The Perfect Undground Storm
At 11 o’clock on a late-summer evening, tropical storm Maria smashes into a major southern city with 75 mph winds and a torrential downpour. Water floods the city, pouring millions of gallons into twin, 3-mile, 21.5 foot diameter TBM-excavated rock tunnels being constructed downtown. The tunnels are part of a new 22-mile light rail system connecting the downtown to the airport, and are nearly finished, except for the final touches on the electrical and mechanical systems. The project also includes two underground stations and numerous shafts, chambers, and passageways. Temporary drainage and support facilities around the tunnel portals are still in use, however, and the tunnel fills with debris and water, severely damaging all electrical and mechanical systems already in place.
The flooding requires the contractor to clean the tunnel and replace equipment, delaying opening of the rail line by six months. Clean-up activities cause significant disruption of local traffic and businesses, and delays rail installation and systems testing required to finish the line. The catastrophic and extensive nature of the incident leads to insurance claims filed against the primary parties, and it seems likely that additional parties will be joined as the investigation develops. The potential damage is in the millions with litigation costs not far behind.
The situation just described is a hypothetical worst-case scenario, but it is not unlike cases we have seen. The risks are real. The question is, how do you protect your company from the financial damages that can follow such a disaster? It begins by understanding the claim process that will take control after the perfect underground storm hits.
The Aftermath
The first hours after the storm will prove crucial to your case. Your company must decide how to secure the scene, what information to release to the public, and how to mitigate damages. If we can recommend anything, it is that you document everything you do during those hours, and take special care to preserve evidence. In the chaos that follows a disaster, documentation seems like a distant concern, but it will prove crucial further down the road. Photographs, names of personnel on duty and other potential witnesses, times, measurements and all other conceivable forms of empirical data need to be collected and preserved. Protecting lives is the number one concern when disaster strikes. Protecting the life of your company should not be far behind.
Once the crisis is controlled, the investigation begins in earnest. Typically, the owner, general contractor, and designer lead the initial investigation along with their insurance carriers, who retain engineers and consultants trained in forensic investigations. Often, several different teams representing affected parties will conduct simultaneous investigations, jointly or independently. It is very smart to involve legal counsel from the beginning to shape your defenses (or claims) with your best interests in mind.
The investigative teams will attempt to determine several key elements. First, they will define the contractual obligations of the parties. This will be essential in determining who, if anyone, is at fault, and will also be the primary method for allocating damages among the parties. Simultaneously, the teams will investigate the incident to determine cause and origin of the flood and assess damages. In our hypothetical scenario, they will likely analyze the drainage on site and preparations for the storm, such as sandbagging. Depending on which party they represent, some teams will also make recommendations for mitigation of further damages. Finally, the experts will attempt to calculate the cost for repairs.
In our scenario there are numerous aspects to the investigation that focus on the cause and origin. Immediate questions for the investigators are:
1. Was the event an “act of God?” Undoubtedly the storm was, but what about the damage? 2. Was the drainage design or construction inadequate? 3. Was the temporary drainage plan used during construction adequate and was it constructed in accordance with government regulations as well as plans and specifications? 4. Was the drainage system and equipment properly maintained? 5. Were adequate measures taken to protect the tunnel from the impending storm? 6. Did the site designer fully consider the potential for a major storm (50,100, or 500 year) event? 7. Did project supervision or lack thereof contribute to the flood?
While other questions will arise over the course of the investigation, answering these questions will be fundamental to investigators when they begin to assign liability.
Ultimately, the project owner will seek to be made whole for the repair of the physical damages, as well as other costs, including interest, experts’ costs, legal fees, delays, and payments to affected parties suffering losses due to delay or damages. Often times these claims can take years to resolve and the expert and litigation costs can be a substantial cost in the overall settlement.
