Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLPHow often do you review both the additional insured language in the contract and the insurance policy provided by a subcontractor?  My guess is, unless the project has gone off the rails, NEVER.  Well, perhaps you should to make absolutely sure the extent of the subcontractor’s insurance obligations and whether those obligations are being fulfilled.

This point was recently addressed in a recent DRI article analyzing the Deepwater Horizon/BP lawsuit.  My partner, Anne Marie O’Brien, also blogged on this a few months ago.

As you will recall, Transocean’s Deepwater Horizon oil-drilling rig exploded, killing 11 workers, and polluted the Gulf of Mexico.  BP demanded that Transocean’s insurer pay for the loss.  Transocean’s insurer said no, and the litigation ensued, in state court, federal court, and the Texas Supreme Court.  It was quite an odyssey of litigation.

The Contract

Under the contract between BP and Transocean, Transocean was required to name BP as an additional insured in each of Transocean’s insurance policies for liabilities assumed by Transocean under the terms of the drilling contract.  This meant that BP’s additional insured status was limited to the liabilities assumed by Transocean.  Importantly, Transocean’s liabilities were limited to above surface pollution, not subsurface pollution.

The Insurance Policy

Transocean’s insurance policies required the insurance company to pay for Transocean’s losses imposed by law or contract.  In essence, if Transocean assumed liability under the contract with BP, Transocean’s insurer had to pay for the damage.

The Claim

BP wanted Transocean to pay for the underwater pollution.  But, as noted above, Transocean only assumed liability for pollution above the water.

The Outcome

Because BP’s claim was for coverage of underwater pollution, Transocean’s insurer did not have to pay.  Transocean only agreed to cover above surface pollution.

The Takeaway

You need to understand the liabilities you are asking the subcontractor to assume and you need to make sure that the insurance coverage the subcontractor has obtained will cover the assumption of those liabilities.  In sum, read the contract, read the insurance policy, or find an experienced construction attorney that can.