A consortium of insurance companies indicates its intent to refuse to pay out a multi-million dollar claim by Seattle Tunnel Partners (STP) in respect of repairs to TBM Bertha.
Court papers lodged on August 18 (2015) in the Supreme Court of New York reveal that claims totalling US$89 million have been lodged by STP in respect of damages to its 17.6m diameter TBM. The design-build construction JV of Dragados and Tutor Perini estimates the total cost of repairs, including the excavation of the recovery shaft, will be US$143 million.
Ironically, the latest legal activity comes as STP and its specialist contractor Mamoet complete the hoist of the repaired TBM back into the recovery shaft for testing ahead of a scheduled November restart.
The insurance consortium – which agreed to indemnify STP against damages to its $80 million Hitachi-Zosen machine under a Builder’s Risk Policy – is claiming in the Supreme Court of New York that design flaws to the Japanese-built TBM made it unsuitable for the drive it was being asked to complete, and therefore subject to an exemption clause.
According to its own investigation – carried out by Maidl Tunnel Consultants (MTC) – “the TBM design was ‘under dimensioned’. In other words, the TBM specifications were higher than the loads achieved during the drive, but the operational loads were beyond the design limits for the equipment.”
Papers filed by the insurance consortium state: “MTC concluded that the ‘under dimensioned’ design caused the damage to the TBM. MTC also concluded that the lubrication system for this TBM was not suitable to control pressure and grease loads. According to MTC it is likely the TBM would have eventually failed because of the lubrication system, even if the TBM design was not under dimensioned.”
Following a series of site visits that were facilitated by STP, MTC made the following observations:
The insurers continue: “The Policy clearly and unambiguously stipulates that ‘it shall not indemnify the Insured for ‘Loss of or damage to in respect any item by its own explosion mechanical or electrical breakdown, failure breakage or derangement. This exclusion does not apply to resultant damage to the property.’ Here, the damage to the TBM was caused by its own mechanical or electrical breakdown, failure, breakage or derangement because its design was ‘under dimensioned’ and because its lubrication system was not suitable to control pressure and grease loads. As there is no evidence of resultant damage, the damages being claimed by the defendant [STP] are not within the exception to the Mechanical Breakdown exclusion in the Policy.”
STP has not yet submitted any claim relating to construction of the recovery shaft. However, the insurance consortium has indicated in advance that it will not pay out on this claim either, should one be made. The insurers claim that the cost of constructing the recovery shaft is not covered under Section 2 of the policy because the breakdown of the TBM was of a “mechanical” nature; and not covered under Section 1 because constructing it caused no damage to the permanent and/or temporary works.
The latest round of court action follows STP’s claim for breach of contract after the insurers failed to make any interim damages payments. That action was lodged in Superior Court of the State of Washington in June. According to documentation relating to that case, STP started supplying the insurance consortium in November 2014 with monthly schedules of costs incurred, but that no payments had yet been made.
It's case states: “This incident necessarily resulted in damages not only to the TBM itself, but also to the surrounding Project because of the need to retrieve and repair the TBM. Despite the damage to Bertha occurring over the past eighteen months, Defendant Insurance Companies have failed to indemnify STP for various covered costs associated with the damage to the TBM, including the costs to repair the TBM and other consequential costs associated with the damage to the TBM, thereby forcing STP to invest substantial resources required to effect the necessary repairs so that it can complete the work under its contract with the State of Washington.
“As of the date of this pleading, the Defendant Insurance Companies have not answered STP’s tender or stated their position regarding coverage under the policy at issue. STP has therefore been left with no recourse other than to seek a determination by this Court that STP’s losses are covered by the policy issued by the Defendant Insurance Companies. Additionally, STP seeks damages as a result of the Defendant Insurance Companies’ breach of its obligations under the terms of the Builders’ Risk Policy.”
The case will now be heard in New York after the insurers invoked their right, under the terms of the insurance agreement, to have the case arbitrated there in the event of a material dispute between the two parties.
Exactly who will end up paying for the damages to the TBM still remains unclear. If the insurer doesn’t pay out it is possible Hitachi will end up with a substantial bill since under the terms of its performance-related staggered payment supply contract with STP the machine has not travelled sufficient distance to be officially accepted.
Additionally, and separately, STP has applied for approximately US$200 million worth of change orders with the project owner as a result of claimed Differing Site Conditions that have materially affected progress. However, WSDOT has refused most of these and a number of Disputes Review Board recommendations in favour of the contractor have been rejected by the owner.
STP declined to make any comment to TunnelTalk regarding the insurance matter. Laura Newborn, for WSDOT said: “From our perspective, this is an issue between Seattle Tunnel Partners and its insurers.”