Commercial litigation update: Fifth Circuit asks Texas Supreme Court whether insurance policy must be construed in favor of a “sophisticated insured”

by John Chapman

In one of the many disputes arising from the explosion and sinking of the Deepwater Horizon, the federal Fifth Circuit Court of Appeals has recently certified a question to the Texas Supreme Court that could potentially impact a broad range of commercial insurance disputes. The case involves whether Transocean’s primary and excess-liability insurers are obligated to cover BP’s pollution-related liabilities deriving from the oil spill in the Gulf of Mexico. The certified question concerns how courts should interpret insurance policies when the parties involved are all “sophisticated.”

Transocean owned the Deepwater Horizon offshore drilling unit. In April 2010, the Deepwater Horizon sank into the Gulf of Mexico after burning for two days following an onboard explosion. At the time of the incident, the Deepwater Horizon was engaged in exploratory drilling activities under a contract between BP and Transocean. The contract required Transocean to maintain certain minimum insurance coverage for the benefit of BP. The contract obligated Transocean to “maintain insurance covering the operations to be performed under” the contract and stated that BP “shall be named as additional insureds in each of [Transocean’s] policies.”

Following the Incident, BP notified the Insurers of its Deepwater Horizon related losses. The insurers obtained a declaratory judgment that BPs pollution-related liabilities were not covered. BP appealed and the Fifth Circuit reversed and ruled BP’s favor. In re Deepwater Horizon, 710 F.3d 338 (5th Cir. 2013). However, the Fifth Circuit has now withdrawn that opinion and instead certified questions in the case to the Texas Supreme Court. In re Deepwater Horizon, No. 12-30230 (August 29, 2013).

According to the Fifth Circuit, the case turns on in part on whether Texas recognizes a “sophisticated insured” exception to the general rule that if an insurance coverage provision is susceptible to more than one reasonable interpretation, the court must interpret that provision in favor of the insured, so long as that interpretation is reasonable. The court noted that “such an exception may be deemed appropriate in a case like this, where all the parties involved are highly capable contractors” because “Texas has long recognized its rules regarding interpretation of insurance coverage clauses are partially derivative of the unequal bargaining power typical in many negotiations over insurance contracts.” If the Texas Supreme Court addresses this question, it could have far ranging consequences as many commercial; insurance policy disputes arguably involve a “sophisticated insured.”

Commercial Litigation at Heygood, Orr & Pearson

At Heygood, Orr & Pearson, our attorneys have handled hundreds of commercial litigation cases ranging in value from tens of thousands of dollars to tens of millions. We have successfully represented businesses of all sizes, from small “mom and pop” businesses to some of the largest corporations in the world.

Whether we are representing a huge, multi-national corporation or a small local business, we understand that clients want their legal representation to be not only excellent but cost-effective and efficient. For that reason, we will often offer our clients flexible fee structures such as contingent fees, flat fees, reduced hourly fees with a bonus payment contingent on success and reverse contingent fees.

At Heygood, Orr & Pearson, our success stems from the fact that our attorneys are trial attorneys in the truest sense and have tried hundreds of cases to verdict. Among our team are numerous attorneys who are board certified* and who have been voted by their peers as Super Lawyers in the state of Texas for several years in a row.** Our firm is AV-rated, the highest legal and ethical rating available from the leading law firm rating service.

As a result of their experience, expertise and trial ability, our attorneys have obtained dozens of significant commercial verdicts and settlements for our commercial clients. Among the more notable are the following:

  • Obtained an $18 million verdict in favor of a European entrepreneur in a lawsuit against a subsidiary of a Fortune 500 company involving the sale and distribution of computer products in Europe.
  • Successfully defended an international businessman in a $200 million fraud and breach of contract case arising out of the discovery of the world’s largest nickel deposit in Labrador.
  • Obtained a $16 million settlement on behalf of a Fortune 500 company involved in a construction dispute relating to a parking garage.

Regardless of the type of claim, the size of the client or the complexity of the dispute, Heygood, Orr & Pearson has the legal ability, financial wherewithal and level of commitment necessary to successfully represent the interests of any commercial client. If you or your company is in need of representation in a commercial dispute, contact us for a free consultation by calling toll-free at 1-877-446-9001, or by filling out our free case evaluation form located on this page.


Michael Heygood, James Craig Orr, Jr. and Eric Pearson are all Board Certified in Personal Injury Trial Law — Texas Board of Legal Specialization.

** Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2013.

by John Chapman

John Chapman is a licensed attorney with experience in complex commercial litigation (including securities fraud, RICO, shareholder oppression, and derivative actions) and personal injury litigation.