BARBIER, District Judge.
Before the Court are Transocean's Motion for Partial Summary Judgment (Rec. Doc. 4477) and BP's
This Multi-district Litigation ("MDL") arises from the April 20, 2010 explosion
Two member cases provide the context for the instant Motions. The first, In re Triton Asset Leasing GmbH, et al., No. 10-2771 (the "Limitation Action"), was instituted by Transocean, as owner of the DEEPWATER HORIZON, pursuant to the Limitation of Shipowners' Liability Act, 46 U.S.C. § 30501, et seq.; Fed. R.Civ.P. Supp. R.F. Numerous claims were asserted in the Limitation Action against Transocean for personal injury, wrongful death, economic loss, property damage, etc. Transocean, in turn, impleaded BP (and other parties not relevant here) under Fed.R.Civ.P. 14(c), tendering BP to the claimants and demanding judgment in the claimants' favor. (Rec. Doc. 1320). BP and Transocean then crossclaimed against one another, each seeking contribution, indemnity, and affirmative damages from the other for certain liabilities resulting from the casualty. (Rec. Docs.2068, 2074).
In the second case, United States v. BP Exploration & Prod. Inc., et al., No. 10-4536 (the "United States' Action"), the United States asserted claims for civil penalties under Section 311(b)(7) of the Clean Water Act ("CWA"), 33 U.S.C. § 1321(b)(7), and a declaration of liability for removal costs and damages under the Oil Pollution Act of 1990 ("OPA"), 33 U.S.C. § 2701, et seq. BP and Transocean were named as defendants (along with other parties not relevant here), who crossclaimed against each other, similar to what occurred in the Limitation Action. (Rec. Docs.2075, 2574).
Transocean's Motion for Partial Summary Judgment asserts that the contract between BP and Transocean ("the Drilling Contract") requires BP to defend and indemnify Transocean from claims and liabilities
BP filed a Cross-Motion for Partial Summary Judgment on this issue. BP does not contest that the Drilling Contract requires BP to indemnify Transocean for some claims, but disputes the scope of indemnity. BP admits that the contract requires it to indemnify Transocean for pollution claims arising from Transocean's "fault or negligence," but denies that it owes indemnity for claims based on strict liability — such as a claim for unseaworthiness or under OPA or the CWA — or where Transocean acted with gross negligence. Furthermore, and in any respect, BP argues that even if Transocean's interpretation of the contract is correct, public policy prohibits and invalidates a contractual indemnity that purports to include gross negligence, punitive damages, or CWA civil penalties.
Finally, the parties dispute the extent of BP's obligations under the contractual duty to defend.
Summary judgment is appropriate when "the movant shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). "A party asserting that a fact cannot be ... genuinely disputed must support the assertion by[] citing to particular parts of material in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answer, or other materials...." Fed.R.Civ.P. 56(c)(1). When assessing whether a dispute as to any material fact exists, the Court considers "all of the evidence in the record but refrains from making credibility determinations or weighing the evidence." Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but a party cannot defeat summary judgment with conclusory allegations or unsubstantiated assertions. Little, 37 F.3d at 1075. A court ultimately must be satisfied that "a reasonable jury could not return a verdict for the nonmoving party." Delta, 530 F.3d at 399.
If the dispositive issue is one that the moving party will bear the burden of proof at trial, the moving party "must come forward with evidence which would `entitle it to a directed verdict if the evidence went uncontroverted at trial.'" Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263-64 (5th Cir.1991) (citation omitted). The nonmoving party can then defeat the motion by either countering with sufficient evidence of its own, or "showing that the moving party's evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party." Id. at 1265.
If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record is insufficient with respect to an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See id. at 324, 106 S.Ct. 2548. The nonmovant may not rest upon the pleadings, but must identify specific facts that establish a genuine issue for trial. See, e.g., id. at 325, 106 S.Ct. 2548; Little, 37 F.3d at 1075.
