The case of the $750 million comma

two businessmen holding a sign protestingIn the annals of contract drafting blunders, one that stands out prominently is the dispute over whether BP Plc was covered by certain insurance policies for the 2010 Deepwater Horizon oil rig disaster. The story illuminates what can go wrong with unstructured contract processes.

After oil had spewed uncontrollably into the Gulf of Mexico for 87 days in the worst offshore spill in U.S. history, seriously damaging coastal businesses, wildlife and the environment, BP naturally felt some desperation to shift potential liability to insurance companies.

BP hoped it would be covered under insurance issued to the drilling-rig owner, Transocean. Those policies named BP as an “additional insured” entitled to coverage, but there was a complex proviso in which an expected comma was missing — leading to several years of intense litigation over the breadth of coverage.

To make the scope of the exception clause clear, the comma should have appeared after the words “except Workers’ Compensation.” Instead, it read, “as additional insureds in each of [Transocean’s] policies, except Worker’s Compensation for liabilities assumed by [Transocean] under the terms of this Contract.”

Ultimately, BP lost in the Texas Supreme Court, and the insurance company avoided a possible $750 million payout.

But both sides paid heavily for the contractual ambiguity in terms of business turmoil and legal costs. This cautionary tale highlights the value of following structured and transparent contracting processes for all parties involved.

Was this a case of bad copy and paste? A missed “Track changes” edit? Or simply human error? Without a negotiation audit trail, we can only guess.

Intelligent contract automation not only eliminates guesswork, it reduces manual repetitive busywork across the contracting process that are prone to human errors. Organizations can focus their efforts on quality of content, especially non-standard clauses, and better outcomes with lower risk.

Learn more about the benefits of contract automation.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s