New Orleans, La. (August 28, 2020) - The U.S. District Court for the Eastern District of Louisiana recently issued judgment in a BP Oil Spill-related suit that may impact claims for additional insured status arising from contractual agreements, and establishes bases for denial of defense and indemnity due to late notice/prejudice and violation of contract requirements. (E.D. La. Suit No. 2:19-cv-01418, Rec. Doc. 65-1 - Order and Reasons (Revised) and Rec. Doc. 67 - Judgment).
This case arises in the context of the BP Oil Spill multi-district litigation (MDL) (MDL No. 10-md-2179), and specifically, the Medical Benefits Class Action Settlement Agreement (MSA), as amended May 1, 2012, which carved out certain claims for bodily injury relating to clean-up work. (10-md-2179, Rec. Doc. 6427). The MSA allowed clean-up workers with then-existing claims to opt out of the Settlement in favor of litigation. The MSA also specifically allowed Back-End Litigation Option (BELO) lawsuits for Later Manifested Physical Conditions, as defined by the MSA, sustained by clean-up workers and diagnosed after April 16, 2012. The terms of the MSA required BP's waiver of certain defenses to the BELO suits.
In this matter, BP sought contractual defense, indemnity, and insurance coverage as an additional insured from O'Brien's Response Management LLC (O'Brien's), one of its clean-up contractors, for over 2,000 of these bodily injury claims. O'Brien's instituted a declaratory judgment action against BP in the MDL, asserting that it was prejudiced by BP's entry to the MSA without its prior consent and by the extended delay between confecting the MSA and BP's tender to O'Brien's of any clean-up-related suits. The court found BP first tendered a BELO suit to O'Brien's in March 2017. Two years later, in March 2019, it tendered the first suit by a claimant who had opted out of the MSA.
In turn, BP asserted that O'Brien's was in breach of its contract by refusing to indemnify BP and by failing to name it as an additional insured on “all” of its insurance policies, specifically its excess policies. Both parties moved the court for judgment on the pleadings.
On May 12, 2020, the Eastern District of Louisiana entered judgment in favor of O'Brien's and dismissed BP's claims. (19-cv-1481, Rec. Docs. 64, 65-1 & 67). The Court found that BP breached two duties of the O'Brien's-BP contract: (1) a duty of prompt-notice, requiring BP to “promptly” notify O'Brien's in writing of such claims for indemnity, and (2) a duty of consent-to-settlement, requiring BP to obtain O'Brien's written consent prior to the settlement of any claims for which it sought indemnity. The court agreed with O'Brien's that BP's unilateral waiver of certain defenses within the MSA prejudiced O'Brien's. It also found that BP's delay of over six years before tendering any opt-out suits caused actual prejudice to O'Brien's ability to participate in and defend these claims, thus voiding the contractual defense and indemnity obligations.
Additionally, the court rejected BP's claim that O'Brien's was in breach for failure to name BP on certain excess insurance policies maintained by O'Brien's. The insurance provisions provided specific types of coverage required and minimum limits of liability of each. Section 12.02 then noted: “Except for [coverage] set forth in Section 12.01.01, all policies shall name the Company Group [BP] as additional insureds. In addition, all of the policies listed above, without exception, shall be endorsed to waive subrogation…”
BP argued that it was/should be an additional insured on two excess policies of O'Brien's, both with limits over those expressly stated in Section 12.01. Because the excess policies had denied BP's claims, BP asserted that O'Brien's was in breach.
The court reasoned that whether BP was an additional insured under the particular policy language turned on what coverage O'Brien's was “obligated” to provide under the contract. The court disagreed with BP's interpretation of Section 12.02 concerning “all policies.” It relied in particular on the Fifth Circuit's opinion in Ironshore Ins. Co. v. Aspen Underwriting, Ltd., 788 F.3d 456 (5th Cir. 2015) to find that “all” referenced only the foregoing-described types of coverage. This was supported by the remainder of Section 12.02 that referenced those policies in the preceding section. As O'Brien's obtained coverage in the limits expressly required by the contract, the court found that O'Brien's had fulfilled its contractual obligations.
The court also concluded that BP's claim for breach of contract was untimely under Texas' four-year statute of limitations on contract claims, noting that the claim as to coverage would have accrued “in 2010 at the latest,” thus requiring suit by 2014.
BP recently appealed this Judgment to the Fifth Circuit. (See U.S.C.A. Case No. 20-30364.)
Originally published by Lewis Brisbois, August 2020
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