Thursday, March 6, 2014 Houston, TX. 10:00 11:15 a.m. INDEMNITY, ADDITIONAL INSURED, AND THE BP OIL SPILL

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1 Thursday, March 6, 2014 Houston, TX 10:00 11:15 a.m. INDEMNITY, ADDITIONAL INSURED, AND THE BP OIL SPILL Presented by Tracy Alan Saxe Partner Saxe Doernberger & Vita, P.C. Robert Cunningham Partner Roach & Newton, LLP William Rusty Lee Managing Director Marsh USA Inc. Eric Davis Managing Director and President, Los Angeles R-T Specialty Group, LLC In February 2013, the Fifth Circuit Court of Appeals found that BP was an additional insured under Transocean s policies. In this session, senior counsels from some of the largest oil companies, along with a representative from a major broker, will discuss the impact of this case from the perspective of operators. The discussion will focus on oil and gas indemnity agreements and additional insureds and how this litigation has changed their approach to contract drafting, insurance policy renewals, and claims handling. Copyright 2014 International Risk Management Institute, Inc. 1 wwmi

2 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2

3 Tracy Saxe Partner Saxe Doernberger & Vita, P.C. Mr. Saxe is a partner of Saxe Doernberger & Vita, P.C. He is a skilled commercial litigator with more than 25 years of trial experience. Since 1990, he has focused his practice on insurance coverage issues, disputes, litigation, and trials on behalf of policyholders, handling cases involving coverage for comprehensive general liability, directors and officers, professional liability, builders risk, subguard, first-party property damage, additional insured, business interruption claims, and crime bonds. Mr. Saxe has handled cases involving coverage for construction defects, completed operations, product liability, property damage and bodily injury related to mold and asbestos, bodily injury related to construction, sick building syndrome, environmental claims, business interruption, employment disputes, patent infringement, contempt, RICO, unfair practices, breach of fiduciary duty, bad faith, and professional malpractice. Mr. Saxe is well versed in issues relating to late notice, allocation, subrogation, contribution, indemnification, and the duty to defend. Mr. Saxe was a principal at the law firm of Sachs, Berman, Rashba & Shure, P.C., from 1987 to He joined that firm following 4 years as an associate with Wofsey, Rosen, Kweskin & Kuriansky in Stamford, Connecticut. During that time, Mr. Saxe tried numerous civil and criminal trials, including a murder trial in which his client was acquitted based upon self-defense. He left in 1994 to open the Connecticut office of Anderson, Kill, Olick & Oshinsky, a firm specializing in insurance coverage on behalf of policyholders. In 1996, Mr. Saxe founded Saxe Doernberger & Vita, P.C. Mr. Saxe has been an adjunct professor of law at Quinnipiac University School of Law where he has taught courses in insurance law. He is also a frequent lecturer nationally on insurance coverage topics. Mr. Saxe holds a J.D. from Georgetown University Law Center, 1983, and a B.A. in policy studies, magna cum laude, Phi Beta Kappa, from Syracuse University, He is American Bar Association Insurance Coverage Litigation Committee (ICLC) Construction Sub-committee cochair and ABA ICLC Program Committee co-vice-chair. His other professional activities include membership in the Association of General Contractors of America and the Connecticut Bar Association. 3

