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Construction firm prevails in power plant coverage dispute

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A federal appeals court in Colorado on Tuesday overturned a lower court decision and ruled that a construction company can seek up to $25 million in coverage from two insurance firms for damages to equipment at four power plants.

The 10th U.S. Circuit Court of Appeals in Denver ruled in the case of Black & Veatch Corp. v. Aspen Insurance (UK) Ltd. that Overland Park, Kansas-based Black & Veatch. can seek reimbursement from London-based Aspen Insurance and Lloyd’s syndicate 2003 for damage Black & Veatch incurred due to damaged equipment that its subcontractor had constructed at power plants in Ohio and Indiana, according to court records.

The U.S. District Court in Kansas City, Kansas, had ruled that Aspen did not have to pay Black & Veatch’s claim under its commercial general liability insurance because the company’s expenses arose from property damages that were not covered “occurrences” under the policy.

However, the appeals court held that “the damages were accidental and resulted in harm to a third-party’s property, thus meeting the policy’s definition of an ‘occurrence.’”

“Because we predict that the New York Court of Appeals would decide that the damages here constitute an ‘occurrence’ under the policy,’” the ruling said, “we vacate the court’s summary judgment decision and remand for further consideration in light of this opinion.”

The appeals court also said that it expected the New York Court of Appeals to “join the clear trend among state supreme courts holding that damage from faulty subcontractor work constitutes an ‘occurrence’ under the policy.”

In 2005, Black & Veatch signed contracts with Columbus, Ohio-based American Electric Power Service Corp. to engineer, procure and construct several jet bubbling reactors, which eliminate contaminants from the exhaust emitted by coal-fired power plants.

For at least seven of the reactors, located at four different power plants in Ohio and Indiana, Black & Veatch subcontracted the engineering and construction of the internal components to Midwest Towers Inc. Deficiencies in the components procured by MTI and constructed by MTI’s subcontractors caused internal components of the reactors to deform, crack and sometimes collapse, the ruling said.

American Electric Power and Black & Veatch entered into settlement agreements resolving their disputes relating to the reactors where B&V had to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven reactors.

Zurich American Insurance Co. provided the primary layer of coverage for up to $4 million for damage to completed work, while Aspen provided the first layer of coverage for claims exceeding the Zurich policy’s limits. The policy limits coverage up to $25 million per occurrence and $25 million in the aggregate.

An Aspen spokesman declined to comment about the case.