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Insurers must pay $58 million in eight-month power plant unit shutdown

Insurers must pay $58 million in eight-month power plant unit shutdown

A New York State Supreme Court judge has ruled in favor of a Canadian energy company and against several insurers in a $58 million dispute over business interruption and property coverage involving a power plant unit that was out of commission for eight months.

On September, 16, 2008, TransCanada Energy USA, a unit of Calgary, Canada-based TransCanada Corp., shut down a unit in its New York Ravenswood electric generating plant because of excessive vibrations, according to the Wednesday ruling in New York in National Union Fire Insurance Co. et al. v. TransCanada Energy USA Inc. and TC Ravenswood Services Corp.

Four days later, a crack in the generator's rotor was discovered and the unit was out of service until May 18, 2009, according to the ruling.

TransCanada had first-party property and combined business interruption coverage from insurers including National Union Fire, a unit of American International Group Inc., covering the period Aug. 26, 2008 to June 1, 2009.

Although still listed in the ruling, AIG has settled the litigation for an undisclosed amount and is no longer a party in the case, said Pamela D. Hans, managing shareholder with Anderson Kill P.C. in Philadelphia, which represents TransCanada in the litigation.

Other insurers named in the suit are:

• Ace INA Holdings Inc., a unit of Zurich-based Ace Ltd., which merged with Chubb Corp. earlier this year;

• Arch Insurance Co., a unit of Hamilton, Bermuda-based Arch Capital Group Ltd.; and

• Johnston, Rhode Island-based Factory Mutual Insurance Co., which does business as FM Global.

On Sept. 16, 2008, TransCanada notified the insurers of the loss, leading the insurers to file a June 10, 2010, suit seeking a declaratory judgment against TransCanada to void the coverage.

TransCanada filed its own suit on July 25, 2010, seeking coverage for $7 million in property damage and $50.8 million in business interruption losses, subject to any applicable deductible, according to the ruling.

TransCanada argued the breakdown was covered because it had all-risks coverage, but insurers argued the generator rotor crack developed before the policy period began.

In her ruling Wednesday, Judge Barbara Jaffe ruled in TransCanada's favor.

TransCanada established “that the policy covers its loss and damages” for the unit's breakdown, Judge Jaffe wrote. “It is irrelevant that the crack formed before the policy period.”

“There is no merit to the insurers' argument that the crack caused no damage,” Judge Jaffe ruled. “Even if the crack required repair before them, it caused no damage until Sept. 12.”

A Factory Mutual spokesman had no comment and spokesmen for the other insurers could not immediately be reached for comment.

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