Court extends indemnity in the BP-Transocean Drilling Contract to include Transocean’s “gross negligence,” but excludes indemnity for civil penalties and punitive damages.

On January 26, 2012, the Court entered its finding(s)

1) That 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 (including OPA and unseaworthiness), negligence, or gross negligence. (The Court said – “As distinguished from a release, a true indemnity agreement determines which party to a contract ultimately bears the risk of injury to a third party.” )

2) BP does not owe Transocean indemnity to the extent Transocean is held liable for punitive damages. (“if Transocean committed gross negligence that caused pollution originating below the surface of the water, public policy would not bar its claim for contractual indemnity from BP. However, this holding is limited to compensatory damages, and does not include any punitive damages which might arise if Transocean is found grossly negligent.”)

3) BP does not owe Transocean indemnity to the extent Transocean is held liable for civil penalties under Section 311(b)(7) of the CWA, 33 U.S.C. § 1321(b)(7). (The court denied indemnity as to civil penalties under the Clean Water Act indicating the civil penalty “has multiple goals including restitution, but the primary objectives are to punish and deter future pollution.”)

The Court reasoned that the contract’s catch-all indemnity clause, including reference to “gross” negligence”, meant that the parties agreed grossly negligent conduct by Transocean would be allocated to BP for pollution originating below the surface of the water.

– “Order and Reasons” link is:

http://www.laed.uscourts.gov/OilSpill/Orders/012612Order(TransoceanIndemnity).pdf