What's On The Horizon for Additional Insureds? Mike Melendez Alicia Gurries

How Does One Become An Additional Insured? Additional insured endorsement specifically names additional insured on schedule. Policy definition of “Insured” Blanket additional insured endorsement

Background Facts Regarding Deepwater Horizon Leg February 2, 2017 Jolie-Anne Ansley Not protected by Attorney-Client Privilege

A mobile offshore drilling unit Owned/operated by Transocean Deepwater Horizon A mobile offshore drilling unit Owned/operated by Transocean BP contracted with Transocean to use DWH to drill oil well in the Gulf of Mexico

U.S. Claims Against BP and Transocean Civil penalties under Section 311 of the CWA Provides for civil penalties for discharges of oil into navigable waters of the U.S., adjoining shorelines, into waters of the contiguous zone or in connection with activities under the Outer Continental Shelf Lands Act. Declaratory relief for liability under the Oil Pollution Act of 1990 Holds responsible parties for a vessel or facility from which oil is discharged strictly liable for removal costs and damages. For a mobile offshore drilling unit, determination of a responsible party can depend on use at time of incident.

Resulting Settlements with U.S. $4 billion criminal plea agreement with BP Exploration & Production $14.9 billion civil settlement with BP Exploration & Production $1 billion civil settlement with Transocean $400 million criminal plea agreement with Transocean

The Drilling Contract Indemnity Provision Transocean agreed to indemnify BP for pollution claims “originating on or above the surface of the water … without regard to negligence ….” BP agreed to indemnify Transocean for all pollution claims “not assumed by Transocean.”

Drilling Contract Insurance Provisions Transocean required to carry CGL coverage Transocean required to name BP entities “as additional insureds … for liabilities assumed by [Transocean] under the terms of the [Drilling Contract].”

Transocean Insurance Policies “Insured” Definition The named insured, Transocean Any entity to whom the “Insured” is obligated by any “Insured Contract” to provide insurance “Insured Contract” is one in which Transocean “assumes the tort liability of another … to pay for” property damage.

Additional Insured Endorsement “Where required by written contract … additional insureds are automatically included hereunder.”

Declaratory Relief Action Certified question: Whether Evanston Ins. Co. v. ATOFINA, 256 S.W.3d 660 (Tex. 2008), compels a finding that BP is covered for the damages at issue, because the [policy language] 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”?

Evanston v. ATOFINA The Evanston Who Is An Insured provisions defined insured to include anyone for whom the named insured has agreed to provide coverage, but only with respect to operations performed by the named insured or on its behalf.

Mere “Causal Connection or Relation” Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal.App.4th 321 (1999) St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mut. Ins. Co., 201 Cal.App.4th 645 (2012) Sparta Ins. Co. v. Colareta, 2014 WL 31986 (S.D. Fla. 2014) Norfolk Southern Ry. Co. v. National Union, 2014 WL 773517 (S.D. W.Va. 2014) U.S. Underwriters v. Tauber, 604 F.Supp.2d 521 (E.D. N.Y. 2009)

BP’s Four Corners Argument ATOFINA dictated that the existence and scope of additional insured coverage was to be ascertained solely from the four corners of Transocean policies.

DWH Court Distinguishes ATOFINA Based on Certificates “The existence of a certificate of insurance naming ATOFINA as an additional insured meant that … there was no need to look to the underlying service contract to ascertain ATOFINA’s status as ‘[a] person or organization for whom you have agreed to provide insurance as is afforded by this policy.”’

Certificate Language A MATTER OF INFORMATION ONLY CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER DOES NOT AMEND, EXTEND OR ALTER COVERAGE

Certificates of Insurance Will there be increased emphasis placed on certificates?

Incorporating Language into the Policy DWH Court: a named insured may “gratuitously choose to secure more coverage for its additional insured than it is contractually required to provide.” Did the insurance policies incorporate other contractual language into the policy to make the indemnity and additional insurance obligations co-extensive?

