Insurance lawyers’ new findings increase arguments in case of Bertha machine breakdown

Insurance lawyers claim Seattle Tunnel Partners and Hitachi Zosen knew their tunnel boring machine Bertha was inherently flawed in 2013, but arranged to blame a buried groundwater-monitoring pipe for causing severe damage.

“STP settled on the steel pipe theory as a means of maximizing its recovery from WSDOT and Insurers as part of a larger plan to evade responsibility for the TBM [tunnel boring machine] failure,” insurance lawyers contend, in papers filed last weekat King County Superior Court.

Insurers are trying to avoid paying tens of millions of dollars in cost overruns on the Highway 99 tunnel project.

Bertha overheated and stalled Dec. 6, 2013, three days after a eight-inch diameter pipe tangled in the machine’s cutting teeth, some 48 feet below the surface near Pioneer Square.

Machine repairs caused a two-year tunneling delay, but the companies persevered until Bertha broke into daylight near South Lake Union on April 4 this year.

Arguments over the giant machine’s fitness when it arrived here in mid-2013 are nothing new.

What changed is insurance companies unearthed internal emails, notes and deposition testimony, through legal discovery.

And they’re amping up the rhetoric, by alleging contractors misled insurers and violated Washington consumer-protection law.

One excerpt says machine-builder Hitachi Zosen’s internal notes from April 2, 2014, showed Jack Frost, chief operating officer for STP partner Tutor-Perini, discussed the need to present a “rational explanation” about external causes for the breakdown, to the state, city, news media and insurance companies.

At the time, STP claimed the state owed it at least $125 million in damage-related cost overruns, a figure that ultimately rose to $480 million.

“STP and Hitz [Hitachi Zosen] must present a solid front to third parties in providing the rational explanation. Externally it will probably end up along the line [sic] of ‘due to an unforeseen outside factor (the pipe), the bearing and bearing seal were damaged …” Frost purportedly said.

The filing also alleges Juan Luis Magro, a STP executive from Spanish tunnel-specialist Dragados, told Hitachi Zosen’s project manager, Shinji Ogaki, “I think we are considering applying insurance, but in that case, we should emphasize the existence of the steel casing. Damage to the machine due to external causes.”

To be sure, such excerpts suggest one version of events. Various parties may turn against or align with each other, as the legal case unfolds.

Hitach Zosen replied Friday in a statement to The Seattle Times:

“The Insurers have isolated statements from a few documents dated very early in Hitachi Zosen’s investigation, taken those statements out of context, and fabricated a baseless ‘conspiracy’ theory.’”

Hitachi Zosen managers have said in interviews that without the pipe hit, Bertha would have drilled flawlessly from Sodo to South Lake Union.

But a Berlin-based engineering firm hired by insurers concluded Bertha was “underdimensioned” for its extreme Seattle soil loads when first built in Osaka, Japan.

The King County case originated with STP’s complaint that Great Lakes Reinsurance and eight other insurers breached their policy contract by refusing to cover losses and repairs. STP says it tried to collect monthly payments from insurers, to total $64 million by Aug. 31, 2015.

Despite lacking that cash flow, STP subcontractors and Hitachi Zosen excavated a deep circular vault, hoisted Bertha’s 4 million pound front end to the surface, replaced a damaged bearing seal, and made retrofits including 86 tons of new steel near the refurbished drive parts.

At no time did contractors hesitate to finish the 571/3 -foot diameter tube, nor try to collect extra money from the state as a condition for restarting in early 2016.

Besides the value of professional reputations to win future tunnel contracts, Tutor-Perini and Dragados are compelled by a $500 million performance bond to finish the tunnel.

Ron Tutor, CEO of Tutor-Perini, consistently predicts victory. In a call with stock analysts Aug. 7 he mentioned the “multi hundred million claim against an insurance carrier,” which he accused of stalling the case another year. The tentative trial date in King County is May 2018.

“So that means as insurance companies do, they don’t pay until you are on the courthouse steps, or if their heart is with them, let them try the case,” Tutor said, according to a transcript from seekingalpha.com.

Insurance companies cite policy language in which they’re not required to cover damage to Bertha “by its own explosion, mechanical or electrical breakdown, failure, breakage or derangement.”

They also quote an early 2014 email by Edward Kennedy, a state consultant and career tunnel-machine designer, that the “well casing they hit initially has nothing to do with the machine becoming stalled … this casing is little more than a piece of tin foil or a gum wrapper to this machine.”

Another state adviser, Rick Lovat, said in a deposition that among the fraternity of TBM experts, “every person I spoke to wouldn’t attribute the machine stoppage to a steel pipe.”

Meanwhile in a related Thurston County case, attorneys are squabbling about whether the state and its geotechnical consultant, Seattle-based Shannon & Wilson, fulfilled a duty to disclose the pipe to STP in official reports.

That file includes a joke the day after impact, when about half the 110-foot pipe was pushed out of the soil, by Juan Luis Magro, a Dragados construction manager: “Bertha, the largest TBM ever built, ‘raising the bar.’ [Smiley face] Isn’t that power or what?” He was answering an email where a colleague couldn’t immediately find historic records about the pipe.

Dragados continued drilling and Bertha overheated a couple of days later.

New court documents in Thurston County showed tunnel contractors looked at the steel pipe in 2011, then apparently forgot about it.

What does this mean for taxpayers?

The Washington State Department of Transportation has long insisted the pipe couldn’t possibly ruin Bertha’s bearing seals and force a major repair — and therefore the public shouldn’t pay.

On the other hand, the state is named in the same insurance policy as STP. So it’s unclear whether insurance will wind up paying some of WSDOT’s own costs of administration, rent and engineering due to delay, which might range between $80 million and $120 million.

Meanwhile, crews at the tunnel’s north portal are almost finished dismantling Bertha, the state’s pit-cam shows.