A panel of Washington state judges ruled Sept. 15 that insurers don't owe payment, under a builder's all-risk policy, to the contracting team and the state transportation department for a two-mile-long Seattle tunnel project, completed in 2019. The claim, by Seattle Tunnel Partners and the owner of the tunnel boring machine, Hitachi, was the most recent failed attempt to recover some of the money lost during a two-year delay in the $2.15-billion SR 99 Alaskan Way Viaduct Replacement Tunnel project, along Seattle's waterfront.

The project’s tunnel boring machine (TBM), nicknamed Bertha, shut down operations from December 2013-15 after the cutter head struck a steel pipe, sustaining damage. It didn't get rolling again until 2016.

Seattle Tunnel Partners (TSP), led by Tutor Perini Co., failed in a lawsuit that sought additional payment from the Washington State Dept. of Transportation. TSP claimed the pipe was a differing site condition.

TSP also filed for coverage under its builders’ risk insurance policy against a collection of insurers and insurance syndicates, including Zurich and Allianz, and the state transportation department joined parts of the suit.

Specifically, the lawsuit filed in state court in Seattle is an appeal of a trial court decision that denied most of the claim in motion for summary judgement by the insurers—a motion in a suit where the court decides to rule because no facts are contested. The big issue was whether what happened constituted physical loss or damage as defined by the builders all-risk policy.

Project Origins

The project began with the state's plan to create a two-tiered tunnel to replace the Alaska Way Viaduct.

After winning the project contract in 2011, STP obtained a builders' all-risk policy covering damage to the tunnel and the boring machine. Both STP and the state department of transportation were the beneficiaries.

After the damage, the TBM had to be removed and repaired. 

When STP filed its claim, one of the insurers, Great Lakes Reinsurance UK PLC, denied coverage because it claimed the TBM was under-designed and lacked adequate lubrication.

The trial court had ruled that design defects were not covered under the insurers machinery breakdown exclusion and losses due to delays. The policy, the trial court decided, doesn't cover the loss of use of the TBM if it can't function.

The nine-judge panel, reviewing that prior decision and many other similar ones, devoted some of its decision to parsing the plain-language meanings of phrases in the insurance policy, partly to determine if damage caused by a poor design or an inherent defect, as opposed to an external cause, is covered. The judges ultimately ruled that it wasn't.

On the issue of money lost because of the long delay, STP argued it was owed for those losses because they were not specifically excluded.

Lost Use of the TBM

And the Washington Dept. of Transportation argued it was due coverage because of the loss of use of the TBM. But the panel of judges disagreed.

"Any alleged loss of use of the tunneling works must be a result of, or caused by, some physical condition that impacted the tunneling works," the nine judges wrote in a unanimous opinion. "Here, WSDOT alleges the physical condition is the physical blockage of the TBM within the tunnel and the loss of use is the inability to continue construction." 

However, the judges ruled, the "physical condition"—the blockage—did not cause the loss of use—the inability to continue construction. As WSDOT explained, the TBM and tunneling works "inseparably functioned together to construct the tunnel."

The TBM couldn't continue construction, the judges ruled, because it "was inoperable and undergoing repairs." 

Accordingly, the judges wrote, "even if we interpreted 'direct physical loss or damage' to include loss of use, no coverage" is triggered "because the alleged loss of use was not caused by a physical condition impacting the insured property."