In order to successfully navigate such a claim, planning must start long before trouble is on the horizon. First, implement and update your risk management program regularly (see references provided at the end of the article). Next, and we cannot stress this enough, document everything. Train your project manager in proper project documentation, take photographs of your work and keep minutes for all meetings related to your contract work. Be careful - assume every word will be read by the whole world some day.
Your insurance broker should also be consulted for recommended risk management practices. Better brokers have risk management and claims protocols and departments and are well equipped to help keep claims under control. Tap into this useful resource. And, while you are talking, make sure you review what coverages are available and which elements of what kinds of claims will or will not be covered. Once the storm hits, it will be important that you understand the terms of your insurance policy, including limits of coverage, deductibles, exclusions and other important conditions.
Your broker, risk manager, and attorney should advise you, and keep you abreast of what coverages may apply and what you have to do to trigger them. As the technical information from the experts develops, your coverage may be affected.
Keep your contract documents and project records organized and up to date so that your expert and legal counsel can find needed materials quickly and easily, and document field conditions and field engineer’s directives that affect your contract. And be prepared to receive regular progress reports on investigation and defense strategies. By staying informed you may exert greater control over your defense and contribution to the settlement.
As the investigation gets underway, provide your investigating team and counsel with your project documentation immediately. Your team needs to assess the full scope of the investigation quickly so they can ask the right questions from the start. The firm’s management should actively monitor the investigation as it progresses, and should ask questions – before the investigation even begins, management should carefully question the experience and qualifications of all experts involved. These experts will build the case that you need to defend yourself, and the best litigation expertise in the world will not save you if your investigation team has not nailed down the facts.
Establishing liability and allocation
Inevitably, the involved parties will be accused of being responsible for paying the costs associated with the claims. The funding will come either from insurance, or in some cases, your own pocket. The latter situation can be minimized (1) by using a good broker to assemble a comprehensive plan of insurance covering the specific risks your company faces, (2) retaining qualified and experienced legal counsel to shape the investigation to trigger coverage and (3) retaining experienced experts to give to the attorney and broker the investigative facts necessary to shift the cost of the loss from your column to that of your insurance company or another company involved in the project.
Typically, the forum for resolving such claims is defined in the contracts. If the contracts are silent, you will be in the courts, which is not necessarily bad. Oftentimes, however, the contracts call for mediation or binding arbitration, either common law or AAA. Be careful - there are often contractually-imposed deadlines that are quite different from what would otherwise exist. And if you subcontract, make sure the subcontracts specify the same method to resolve disputes as in your contract with the parties above you. You want all disputes to be resolved in the same place.
It may take months or years before claims are filed, and it often takes years for the arbitration or litigation process to develop sufficient information for the claim to mediate. And most cases do mediate instead of proceeding to arbitration or trial, especially where the claim is large. The issues tend to be complex and the stakes too high to risk the outcome on the vagaries of arbitration or the court. Besides, a result you negotiate is often better than a result imposed upon you.
Regardless of whether you mediate, arbitrate, or hammer it out in court, if you think ahead and have in place the right broker with the right insurance program, the right expert who captured and analyzed all of the evidence while it was available, and the right legal counsel who takes all of these weapons and skillfully marches into battle for you, you will be the eight hundred pound gorilla and it is you who will dictate the manner of resolution. As Thomas Paine said, “Lead, follow, or get out of the way.” If it is your company and livelihood, be the leader. Think ahead and assemble the perfect team to handle the perfect underground storm.
About the Author: Mark H. McGivern, CSI, has been leading forensic investigations for 15 years as CEO and founding partner of CCA, LLC. His partnership with Lyman Henn, CCA/LH, now provides those services the tunneling industry. Visit www.ccaco.com for more information.
Contributors: Tracy J. Lyman, P.E., P.G., Founding Partner Lyman Henn, Inc. Margaret A. Ganse, P.E., P.G., Associate, Lyman Henn, Inc. Mark L. Parisi, Esq., White and Williams, LLP