Contract error may cost 750 million

CLM: The Case of the $750 Million Comma. The Commas that Cost Companies Millions

In the annals of contract drafting blinders, 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.

Contract drafting serious mistake

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.

signin and drafting a contract

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.

What was the mistake?

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.

contract drafting process

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.

We need document management software

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

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.

About Parley Pro

Parley Pro helps businesses get more from their contracts by transforming them into strategic, digital assets — giving them the tools to create, negotiate, manage, automate, and optimize contracts to streamline business objectives, maximize revenue and reduce risk.

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