Static Electricity Sparks Dispute

Insurance Claim, Asia Pacific

This insurance dispute pertains to whether regulatory changes justify facility improvement costs that exceed replacement-in-kind. Following a fire initiated by static electricity, the owner and insurer disagreed as to whether a different and more costly design was required to ensure plant safety. The pre-arbitration mediation required expertise in applicable engineering codes, normal industry practice, and fire origin and cause expertise pertaining to hydrocarbons and static charge.

Kerosene is used in a solvent extraction process to recover uranium and copper from mine "tailings." A large copper and uranium mine in the Asia-Pacific region experienced two damaging fires at its solvent extraction facility. The root-cause analysis determined that both fires were caused by static electricity generated by kerosene flowing inside non-metallic piping. (This mechanism is similar to the risks and cautions associated with fueling vehicles or airplanes.)

Following the first fire, the owner replaced the facilities in-kind. However, after a second fire occurred shortly after resuming operation of the rebuilt facility, the owner determined that a significantly different - and more expensive - design was required to ensure the safety of the plant. The insurance policy reimbursed replacement in-kind costs, but not "betterment" costs. The owner claimed that a policy clause related to changes in law and regulations should reimburse the additional rebuild costs - that new knowledge within the industry regarding static electricity, hydrocarbons, and safety measures was relevant. A dispute ensued over the insurer's liability for the additional rebuild costs. The question was - "Were there relevant changes in law or regulations (and industry codes) with respect to static electricity hydrocarbon handling?"

Baker & O'Brien's consultants applied their considerable expertise in applicable engineering codes, normal industry practices, and safety aspects of hydrocarbons and static electricity to opine on the question and aid the interpretation of the insurance policy language. The Baker & O'Brien team, which included experts in mining and electrostatics, prepared a comprehensive report and assisted legal counsel throughout the mediation process.

E. Shawn McDonald

Vice President, Houston Office Manager

Chemicals and Petrochemicals
Insurance Claims / Standard of Care / Commercial Contracts / Operations and Maintenance / Technology Assessment
Asia Pacific