4 Robert J. Cunningham Partner Roach & Newton, LLP Bob Cunningham represents policyholders with insurance coverage problems. His practice at Roach & Newton, LLP, in Houston includes counseling clients on existing or prospective insurance programs and resolving disputed coverage and related bad faith claims through negotiation, settlement, mediation, arbitration, or trial and appeal. He also handles disputes concerning additional insured status, indemnity, and other contractual risk allocation arrangements. Mr. Cunningham developed his early career in Houston over 30 years ago as a trial lawyer handling a wide variety of admiralty, offshore, and land-based matters involving personal injury defense and commercial litigation. He then served as a trial attorney with the US Department of Justice, Civil Division, Torts Branch, in its San Francisco office, representing the federal government throughout the Ninth Circuit in major maritime litigation. For over 2 decades since returning to Houston, he has engaged virtually exclusively in a broad and extensive practice of insurance coverage work. He frequently contributes to seminars and publications addressing a broad range of insurance coverage issues. He has been recognized for his insurance practice over the last several years by Chambers USA ( ), by Best Lawyers in America ( ), and as a Texas SuperLawyer ( ). He served as a contributing editor for the Texas Annotated Insurance Code (Lexis-Nexis, ). Mr. Cunningham actively participates in the insurance law sections of the State Bar of Texas and the American Bar Association and is a member of the Houston Bar Association, the Maritime Lawyers Association of the United States, and the Houston Mariners Club. He is a cofounder, with other prominent Houston policyholder coverage lawyers, of the South Texas Insurance Forum for Lawyers. He earns an AV - Preeminent rating from Martindale-Hubbell. Mr. Cunningham graduated from Yale cum laude, obtained an M.A. from Boston College, and earned his J.D. from University of California, Berkeley. He also holds a certificate in mediation from A.A. White Dispute Resolution Institute at the University of Houston, has a certificate in business ethics from Colorado State University, and attended the 3-day ABA arbitration training course. 4

5 William (Rusty) Lee Managing Director Marsh USA Rusty Lee currently leads Marsh s Energy Broking Team in Houston and serves as a client executive and senior casualty broker in Marsh s Energy, Mining, and Power Practice. His responsibilities include strategic planning, negotiation, carrier relations, and client advocacy for large, energy-related companies. He has over 25 years of industry experience. Mr. Lee joined Marsh in For 10 years prior to joining Marsh, he was an account executive and president of a risk management consulting entity for a regional broker. He has extensive background in claims management and risk management consulting. Before joining the broker side, he was the risk manager for an international seismic exploration company. Prior to that, he was a claims adjuster/supervisor for a large insurance company. Mr. Lee received his bachelor of science degree in general business from Stephen F. Austin University. Erik Davis Managing Director and President, Los Angeles R-T Specialty Group, LLC Erik Davis is managing director and president of the Los Angeles office of R-T Specialty Insurance Services, where he specializes in general liability and excess liability construction placements. He leads a team of 70+ dedicated professionals who focus on placing the most difficult risks and exposures in the industry. Mr. Davis joined R-T Specialty in Previously, he was with CRC by way of merger in Prior to CRC, Mr. Davis was employed with Sterling West Insurance Services, where he was a managing partner and was instrumental in building Sterling West into the largest independent E&S broker in the state of California. Since arriving in the business in 2000, Mr. Davis has become the largest construction casualty surplus lines broker in the United States. He has been responsible for structuring more residential wrap-up programs than any other individual broker nationally. Currently, Mr. Davis is working on growing the Construction Specialty Practice within R-T Specialty, expanding its presence within the energy construction space, and building the Los Angeles office into the largest wholesale office in California. He and his staff are dedicated to growth via acquisition and organic growth through a robust training program. As the head of the Construction Specialty Practice Group, he is responsible for developing product and providing oversight for the construction book of business on a national basis. 5

6 Prior to joining the surplus lines insurance industry, Mr. Davis served in the US Air Force for 6 years and was stationed in Colorado Springs; Los Angeles; and Aviano, Italy. At his last station, he managed a staff of 120 individuals and was responsible for a $5 billion operating budget. Mr. Davis has a bachelor s degree in business management from the US Air Force Academy in Colorado Springs, Colorado. Mr. Davis played football at the Air Force Academy, where he was an All- America defensive end. 6

7 Indemnity, Additional Insureds, and the BP Oil Spill Tracy Alan Saxe Partner Saxe Doernberger & Vita, P.C. Presented By: Robert Cunningham Partner Roach & Newton, LLP 1 William Lee M anaging Director M arsh USA Inc. Erik Davis President R-T Specialty IRMI wwmi 1 In Re Deepwater Horizon Case Illustration 1 BP Oil Drilling Contract Transocean Ltd. AI Coverage Policy 2 wwmi 2 Ranger Ins. 3 IRMI 2 7

