Applying Texas law, the Fifth Circuit recently concluded that when a service provider agrees to secure insurance for an additional insured and to indemnify them for certain claims, the terms of the insurance policy determine the insurer’s obligations which may not be limited to those stated in the indemnity provision. In re Deepwater Horizon v. Transocean Offshore Deepwater Drilling, Inc. 2013 WL 776354 (5th Cir. La. March 1, 2013), (See also Texas Insurance Law Newsbrief, March 11, 2013).  Last week on rehearing, however, the court acknowledged important and determinative questions of Texas law for which there is no controlling Texas Supreme Court precedent and withdrew its earlier opinion in order to certify two questions to the Supreme Court of Texas.

The Fifth Circuit observed: “The Texas Supreme Court has never recognized a sophisticated insured exception to the general rule of interpreting insurance coverage clauses, nor has it ever indicated contra proferentem would not apply in construing these clauses.”  Furthermore: “it is possible that such an exception may be deemed appropriate in a case like this, where all the parties involved are highly capable contractors.”  They continued:

On the one hand, the facts here indicate Insurers were not involved in drafting the Drilling Contract, and thus construing ambiguities in that contract against them might be inappropriate. But on the other, the Insurers were involved in drafting the umbrella policy language at issue, and the failure of that policy language to limit coverage in underlying “Insured Contracts” to the liabilities assumed by the named insured in those contracts is part of what ails the Insurers now.

Accordingly, the Fifth Circuit certified the following questions as issues of first impression to the Supreme Court of Texas:

1. Whether Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008), compels a finding that BP is covered for the damages at issue, because the language of the umbrella policies alone determines the extent of BP's coverage as an additional insured if, and so long as, the additional insured and indemnity provisions of the Drilling Contract are “separate and independent”?

2. Whether the doctrine of contra proferentem applies to the interpretation of the insurance coverage provision of the Drilling Contract under the ATOFINA case, 256 S.W.3d at 668, given the facts of this case?

Editor’s Note:   We will continue to follow this significant case for further developments. (Click here to for full opinion).

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