BP obliged to indemnify Transocean on some claims

LONDON (ShareCast) - The dispute between integrated oil giant BP and oilfield services firm Transocean (NYSE: RIG - news) over the Gulf of Mexico oil rig tragedy rumbles on, after a US court ruling on Thursday offered judgements that both sides could claim as supporting their views. Transocean and BP had asked the court to rule on whether BP must defend and indemnify Transocean for pollution claims brought by third parties. As the court itself put it, the motions - one from Transocean, and a counter-motion from BP - were granted in part and denied in part. Transocean's view Transocean's view was that its drilling contract with BP required the UK company to defend and indemnify Transocean from claims and liabilities related to pollution originating below the surface of the water, even if Transocean is strictly liable or the pollution was caused by Transocean's negligence or gross negligence. As such, Transocean argued that the scope of BP's indemnity obligation stretched to compensatory damages, punitive damages and statutory penalties. The US firm did concede, however, that the drilling contract did not provide indemnity in the event of intentional or willful misconduct in excess of gross negligence. BP begs to differ BP did not dispute its obligation to indemnify Transocean for some claims, but the two companies - and their highly paid legal advisors - are disputing which claims should be indemnified solely by BP and which ones should be paid for, in part, by Transocean. BP also asserted that the indemnity clause is void if Transocean breached the drilling contract or materially increased risks to BP. The court decides ... In a 30-page document on the web site of the US District Court of the Eastern District of Louisiana, the ins and outs of both sides' arguments are discussed, but the upshot of the ruling is as follows: BP is required to indemnify Transocean for compensatory damages asserted by third parties against Transocean related to pollution that did not originate on or above the surface of the water, even if the claim is the result of Transocean's strict liability, negligence, or gross negligence. BP does not owe Transocean indemnity to the extent Transocean is held liable for punitive damages or civil penalties relating to the US Clean Water Act. The court deferred on ruling on BP's claims that Transocean breached the drilling contract or committed an act that materially increased BP's risk or prejudiced its rights. It also ruled that BP's duty to defend does not include the expenses Transocean has incurred or will incur in proving its right to indemnity. It also said BP is not obligated to fund Transocean's defence against third party claims at this time. ... and the spinners start spinning With the lawyers having earned a packet arguing the toss over what looks to the layman like sloppy work by another group of lawyers, it was time for the public relations mavens to start earning their corn and spinning the court's judgement. BP released a press statement claiming that the court's ruling makes clear that contractors will be held accountable for their actions under the law. "While all official investigations have concluded that Transocean played a causal role in the accident, the contractor has long contended it is fully indemnified by BP for the liabilities resulting from the oil spill. The Court rejected this view," the BP statement said. BP believes that Transocean is, therefore, at least financially responsible for any punitive damages, fines and penalties flowing from its own conduct, and called on the US company to cough up. Nevertheless, US markets interpreted the ruling as a victory - albeit by "split decision" - for Transocean, with the share rising strngly in after-hours trading. Since the oil spill in the Gulf of Mexico in April 2010, which was caused by a blow-out of the Macondo well, BP has paid more than $7.8bn in claims, advances and other payments to individuals, businesses and governments. The Macondo oil well explosion caused the largest offshore oil spill in US history and claimed the lives of 11 people. jh