Machine Breakdown Exclusion Triumphs in Washington Supreme Court

A Munich Re unit scored a victory against the Seattle Tunnel Partners (STP) and Washington Department of Transportation (WSDOT) when a unanimous Washington Supreme Court ruled that a two-year construction delay caused by a broken-down tunnel borer is not covered under the STP’s insurance policy. The case is Seattle Tunnel Partners and Washington State Department of Transportation, Hitachi Zosen U.S.A. Ltd. v. Great Lakes Reinsurance (UK) PLC et al., 2022 Wash. LEXIS 498 (Wash. 2022).

The STP began constructing a new tunnel during summer 2013 as part of an ongoing project to replace an existing viaduct. Six months later, the tunnel borer, affectionately called “Bertha,” quit working. Construction came to a crashing but complete halt and did not resume for a full two years. When the STP and WSDOT filed claims under the all-risks builder’s policy with Great Lakes Reinsurance (Great Lakes), both claims were denied on the basis of the policy’s machinery breakdown exclusion. STP and WSDOT sued for wrongful denial, delay costs, and loss of use; both the trial court and the state Court of Appeals affirmed the denial. In suit that followed, the parties agreed on a key point: “Bertha” had suffered physical damage of the type described by the policy. They differed, however, on the other crucial question: Was the physical damage to the machine caused by a covered peril?