Halliburton Energy Services will plead guilty for destroyingevidence related to BP's 2010 oil spill in the Gulf of Mexico, inwhich Halliburton acted as the cement contractor on the explodeddrilling rig that caused the disaster.

Although the case brought against the company shows that itthoroughly tested the Macondo oil wells' safety capabilities, an insurance expertsays Halliburton's decision to meddle with its evidence may causeliability fallout that will be difficult to control.

“Halliburton is publicly traded. As a publicly traded company,any D&O coverage for the entity only extends to SecuritiesClaims,” says Monica M. Minkel, senior vice president of ExecutiveProtection at Colorado-based Poms & Associates InsuranceBrokers, Inc. “There would be no coverage under the entity portionof the D&O contract for fines, penalties or even defense coststhat are tied to the entity itself.”

After the U.S.Department of Justice provided evidence for a misdemeanorarraignment brought against Halliburton last Wednesday, the companyagreed to pay a statutory maximum fine of $200,000, cooperate withthe government's ongoing criminal investigation of the case, and beon probation for three years. The federal hearing will be held onSep. 19.

“Criminal acts and intentional wrongdoing are effectivelyuninsurable issues,” Minkel says. “D&O insurance is there toprotect innocent directors and officers who have acted in goodfaith on behalf of the company.”

Halliburton conducted its own review of the design andconstruction of the Macondo well site following the explosion thatkilled 11 workers and spilled 4.9 million barrels of oil into theGulf Coast. According to the U.S. Department of Justice, in May2010, Halliburton's cementing technology director directed a seniorprogram manager to run a “Displace 3D” simulation to model fluidinterfaces and their movement through a well.

The simulations were meant to find out how manycentralizers—metal collars that keep heavy metal casing pipes awayfrom the walls of an oil well as they are placed inside it, andcontribute to the quality of the cement around the bottom of thecasing—should have been used. Halliburton had recommended that BPuse 21 centralizers inside the Macondo well. Instead, only sixcentralizers were used.

Although Halliburton's simulations indicated that there waslittle difference between using six and 21 centralizers, thetechnology program manager directed the program manager to get ridof the test results. The same test was run by another employee inJune 2010 with similar results, and again the technology directorordered the evidence destroyed.

Minkel says that a D&O policy commonly has 'personalconduct' exclusions, which prevent coverage from applying in theevent of deliberate fraud.

“Good policy language has personal conduct exclusions that willdefend innocent directors and officers up through a finaladjudication of the litigation,” says Minkel. “A guilty pleagenerally is going to be considered final adjudication. What thismeans is that even if the policy began defending the individualdirectors and officers, the policy would stop defending upon theguilty ruling and would have the right to subrogate back againstthe parties and recover the defense costs that were outlaid.”

She says that even if coverage had applied, fines are generallynot insurable, so D&O insurance would not have paid any portionof the $200,000 fine.

The Department of Justice's case against Halliburton is part ofan ongoing investigation by the New Orleans-based Deepwater HorizonTask Force into matters related to the April 2010 Gulf oilspill. Halliburton made a separate, voluntary contribution of$55 million to the National Fish and Wildlife Foundation that wasnot conditioned on the court's acceptance of its pleaagreement.