8 District Court s Decision 2011 U.S. Dist. LEXIS (E.D. La. Nov. 15, 2011) The terms of the Drilling Contract determine which liabilities Transocean has assumed, and accordingly, the liabilities for which BP must be named as an additional insured. IRMI wwmi 3 Fifth Circuit s Decision 710 F.3d 338 (5th Cir. 2013) [T]he umbrella policies between the Insurers and Transocean do not impose any relevant limitations upon the extent to which BP is an additional insured, and because the additional insured provision in the Drilling Contract is separate from and additional to the indemnity provisions therein, we find BP is entitled to coverage under each of Transocean s policies as an additional insured as a matter of law. IRMI wwmi 4 8

9 Certified Questions 1. Whether ATOFINA 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 given the facts of this case? 5 IRMI 5 Hot Topics Indemnity agreements Contractual liability coverage Additional insured coverage IRMI wwmi 6 9

10 Contractual Indemnity Not Covered Covered Indemnity Liabilityility IRMI wwmi 7 Additional Insured (AI) Blanket Endorsement WHO IS AN INSURED (SECTION II) is amended to include as an insured any person or organization (called hereafter additional insured ) whom you have agreed in a written contract, executed prior to loss to name as additional insured, but only with respect to liability arising out of your work for that additional insured performed by you or for you. IRMI wwmi 8 10

11 Interplay of Indemnity/AI Contract wording defines indemnity and additional insured obligation (scope, validity, insurance supporting) Policy wording provides indemnity/ai coverage (by reference to contract, internal to policy, vicarious liability, or other scope) IRMI 9 Contractual Liability Coverage Policy Exclusion Exception of Policy Exclusion Insured Contract This insurance does not apply to: b. Contractual Liability BI or PD for which [insured] is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages: (1) Assumed in a contract or agreement that is an insured contract, provided the bodily injury or property damage occurs subsequent to the execution of the contract or agreement; or (2) That the insured would have in the absence of the contract or agreement That part of any other contract or agreement under which you assume the tort liability of another party to pay for bodily injury or property damage IRMI wwmi 10 11

12 Transocean s Policy Language Insured : (c) any person or entity to whom the Insured is obligated by any oral or written Insured Contract... entered into before any relevant Occurrence, to provide insurance as is afforded by this policy. Insured Contract : any written or oral contract or agreement entered into by the Insured and pertaining to business under which the Insured assumes the tort liability of other party to pay for Bodily Injury, Property Damage, Personal Injury or Advertising Injury to a Third Party or organization. IRMI wwmi 11 Bermuda AI Clause [A]ny person to whom any [Insured] is obligated by virtue of a written contract or agreement to provide insurance such as is afforded by this Policy, but only to the extent of such obligation and only in respect of operations (other than commercial insurance operations) by or on behalf of such [Insured]. IRMI wwmi 12 12

13 London AI Clause The words Additional Insured, wherever used in this Policy, shall mean any person or entity to whom the Insured is obliged by an Insured Contract entered into before any relevant Occurrence and/or Claim to provide insurance such as is afforded by this Policy with respect to Bodily Injury or Property Damage arising out of operations conducted by the Insured but only to the extent required by any indemnity given by the Insured in said Insured Contract to the Additional Insured. IRMI wwmi ISO AI Endorsement Language NEW: Conformity with law Scope of coverage NEW: Limits: No more than the contract provides NEW: Those required by contract, or those shown on the Declarations page, whichever is less. IRMI wwmi 14 13

14 Industry Perspectives Contract determines the scope of indemnity and additional insured coverage. The indemnity obligation and additional insured coverage are not separate and independent of each other. IRMI wwmi 15 Lessons Learned and Advice Understand parties intentions prior to entering into a contractual indemnity agreement. Contractual indemnity agreements and additional insured endorsements should reflect the same scope of coverage. Contractual indemnity agreements must expressly limit extension of additional insured coverage to be no broader than the named insured s indemnity obligations. Policies must expressly limit AI coverage to only that limited extent required in a contractual indemnity agreement. Choice of law: avoidance of anti-indemnity statutes. IRMI wwmi 16 14

15 Questions IRMI wwmi 17 Thank You! Tracy Alan Saxe Saxe Doernberger & Vita, P.C. (203) Robert Cunningham Roach & Newton, LLP (713) William Lee Marsh USA Inc. (713) Erik Davis R-T Specialty (818) IRMI wwmi 18 15

16 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 16