Interpretation of the terms of a contract is a matter of law, Weathersby v. Conoco Oil Co., 752 F.2d 953, 956 (5th Cir.1984), and "[t]he determination as to whether defense or indemnification is due must be made at the outset of the litigation by reference solely to the relevant pleadings and pertinent contractual provisions." In re TT Boat Corp., Nos. 98-0494, 98-1109, 1999 WL 1442054 at *6 (E.D.La. Sept. 8, 1999) (citations and quotations omitted); In re Torch, Inc., No. 94-2300, 95-1982, 1996 WL 185765 *9 (E.D.La. April 16, 1996) (citations and quotations omitted). Accordingly, at this time
The parties agree that maritime law governs the Drilling Contract. Under maritime law, "an indemnity agreement... should be read as a whole and its words given their plain meaning unless the provision is ambiguous. Disagreement as to the meaning of a contract does not make it ambiguous, nor does uncertainty or lack of clarity in the language chosen by the parties." Breaux v. Halliburton Energy Servs., 562 F.3d 358, 364 (5th Cir.2009) (citations and quotations omitted). Furthermore,
Corbitt v. Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. Unit A 1981) (citations omitted).
In 1998, predecessors to BP and Transocean entered into the Drilling Contract, wherein Transocean agreed to build a MODU — what would become the DEEPWATER HORIZON — which BP agreed to hire in order to conduct drilling activities on the outer continental shelf. As frequently occurs in this context,
Generally speaking, Article 24.1 allocated to Transocean the risk associated with pollution "originating on or above the surface of the ... water." Article 24.2 allocated to BP the pollution risk "not assumed by" Transocean; i.e, pollution originating beneath the water's surface. Per the Drilling Contract (bold and italics added):
As mentioned, Article 25.1 then broadly defines the scope of indemnity, which applies to the other indemnity clauses whenever the phrase "shall protect, release, defend, indemnify and hold harmless" appears, "except to the extent any such obligation is specifically limited to certain causes":
Although Article 24.2 contains the "shall protect, ..." language that triggers Article 25. 1, BP's contention is that the last clause in Article 24.2 ("specifically without regard for whether the pollution or contamination is caused in whole or in part by the negligence or fault of [Transocean]") limited its indemnity obligation to instances where subsurface pollution is caused by Transocean's "negligence or fault;" i.e., Transocean's ordinary negligence. According to BP, the inclusion of "negligence or fault" in Article 24.2 excludes from the indemnity losses resulting from other causes, such as gross negligence and strict liability. BP characterizes Article 25.1 as a "fallback" definition, which applies "
Transocean argues that Article 25.1's broad indemnity coverage applies to Article 24.2, because Article 24.1 did not "specifically limit[]" indemnity coverage to certain causes after it used the phrase "shall protect,...." Transocean contends that the Drilling Contract made it clear when the indemnity obligation was specifically limited to certain causes, such as in Articles 22.3 and 23.1 (bold and italics added):
After considering the language of the contract and the applicable law, the Court finds that Article 24.2 does not specifically limit the application of Article 25.1. Article 25.1 establishes a rule for interpreting the other indemnity Articles: where the phrase "shall protect, release, defend, indemnify and hold harmless" appears, Article 25.1 applies, "
The Court interprets Article 24.2's phrase, "without regard for the negligence of any parties and specifically without regard for whether the pollution or contamination is caused in whole or in part by the negligence or fault of [Transocean]," as merely emphasizing that BP assumed the risk of subsurface pollution, even if said pollution was caused by Transocean's negligent conduct. However, this language does not reflect an intent to "specifically limit[]" Article 25.1's application, and thus is not interpreted as excluding gross negligence, strict liability, or other causes or damages listed in Article 25.1. This interpretation is consistent with Article 24.2's requirement that BP will assume "
Absent language that specifically limited Article 25. 1, it "reasonably appear[s] to have been within the contemplation of the parties," or, it can be "reasonably inferred that the parties intended," that Article 25.1 would be fully incorporated into Article 24.2. Corbitt, 654 F.2d at 333. Notwithstanding this interpretation, however, Transocean is not legally entitled to indemnity for the full range of liabilities listed in Article 25. 1, as explained below.
Article 25.1 expressly requires indemnification for liabilities caused by the indemnitee's
Nevertheless, BP argues that an indemnity clause purporting to include gross negligence is void as against public policy.
