Texas Supreme Court Holds Anadarko May Be Able to Recover Substantial Deepwater Horizon Defense Costs from Insurers

Posted

On January 25, the Texas Supreme Court issued a unanimous ruling in the case of Anadarko Petroleum Corp. and Anadarko E&P Co. v. Houston Cas. Co., et al., characterized as an “interlocutory permissive appeal,” reversing the decision of the U.S. Court of Appeals for the Ninth Circuit, sitting in Beaumont, TX, regarding Anadarko’s insurers’ obligation to pay a significant amount of Anadarko’s legal defense costs that resulted from its liability in the Deepwater Horizon oil spill.

“[W]e hold that the Joint Venture Provision does not limit the Underwriters’ liability for Anadarko’s defense expenses insured under section III.”

The insurers argued that, under an Endorsement in their policy with Anadarko, they were not required to reimburse the company for more than $37.5M of its defense costs. Anadarko was a minority partner with BP in the Deepwater joint venture.

After the catastrophic oil spill, the Louisiana federal multi-district litigation (MDL) court held that BP and Anadarko were jointly and severally liable under the Oil Pollution Act for claims and damages resulting from the spill. Anadarko agreed to transfer its ownership interest to BP, and paid BP $4B to do so. In return, BP agreed to release and indemnify Anadarko from any claims it had against Anadarko. The United States then agreed not to pursue any claims it had against Anadarko.

Before the spill, Anadarko had purchased this “energy package” insurance policy from the Lloyds London market, and it was this policy which Anadarko argued required the insurers to reimburse a large portion of its Deepwater Horizon defense costs, which the Court notes may exceed $100 million. In any event, the Court concludes, after reviewing these insurance agreements, that the joint venture provision relied on by the insurers to limit their exposure does not in fact do so. However, the actual amount of these recoverable expenses must be determined by the lower courts.

Contact Information