP for Oil Spill

BP has lost two big rulings in its fight to shield itself from potentially having to pay billions of dollars more in damages related to the worst offshore oil spill in U.S. history.

A federal judge ruled in mid-November that BP PLC is not entitled to coverage for the spill under insurance policies totaling $750 million held by Transocean Ltd., owner of the Deepwater Horizon rig that BP was leasing at the time of last year’s Gulf of Mexico disaster.

“Because Transocean did not assume the oil pollution risks pertaining to the Deepwater Horizon Incident – BP did – Transocean was not required to name BP as an additional insured as to those risks,” U.S. District Judge Carl Barbier wrote in his ruling. “Because there is no insurance obligation as to those risks, BP is not an ‘insured’ …. for those risks. Therefore, BP is not entitled to the declarations of coverage it seeks.”

Transocean praised the ruling.

“The court’s decision speaks for itself, and if you work for Transocean, it’s a great read to boot,” spokesman Brian Kennedy said of the insurance ruling.

Barbier also ruled that Alabama and Louisiana can pursue punitive damages against BP and other companies, however, the ruling was not a total victory for Alabama and Louisiana. Barbier dismissed some claims in the lawsuits that were based on state laws. The judge said many issues had been dealt with in an earlier order, including a provision that said maritime law was applicable in the case and that the Oil Pollution Act did not block claims under maritime law.

He said punitive damages may be available under maritime law because “the states have alleged physical injury to proprietary interests and the other elements pertinent to negligence and products liability claims.”

Barbier also said the states can continue to seek damages under the Oil Pollution Act. However, he blocked claims each state sought under various state laws.

“The court is respectful of the states’ desire to exercise their police powers and punish those who pollute their waters,” Barbier wrote. But he noted that the source of the oil that damaged several state coastlines was not in any of those states, and he outlined several legal reasons why claims under state laws were pre-empted by federal law.

Barbier added that federal law should be sufficient for the states to recover the costs of removing the oil, saying, “Although the court does not decide at this time issues concerning liability or the extent of liability, it certainly appears that the States are eligible to recover all of their removal costs under OPA.”

A civil trial over hundreds of spill lawsuits is scheduled for February to assign shares of fault to the companies involved and determine whether Transocean can limit what it pays those making claims under maritime law.

The ruling could impact the lawsuits the companies have filed against each other. In one, BP has sued Transocean for at least $40 billion in damages, accusing it of causing the blowout.

BP claims every single safety system and device and well control procedure on the Deepwater Horizon rig failed.

But in his ruling on the insurance matter, Barbier said “BP, under the drilling contract, assumed responsibility for Macondo well oil release pollution liabilities.” The judge added, “The Deepwater Horizon incident entailed a subsurface release; thus, Transocean did not assume pollution liabilities arising from the incident.”

And a report issued in September by the U.S. Coast Guard and the agency that regulates offshore drilling concluded that BP bears ultimate responsibility for the disaster. BP has asked the court to keep that report out of the civil trial.

BP said the insurance ruling doesn’t in any way address the causes of the accident or who will be held ultimately responsible in court.

“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.

BP also noted that, “The court dismissed all claims brought under state law by Alabama and Louisiana, including claims for state law penalties, and determined that federal law is the only law under which penalties may be awarded.”

It continued, “The court’s opinion makes clear, as BP has long maintained, that state law penalties are unavailable to plaintiffs who have sought them.”

A spokeswoman for Louisiana Attorney General Buddy Caldwell said Barbier’s second ruling was being reviewed and that there were elements that disappointed the state. Alabama Attorney General Luther Strange said his “primary concern regarding the oil spill is that BP and other defendants must be held responsible for the damage and harm caused to our states.”

Eleven rig workers were killed when the Deepwater Horizon exploded in April 2010 roughly 50 miles off Louisiana, leading to more than 200 million gallons of oil spewing from a BP well a mile beneath the sea, according to government estimates.