At the outset, it is noted that terminology can cloud this issue. For example, courts and contracts sometimes broadly use the term "indemnity" to refer to a contract whereby one party agrees in advance to release the other contracting party from liability in the event the former party is damaged. Though other names are applicable,
As to the issue of whether public policy prohibits a party from being indemnified for its own gross negligence, the parties have not cited to, and the Court has not found, a controlling case. Admittedly, Becker v. Tidewater, Inc., 586 F.3d 358, 367 (5th Cir.2009), contains language that could easily be understood as establishing a prohibition against indemnification for gross negligence. There the Fifth Circuit stated:
Id. at 367 (emphasis added). In that case, Tidewater sought contractual indemnity from Baker for the personal injury claims of Seth Becker. Baker sought to defeat the indemnity claim on the grounds that Tidewater was grossly negligent. The court held Tidewater was not grossly negligent and enforced the indemnity.
However, it appears that gross negligence was at issue in Becker simply because the indemnity clause did not purport to include gross negligence. The indemnity clause stated:
Pre-Becker decisions from this Court have held that indemnification will not extend to gross negligence if gross negligence is not expressly included in the agreement. See In re TT Boat Corp., Nos. 98-0494, 98-1109, 1999 WL 1442054 at *6 (E.D.La. Sept. 8, 1999); In re Torch, Inc., Nos. 94-2300, 95-1982, 1996 WL 185765 at *9 (E.D.La. April 16, 1996). The appellate briefs reflect that the court adopted this reasoning during an earlier appeal when it concluded that Baker's indemnity obligation did not extend to gross negligence.
Becker's citation to Houston Exploration Co. v. Halliburton Energy Servs., Inc., 269 F.3d 528, 531 (5th Cir.2001), with the explanatory parenthetical, "noting that a waiver of liability for gross negligence is void," causes pause, since a citation to previous authority might suggest a legal prohibition against indemnification for gross negligence. However, Houston Exploration did not concern a true indemnity claim; rather, it involved a contractual "release" from liability for damage suffered by the other party to the contract. Along these lines, when the Houston Exploration court stated, "Any waiver of liability for intentional misconduct or gross negligence... is void," it cited Louisiana Civil Code Article 2004 and a Louisiana case. Id. at
In Todd Shipyards Corp. v. Turbine Service, Inc., the Fifth Circuit stated, "Gross negligence, which will invalidate an exemption from liability has been defined as `... harm wilfully inflicted or caused by gross or wanton negligence.'" 674 F.2d 401, 411 (5th Cir.1982) (citing 6A Corbin on Contracts § 1472 (1964)). Similar to Houston Exploration, however, Todd Shipyards dealt with a release found in a ship repair contract between a vessel owner and a shipyard, not a true indemnity. See also Royal Ins. Co. of Am. v. Southwest Marine, 194 F.3d 1009, 1016 (9th Cir.1999) (holding a release is invalid as to gross negligence, reckless conduct, and intentional acts); La Esperanza de P.R., Inc. v. Perez y Cia. de Puerto Rico, Inc., 124 F.3d 10, 19 (1st Cir.1997) (same); Energy XXI, GoM, LLC v. New Tech Eng'g, 787 F.Supp.2d 590, 611 (S.D.Tex.2011) (same).
Because public policy was not at issue in Becker, and because Houston Exploration and Todd Shipyards concerned releases, not indemnities, this Court is free to decide this question.
This issue creates tension between two policies: freedom of contract, which weighs in favor of enforcing the indemnity, and a reluctance to encourage grossly negligent behavior, which weighs against enforcing the indemnity. See, e.g., La Esperanza, 124 F.3d at 19 (discussing these policy issues in the context of a release). The general rule is that competent persons have the utmost liberty of contracting, and therefore agreements voluntarily and fairly made are upheld. Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353, 356, 51 S.Ct. 476, 75 L.Ed. 1112 (1931). Although a contract can be invalidated on the grounds that it violates public policy, courts are instructed to apply this principle with caution and only in cases plainly within the reasons on which that doctrine rests, because the phrase "public policy" can be vague and variable. Id.
As to the argument that contractual indemnity for gross negligence contravenes public policy, it is significant that the Drilling Contract allocated risk to both Transocean and BP, not just BP. For example, Transocean admits that it bears liability for the deaths and injuries to its crew members and the loss of its equipment (namely, the DEEPWATER HORIZON) under Articles 21.1 and 22.2. (Transocean's Reply Br. to BP p. 7, Rec. Doc. 4867 at 8). With regards to pollution, Transocean assumed responsibility for pollution originating
As to the "freedom of contract" argument, Transocean and BP appear to have held "roughly" equal bargaining power.
