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Cowlitz PUD receives $14.4 million settlement

Thursday, November 13, 2008 6:53 PM PST

By Erik Olson

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Cowlitz PUD announced Wednesday it has received a $14.4 million payment to settle a claim against an insurance company that had refused to cover repairs to the utility’s Swift 2 hydroelectric project, which was heavily damaged in a 2002 landslide and flood.

The PUD spent about $135 million through the end of 2005 to complete cleanup, reconstruction and replacement power cost of the Swift power canal and powerhouse, located just east of Cougar.

The utility has now recovered about $100 million of the repair costs through insurance, with the balance paid for with 30-year bonds issued in 2004, according to the PUD.

The damage occurred when water seeped under the power canal’s earthen embankment, causing it to collapse. The ensuing rush of water and mud destroyed part of State Route 503 and the Swift 2 power house, which provides about 10 percent of the utility’s residential power load.

The U.S. Court of Appeals for the Ninth Circuit denied an appeal of a lower court decision earlier this month ruling that TIG Insurance must make a policy payment of $29.8 million for repair costs incurred at Swift.

The PUD will share the $29.8 million with Lloyd’s of London, which paid $70 million in insurance coverage for damages to Swift under an agreement to pursue legal action against TIG, according to the utility.

The utility Wednesday said it will continue to pursue a “bad faith claim” against TIG, alleging it acted in bad faith in denying the PUD’s claim.

The PUD will use the $14.4 million payment from TIG to pay off a chunk of the long-term debt incurred by selling 30-year bonds for reconstruction in 2004, said Brian Skeahan, Cowlitz PUD general manager. That debt reduction likely will reduce the cost of power from the Swift project, Skeahan said.

“This is great news for Cowlitz PUD and its customers, and we’re thrilled to finally prevail,” Skeahan said in a written statement. “We’ve been in court with TIG over four years, fighting for the coverage that we knew existed under our insurance policy.”

The PUD did not raise power rates to pay for repairing Swift, and the settlement likely won’t lead to an immediate rate decrease, said Dave Andrew, Cowlitz PUD spokesman.

In February of 2004, TIG, now a subsidiary of Fairfax Financial Holdings Limited in Manchester, N.H., and Federated Rural Electric Insurance, based out of Kansas, sued the PUD in federal court, claiming the utility’s insurance policies did not include earth movement. The PUD filed a countersuit three months later seeking coverage.

Two years later, the court sided with the PUD, and the utility reached a $25 million out-of-court settlement with Federated Rural Electric.

Reconstruction of the power house was completed in October of 2005, more than four months behind schedule. The PUD blamed Kiewit Pacific Co. for shoddy and risky construction on the new canal and refused to pay $14 million in cost overruns.

The two sides settled the case out of court at the end of 2006, with the PUD agreeing to pay $3.9 million in addition to the $32 million contract originally awarded to Kiewit.

Related article:

Cowlitz PUD looks to settle Swift powerhouse suit  (April 29, 2007)

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SHAKER wrote on Nov 12, 2008 12:36 PM:

" PUD BETTER NOT BE COUNTING THEIR PENNYS YET. TIG WILL PROBABLY APPEAL THE APPEAL. AND EVEN IF THEY HAVE TO PAY, THE PUD WON'T COLLECT FOR AT LEAST TEN YEARS. IF TIG DON'T FILE BANKRUPCY FIRST. "

Mr. Bastinado wrote on Nov 12, 2008 12:51 PM:

" Typical insurance company. Happy as hell to take your bucks. Make you surrender your first born for a penny back. "

Cowlitz PUD comment wrote on Nov 12, 2008 1:46 PM:

" Response to the comments from "Shaker:" FYI...We are glad to report that the PUD received the full settlement check this morning. It is our understanding that TIG has exhausted every possible appeal. "

Jack Squat wrote on Nov 12, 2008 9:35 PM:

" Glad to see our PUD take on the big insurance company and win. Thank you...way to stick it to' em. "

Mr. Chinook wrote on Nov 13, 2008 5:32 AM:

" Soooo....will we be seeing a reduction in our power rates or is PUD going to send us all "kicker" checks? "

feistyone wrote on Nov 13, 2008 6:34 AM:

" Does that mean the public will get a rate cut? "

local taxpayer wrote on Nov 13, 2008 6:48 AM:

" Glad that PUD got paid. But now TIG will probably apply for a government bailout like AIG and get Billions from the government of our tax dollars. "

getreal wrote on Nov 13, 2008 7:10 AM:

" Maybe there will be enough left over to give the PUD executives another 10-15% wage increase???? You go guys! "

concerned wrote on Nov 13, 2008 7:53 AM:

" And why is this so important to the general public since the article says we may not see any rate decrease? Are we supposed to be happy the PUD is getting what is owed them by an insurance company? "

DECARTE wrote on Nov 13, 2008 11:10 AM:

" SO ALL APPEALS ARE EXHAUSTED ONNTHE 29 MILLION,EIGHT HUNDRED THOUSAND DOLLAR JUDGEMENT, YET, THE PUD SETTLED FOR LESS THAN HALF THAT AMOUNT. AN AMOUNT SET BY THE BY THE COURTS WITH NO MORE PROCEDURE OF SQUIRMING OUT OF PAYING? WHY SHOULD WE BE HAPPY? WHAT IS THE REST OF THE STORY AS TO WHY THE PUD WOULD SETTLE FOR FAR LESS THAN AWARDED? I'D WAIT THE EXTRA TIME FOR ALMOST 15 MILLION "

country gal wrote on Nov 13, 2008 11:22 AM:

" Local Taxpayer: I'm thinking exactly the same thing. And Getreal: it wouldn't surprise me one bit. "

pangborn wrote on Nov 13, 2008 12:26 PM:

" Will thr PUD pay their attorney 35% or is that money clear of debt?

I think the money should be returned to the P in PUD. The P many public. "

kalama kow wrote on Nov 13, 2008 2:52 PM:

" If you cynics had read the article you would have noticed that the settlement will be returned to the PUD ratepayers by paying down the PUD's debt incurred to rebuild the Swift 2 power house. This debt was incurred when the insurance company refused to pay prior to reconstruction. This saves the ratepayers interest on the debt. That will reduce interest expense considerably in future years. It is good business practice to pay down debt when one has the opportunity like this. This has a long term impact on reducing upward pressure on rates.

What would you have done with the money if the utility had given you your share of the settlement in cash??? paid down your debt or bought a big screeb TV???? "

kalama kow wrote on Nov 13, 2008 4:17 PM:

" In answer to DECARTE's question about why only $14.4M...As most people know, when one hires a law firm to pursue a claim, you can pay by the hour + expenses OR pay on "contingency" and the law firm gets a percentage of any take at settlement. This is typically 40% to 60% depending upon complexity and duration. For those following this legal saga..Lloyds of London saw their brethren insurance companies Federated and TIG refuse to pay. Lloyds agreed to pay their full $70M (SEVENTY MILLION!!)upfront and without dispute in exchange for an opportunity to help the PUD collect from the other unwilling insurance companies. They used Lloyds considerable legal horsepower to help the PUD do something it could never have afforded to do on its owm. There was never any assurance that the PUD and Lloyds would ever win. If the PUD and Lloyds had lost...there would be no payday for either. This litigation was never in the bag until last week. Lloyds spent millions of dollars in legal fees and expenses to collect after 4 years of effort. TIG probably spent millions to defend themselves. These are huge companies. The PUD spent very little to litigate this. Only Monday morning quarterbacks would think this was a bad deal. "

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