Urrutia v. Decker A separate contract can be incorporated into an insurance policy by explicit reference indicating the parties’ intention to incorporate. Urrutia v. Decker, 992 S.W.2d 440, 442 (Tex. 1999)

No “Magic Words” DWH Court: “Magic words” not required to incorporate a restriction from another contract into an insurance policy That the policy clearly manifests an intent to include the contract as part of the policy is enough

DWH Incorporation Rule “[W]e determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy.”

Policy Language “[W]here required by written contract … additional insureds are automatically included hereunder.” “Insured” includes “any person or entity to whom the ‘Insured’ is obliged by any oral or written ‘Insured Contract’ … to provide insurance such as afforded by” the policies.

Drilling Contract Transocean would name BP entities “as additional insureds in each of [Transocean’s] policies, except for Workers’ Compensation for liabilities assumed under the terms of the [Drilling Contract].”

Scope of Coverage DWH Court: Start with the policy Understand the entire policy Make sure to review all the different provisions under which someone can qualify as an additional insured or insured Understand the law in the appropriate jurisdiction

Make Sure to Get the Policy If you are seeking additional insured coverage, request a full copy of the Named Insured’s policy. Entitled to the information. May require persistence.

Policy Construction Insurance Contracts are Interpreted the Same as Other Contracts Montrose Chemical Corp. v. Admiral, 10 Cal.4th 645, 666 (1995) (“[I]ntent is to be inferred, if possible, solely from the written provisions” of the policy. The court will apply the plain and ordinary meaning of the language in the provisions, unless the parties used the terms in a technical sense or designated special meaning to the provisions.”) St. Paul Mercury Ins. Co. v. Frontier Pacific Ins. Co., 111 Cal.App.4th 1234 (2003) (When language in a policy is ambiguous, the court is more willing to look beyond the policy, including underlying contractual agreements.)

ISO Form 2010 04 13 Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury,” “property damage” or “personal and advertising injury” caused, in whole or in part, by: Your acts or omissions; or The acts or omissions of those acting on your behalf; In the performance of your ongoing operations for the additional insured(s) at the location(s) designated above. However: The insurance afforded to such additional insured only applies to the extent permitted by law; and If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.

Acts and Omissions Eliminated “arising out of” language from previous versions American Empire Surplus Lines Ins. Co. v. Crum & Forster Specialty Ins. Co., No. H-06-004, 2006 U.S. Dist. LEXIS 33556 (S.D. Tex May 23, 2006) (“arising out of” language provides coverage where both Named Insured and Additional Insured are negligent). The inquiry focuses on whether the facts in the underlying petition set forth a theory that the named insured in some way caused the injury.

Coverage Will Not Be Broader than Required by Contract Does not appear to relate to indemnity. What is required by underlying contract? Pekin Ins. Co. v. CSR Roofing Contractors, 2015 IL App. (1st) 142473 Interstate Fire and Casualty Company v. New Hampshire, 2013 U.S.Dist.LEXIS 126099

Policies Limiting AI Coverage to Indemnity Uniwest Construction v. Amtech Elevator Services, 699 S.E.2d 223 (VA 2010) The insurer’s AI endorsement limited additional insured coverage “to the extent that [additional insured] is required to be indemnified by [the] written agreement.”

Scope of Coverage Under Indemnity AI Endorsement In evaluating coverage, must know law regarding indemnity for additional insured decisions

Do Basic Provisions Dictate Incorporation? Who Is An Insured is amended to include any entity where a written contract requires you to add that entity as an additional insured on your insurance Who Is An Insured is amended to include any entity where required by written contract

Cases Liberty Surplus Ins. Corp. v. Exxon Mobile Corp., 483 S.W.3d 96 (Tx.Ct.App. 14th Dist. 2015) Ironshore Specialty Ins. Co. v. Aspen Underwriting, 788 F.3d 456 (5th Cir. (Tex.) 2015) Lexington v. ACE, ___ F.Supp.3d ___, 2016 WL 3251748 (S.D. Tex. 2016)

Parting Thought “Knowledge comes, but wisdom lingers.” - Alfred Lord Tennyson

Mike Melendez San Francisco mmelendez@cozen.com 415.593.9610 Alicia Gurries agurries@cozen.com 415.593.9618