Another point to be considered is that this indemnity clause does not leave an injured party without recourse, as would occur in a release. As discussed above, in a release the injured party is uncompensated for its injury (assuming it did not insure itself against the risk), because it has waived its cause of action against the wrongdoer. In an indemnity, the injured third party typically is not restrained from seeking compensation; rather, the source of the compensation is shifted to the indemnitor. Accordingly, the Restatement (Second) of Contracts states, "A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy," but then explains, "The rule stated in this Section does not apply to an agreement by a third person to indemnify a party against liability in tort." Restatement (Second) of Contracts § 195(1), cmt. (b) (updated 2011). Another treatise explains:
8 Richard A. Lord, Williston on Contracts § 19:20 (4th ed. updated 2011) (footnote omitted, emphasis added). Relying on this distinction, some non-maritime courts from other jurisdictions have held that indemnification for gross negligence does not violate public policy. See, e.g. First Jersey Nat'l Bank v. Dome Petroleum Ltd., 723 F.2d 335, 341-42 (3d Cir.1983) (New Jersey law); Austro v. Niagara Mohawk Power Corp., 66 N.Y.2d 674, 496 N.Y.S.2d 410, 487 N.E.2d 267, 267-68 (1985) (New York law).
It is also significant that OPA, the primary federal legislation governing compensatory damages arising from oil pollution, expressly permits contractual indemnity for liability established under that Act, but is silent as to whether or not such indemnity may include gross negligence. See 33 U.S.C. § 2710.
For the above reasons, and in the absence of a binding rule to the contrary, the Court finds that
In Daughdrill v. Ocean Drilling & Exploration, another judge from this court explained that the purpose of punitive damages would be defeated if the burden of such damages were shifted by contractual indemnity:
665 F.Supp. 477, 481-82 (E.D.La.1987) (citation omitted). The Court agrees with this reasoning and holds that Transocean's right to contractual indemnity does not extend to punitive damages.
Similar to the argument regarding punitive damages, the United States and BP contend that contractual indemnity is unenforceable with respect to CWA penalties. Transocean, however, argues that CWA civil penalties are primarily remedial in nature, and therefore a CWA civil penalty may be shifted by contract. Transocean also argues that the CWA expressly allows contractual indemnification, see 33 U.S.C. § 1321(h), and to the extent this statute does not apply, indemnification is allowable under OPA, 33 U.S.C. §§ 2709, 2710.
Section 311(b)(7) of the CWA, 33 U.S.C. § 1321(b)(7), imposes a civil penalty on "[a]ny person who is the owner, operator, or person in charge of any vessel, onshore facility, or offshore facility," from which a "harmful" quantity of oil discharges. Liability is strict, although gross negligence or willful misconduct will increase the
33 U.S.C. § 1321(b)(8).
Legislative history and case law reveal that a Section 311(b)(7) civil penalty has multiple goals, including restitution, but the primary objectives are to punish and deter future pollution. For example, the House Conference Report on OPA (which also amended the CWA) stated, "Civil penalties [under the CWA] should serve primarily as an additional incentive to minimize and eliminate human error and thereby reduce the number and seriousness of oil spills." H.R.Rep. No. 101-653, Sec. 4301, at 52 (1990) (Conf. Rep.), reprinted in 1990 U.S.C.C.A.N. 779, 833. In Tull v. United States, the Supreme Court analogized a civil penalty under Section 309(d) of the CWA, 33 U.S.C. § 1319(d) — which is similar in relevant aspects to Section 311(b)(7) — to punitive damages; i.e., those "remedies intended to punish culpable individuals, as opposed to those intended simply to extract compensation or restore the status quo." 481 U.S. 412, 422 & n. 7, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987) (analyzing whether a claim for CWA penalties implicated the Seventh Amendment). The Court added, "The legislative history of the [CWA] reveals that Congress wanted the district court to consider the need for retribution and deterrence, in addition to restitution, when it imposed civil penalties." Id. at 422, 107 S.Ct. 1831; see also Kelly v. EPA, 203 F.3d 519, 523 (7th Cir.2000) (citing Tull, 481 U.S. at 422-23, 107 S.Ct. 1831) ("Civil penalties under the [CWA] are intended to punish culpable individuals and deter future violations, not just to extract compensation or restore the status quo."); Montauk Oil Transp. Corp. v. Tug El Zorro Grande, 54 F.3d 111, 114 (2d Cir.1995) (stating that a penalty under CWA Section 311(b)(6), which is similar in many respects to Section 311(b)(7), "is not predicated upon the cost of removal, but upon the happening of the discharge. The determinative factor ... is the discharge of oil, not its cleanup," indicating that the primary purpose is deterrence); United