In re deepwater horizon: A year and a half later

Publication August 2016

When the Supreme Court of Texas delivered its opinion in In re Deepwater Horizon on February 13, 2015, commentators across the country pondered the impact of the opinion in the insurance industry. Many wondered whether the case would cause a sea change in the manner courts – at least Texas courts – interpret insurance policies. This article examines the impact In re Deepwater Horizon has had on insurance law in Texas. At the present time, results are mixed on Deepwater Horizon’s impact.

As a reminder, In re Deepwater Horizon raised the issue of what language is required to incorporate the limitations in an underlying contract referenced in an insurance policy. The insurance policy at issue named BP as an additional insured under the policy; however, the parties disputed whether BP’s coverage under the policy was determined strictly by the policy or whether it incorporated limitations in the underlying drilling contract. The insurance policies did not contain any explicit language limiting BP’s coverage as an additional insured. The Texas Supreme Court held that BP’s coverage under the policy was, in fact, defined by the drilling contract. The Court reasoned that there is no need for “magic words to incorporate a restriction from another contract into an insurance policy.” Since the drilling contract simply required BP to be named an additional insured “for liabilities assumed” under the contract, the Court reasoned that BP’s coverage under the insurance policy was also limited to the items listed in the drilling contract. There was a concern by many commentators that the Court’s ruling in In re Deepwater Horizon would lead to the overinclusion of limitations in outside contracts in insurance disputes.

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