Insurers reject BP claim on Transocean excess cover

A group of insurers, including 38 Lloyd’s syndicates, has filed a lawsuit in Texas aimed at preventing oil firm BP from claiming on excess liability coverage in relation to the destruction of the Deepwater Horizon rig in the Gulf of Mexico.

The group, which also includes Axis Specialty Europe and Arch Insurance Company (Europe), as well as a raft of US carriers, provided $700m (£482.2m) of excess liability coverage to offshore drilling company Transocean, which operated the rig under licence to BP.

The lawsuit, which was filed on 21 May in the US southern district court of Texas, Houston division, alleges that BP provided or attempted to provide the insurers notice of a claim by email on 14 May.

The insurers are seeking a judgment declaring that they have “no additional-insured obligation to BP with respect to pollution claims against BP for oil emanating from BP’s well”.

The insurers argue that their policies only cover above-land or water-surface pollution by substances in Transocean’s possession, and therefore the liabilities facing BP are not covered because they result from pollution emanating from BP’s well, which is below the surface. The news came as Lloyd’s released its initial loss estimate for the Deepwater Horizon incident at $300m to $600m (£207.3m to £414.6m). Lloyd’s said that the oil rig loss, coupled with the $1.4bn hit it expects to take from the Chilean earthquake, would have a “negligible impact” on its capital, and the Lloyd’s central fund was not exposed.

Several Lloyd’s managing agents have released loss estimates for the Deepwater Horizon loss. Catlin expects to take a $40m hit, Chaucer $25m, Beazley $6m, Omega $5.6m and Hiscox less than £10m.