States v. Atlantic Richfield Co., 429 F.Supp. 830, 837 (E.D.Pa.1977) ("[T]he principal goal of [Section 311](b)(6) is to deter spills.... [T]he Congressional purpose here was to impose a standard of conduct higher than that related just to economic efficiency.... [E]ven where defendants are not at fault, the penalty does not act only as punishment but serves the ends of civil regulation."); cf. United States v. Coastal States Crude Gathering Co., 643 F.2d 1125, 1128 (5th Cir.1981) ("The purpose of [CWA Section 311] is to achieve the result of clean water as well as deter conduct causing spills." (citation and quotations omitted)); United States v. Tex-Tow, Inc., 589 F.2d 1310, 1315 (7th Cir.1978) ("Tex-Tow's claim of irrationality is grounded in the assumption that the purpose of the civil penalty [in Section 311(b)(6)] is to Deter spills.... [However,] the civil penalty
Furthermore, as mentioned above, assessing a CWA penalty requires a Court to consider factors such as the seriousness of the violation, the defendant's culpability, and the economic impact the penalty will have on the defendant. See 33 U.S.C. § 1321(b)(8). Thus, the penalty becomes somewhat "tailored" to the specific defendant and situation; an amount appropriate for one defendant might be ineffective (or grossly excessive) for another. See Tull, 481 U.S. at 422-23, 107 S.Ct. 1831. ("A court [assessing a penalty under Section 309(d)] can require retribution for wrongful conduct based on the seriousness of the violations, the number of prior violations, and the lack of good-faith efforts to comply with the relevant requirements. It may also seek to deter future violations by basing the penalty on its economic impact." (citations omitted)). This feature would be undermined if a penalty tailored to discharger X is contractually shifted to Y. In such an instance, X, who may be culpable, avoids punishment (and by extension, is not deterred), while Y, who may be innocent of misconduct, is liable for a penalty that may be totally unsuited to it.
Transocean contends that Section 311(h), 33 U.S.C. § 1321(h), authorizes contractual indemnity for a CWA civil penalty. That Section provides:
However, the Court interprets Section 311(h) as providing a right to equitable (as opposed to contractual) indemnity or contribution, given that it refers to rights against "any third party whose
Transocean also points to a note in the CWA that states, "Subsections (f), (g), (
For these reasons, the Court holds that public policy invalidates the Drilling Contract's indemnity clause to the extent it includes civil penalties under Section 311(b)(7) of the CWA.
BP also argues that Transocean breached the Drilling Contract and/or acted in a way that materially increased BP's risk as indemnitor, which voided BP's indemnity obligation. BP contends Transocean "greatly increased the risk of a blowout by numerous acts, including not properly monitoring the well, failing adequately to train its crew, and providing a vessel with poorly maintained equipment." (BP Memo in Opp'n, p. 14, Rec. Doc. 4826 at 26).
It appears that breach of a contract can, in some circumstances, invalidate an indemnity clause. For example, in a case that applied New York law, the Fifth Circuit explained that where there is a breach of contract, the entire contract becomes void for mutuality: "[the indemnitee] would have no obligations under the contract; it could breach the contract in any way and to any extent and [the indemnitor] would be liable to itself! This interpretation would be ridiculous." Mobil Chem. Co. v. Blount Bros. Corp., 809 F.2d 1175, 1182 (5th Cir.1987); see also Marquette Transp. Co. v. La. Mach. Co., 367 F.3d 398, 408 (5th Cir.2004) ("If [the indemnitee] had been found to be in breach of [its warranty duties under the contract], perhaps our application of the indemnity clause would be different."). It has also been stated that "an act on the part of an indemnitee which materially increases the risk or prejudices the right of the indemnitor will discharge the indemnitor to the
Article 25.1 of the Drilling Contract, which is incorporated into Article 24.2, required BP to indemnify Transocean, "without regard to the cause or causes thereof, including ... breach of representation or warranty [or] ... breach of contract...." It does not appear that the cases cited above had to consider such language. Perhaps it is possible that a breach of a fundamental, core obligation of the contract could invalidate this indemnity clause, but it is speculative to discuss at this stage what sort of breach would cause that result, or whether such a breach occurred. BP's arguments appear doubtful at this stage, but the Court cannot resolve these issues here. See In re Torch, Inc., 1996 WL 185765 at *10 ("Torch argues TEPI breached their contract [which voids the indemnity agreement].... Whether these duties exist; whether they have been breached; and whether such a [breach] would have an effect on the duty to indemnify present questions of fact which preclude summary judgment.").
