The insurance companies cite design flaws as the reason they shouldn’t have to pay a repair bill, $143 million, that now far exceeds the Highway 99 tunnel machine’s original price.
Insurance companies are suing to get off the hook for an anticipated $143 million in repair costs for stuck tunnel-boring machine Bertha, claiming the machine’s design was inadequate from the start.
The price cited in the lawsuit, filed last week in New York City, far exceeds the machine’s roughly $80 million price when built, and offers the first glimpse of the real cost to get Bertha up and running again.
The effort by insurers to reduce their exposure is an early example of high-stakes squabbling among contractors, insurers, and Washington state over who pays for which cost overruns.
Building-trades workers continue to finish the Highway 99 tunnel portals and prepare for mining. The private contractors aren’t discussing how they’re sustaining their cash flow, except to say they’re committed to finishing the tunnel, now estimated to open in March 2018, two years late.
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Bertha’s rejuvenated cutter head was lowered by crane into an access vault Monday and Tuesday, to be refastened to the machine’s body by Thursday — raising hope the stalled machine will dig again by Nov. 23.
For more than a year, tunnel executives have sidestepped questions about the repair bill. Hitachi Zosen, the machine’s manufacturer, has declined to comment.
The new court fight begins to pull back the project’s financial curtain, by putting numbers to an intricate fix that’s a megaproject in itself.
A consortium of eight insurers filed the suit. It follows a King County case in which Seattle Tunnel Partners (STP), which is building the tunnel, sued in June to make the insurers pay on the $85 million policy. STP cited damaged cutting teeth and Bertha’s collision with a steel pipe in December 2013.
The insurance team, citing its investigation by Berlin-based Maidl Tunnelconsultants, claims that the world’s largest drill was “under dimensioned” to churn a 5-story-high flow of moist Seattle dirt.
“The original structural analysis lacked consideration of axial loads and considered incorrect overburden [worthless soil] and water level,” Maidl found.
And the original bearing seals, which surround and lubricate the rotary-drive components, were inadequate, says the complaint. The outer seal ring “deformed” and “suffered inconsistent lubrication from early in the dig,” Maidl found.
To date, the machine has traveled 1,083 feet of its 9,270-foot path from Sodo to South Lake Union.
The New York suit further asserts “Hitachi had experienced problems with the seals during commissioning in Japan,” requiring redesign.
Bertha’s retrofits are familiar to local tunnel watchers, who could observe on state cameras how Hitachi Zosen strengthened the drive parts this summer along the waterfront, complete with 86 tons of added reinforcing steel to support tougher new bearing seals, STP Director Chris Dixon explained.
Dixon has shed considerable light on the nuts and bolts of the repairs in an online video and media briefings.
When asked a general question about repair liability Monday, he said there’s no final agreement about how Hitachi Zosen, insurers and STP will divide those costs.
Hitachi Zosen is currently shouldering the expense for technicians, crane lifts and new parts, while the huge repair vault is funded by Dragados USA and Tutor-Perini, STP’s major partners, Dixon has said.
Contractors to date have not attempted to bill the state for the $143 million repair cost, an estimate the insurers say was furnished by STP.
Bertha’s insurance team consists of Great Lakes Reinsurance, Zurich American Insurance, Starr Surplus Lines Insurance, Indian Harbor Insurance, Allianz Global Corporate & Specialty, Torus Insurance, PartnerRe Ireland Insurance Ltd., and certain partners at Lloyd’s London.
Excluded from coverage are losses caused by Bertha’s “own explosion, mechanical or electrical breakdown, failure breakage or derangement,” according to the policy, obtained by The Seattle Times through a public records request.
In the New York lawsuit, insurers argue the damage in Seattle was caused by the machine’s inherent flaws, and thus excluded.
If insurers don’t pay, Hitachi Zosen might have to absorb Bertha’s repair cost, or try to bill other parties. Also, the pressure might intensify for contractors to seek money from the Washington State Department of Transportation.
However, this contract is written to put the engineering responsibility — and therefore the financial risk — on the contractors.
“In terms of the contract, it is a matter between STP and Hitachi, not the responsibility of WashDOT,” said Linea Laird, the agency’s chief engineer, who was Highway 99 administrator when the machine was built.
After a visit to the Japanese plant in late 2012, Laird was notified by STP of an alignment problem that required adjustments, but said Tuesday she doesn’t know whether that issue is related to anything in the new lawsuit.
As of June, the state had paid $1.04 billion on its $1.35 billion tunnel-construction contract, which includes the machine.
STP previously requested the state pay at least $208 million in change orders, much of it to cover project delays. The state has denied nearly all those, setting the stage for future lawsuits.
The lawsuit was first reported by Insurance Insider and Law360.
In a similar insurance dispute in Sarnia, Ontario, which lasted a decade, the Supreme Court of Canada ordered insurers to pay $36 million, after the 1993 bearing contamination of tunnel machine Excalibore. That machine, half the size of Bertha, received a new bearing and finished its train tunnel to Port Huron, Mich.
Ironically, Washington state provided its contractors a $100 million allowance to cover the price to buy several kinds of insurance, including a $500 million bond to guarantee a finished highway tube. The tunnel was known to be a high-risk project, so WSDOT was willing to sweeten the deal in fall 2010 to ensure competitive bids from at least two teams.
Now, one team is struggling to collect.