Additional insured provisions are a common risk allocation technique. Unfortunately, they often give rise to litigation over the scope of coverage afforded to the additional insured, and particularly over the role of the underlying contract in determining that scope of coverage. The latest illustration is the Texas Supreme Court’s much anticipated opinion issued on Friday, February 13, in In re Deepwater Horizon, No. 13-0670, ___ S.W.3d ___ (Tex. Feb. 13, 2015). As will be seen, this holding appears to represent a significant expansion of the type of policy language that will be considered sufficient to incorporate limitations on the scope of coverage from an outside contract.

Shortly after the Macondo blowout, BP made a claim as an additional insured seeking full coverage on Transocean’s entire $750 million insurance stack. Given the magnitude of the spill, this claim could seriously deplete coverage for Transocean’s own potential liabilities. Transocean and its insurers naturally contended that the scope of coverage to which BP was entitled was no broader than Transocean’s very limited indemnity obligations and, in particular, did not protect BP for subsurface pollution.

The litigation in federal court illustrates the difficulty courts have in addressing this type of additional insured coverage issue. The federal district court held that BP’s coverage was no broader than Transocean’s indemnity obligations. The Fifth Circuit later reversed that decision (see our earlier post here) and granted BP full access to the policies but—on rehearing—vacated its own decision and certified two questions to the Texas Supreme Court