Transocean also requests that BP be required to reimburse Transocean's attorneys' fees, costs, and expenses incurred in (1) defending environmental claims for which BP is contractually obligated and (2) enforcing its right to indemnity from BP. It argues that when the allegations of a complaint reflect that at least some of the claims will fall within the scope of the duty to defend, the duty to defend arises, and this duty is independent of and broader than the duty to indemnify. BP counters that its duty to defend is co-extensive with the duty to indemnify and only requires BP to reimburse Transocean if it is found entitled to indemnification at the conclusion of trial.
Transocean's second request is considered first. Parties can expressly agree that the expense of proving indemnification is within the scope of indemnity, see Peter Fabrics, Inc. v. S.S. Hermes, 765 F.2d 306, 316 (2d Cir.1985) (citing E.C. Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1037 (5th Cir.1977)); however, "[u]nder a general indemnity agreement..., the indemnitee enjoys no right to recover its legal fees incurred in establishing its right to indemnification," Weathersby v. Conoco Oil Co., 752 F.2d 953, 959 (5th Cir.1984) (per curiam) (citations and quotations omitted); see also Tullos v. Cal Dive Int'l, 188 F.Supp.2d 709, 714 (S.D.Tex.2002); 41 Am.Jur.2d Indemnity § 30 (2011 update). The indemnity clause in Weathersby stated:
Weathersby, 752 F.2d at 954-55 (emphasis added). The court held this language did not entitle the indemnitee to recover the expense of proving its right to indemnification. Similarly, the Second Circuit held that the phrase "including but not limited to cost of suit and attorneys' fees," does not include the cost of establishing the right to indemnity. Peter Fabrics, Inc., 765 F.2d at 316 (2d Cir.1985) ("[T]hese words are more naturally construed as referring to legal expenses incurred in defending against the primary claim.").
Article 25.1 of the Drilling Contract states, in pertinent part:
This language is similar to that considered in Weathersby and Peter Fabrics. Accordingly, Transocean cannot recover the attorney's fees, costs, and expenses it incurred to establish its right to indemnification from BP.
As to Transocean's first request, the issue is whether the Drilling Contract requires BP, at the start of the litigation process, to assume the cost of Transocean's defense against pollution claims when it is possible that some or all of the claims will fall outside indemnity (e.g., the United States' claim for CWA penalties). There appear to be no maritime cases directly addressing this issue.
Although insurance contracts are a type of indemnity contract, they are governed by different rules. See Castleberry v. Goldome Credit Corp., 418 F.3d 1267, 1273 (11th Cir.2005); Meloy, 504 So.2d at 839 & n. 10. The purpose of an insurance contract is to distribute risk of loss across a large group. Castleberry, 418 F.3d at 1272. These contracts are usually not negotiated, thus any ambiguities are construed in favor of the insured. Id. By contrast, an indemnity clause contained in a non-insurance contract is construed against coverage, because the agreement creates duties that differs or extends beyond those established by general principles of law. Castleberry, 418 F.3d at 1272. Such clauses are typically collateral or incidental to a contract that has a principal purpose other than risk shifting. Id. In light of these differences, the Court does not automatically apply insurance rules to the duty to defend in the Drilling Contract.
While a contract certainly could express that the duty to defend is broader than indemnity, such intent is not expressed here. Article 25.1 lists the duty to defend in the same sentence as the duty to indemnify. This reflects that the duties to defend and indemnify are to be treated identically. Because these duties are co-extensive, and the extent to which Transocean is owed indemnity is not entirely clear at the moment, the scope of the duty to defend also cannot be determined now. Accordingly, BP's duty to defend only requires it to reimburse Transocean's defense costs after there has been judicial determination on the merits.
In summary, the Court finds as follows:
Accordingly,