Insurer to pay $25 million for Swift No. 2 canal failure

The Cowlitz County Board of Commissioners has agreed to accept a $25 million settlement from Federated Rural Electric Insurance Exchange to cover part of the cost of a 2002 power canal failure at the 70-MW Swift No. 2 hydroelectric project.

The project is owned by Cowlitz County Public Utility District and operated by PacifiCorp on the North Fork of the Lewis River, east of Cougar, Wash.

The canal embankment collapsed into an underground lava flow tube on April 21, 2002, sending water, soil, and rock into the project powerhouse and onto a nearby highway. The powerhouse was out of service for nearly four years, returning to production in February.

U.S. judge agrees with PUD’s claim to insurance

Federated and TIG Insurance Co. filed a lawsuit against the PUD in February 2004, asking the court to declare there was no insurance coverage. Cowlitz County PUD counterclaimed seeking coverage for its loss. In March, a federal judge agreed with Cowlitz PUD’s claim that insurance policies issued by Federated and TIG covered the canal embankment failure.

The utility district and Lloyd’s of London pursued the settlement with Federated as part of a 2004 agreement in which the London-based insurance company provided $70 million in coverage to the hydro project. The agreement provided for a shared distribution, between the district and Lloyd’s, of future insurance claim settlements with Federated and TIG.

Upon receipt of its share of the Federated settlement, Cowlitz County PUD said it will have received about $85 million in benefits. The district’s latest estimate of Swift’s total response and repair cost is $128 million. About $6 million of the total is for improvements to the hydro project and is not subject to insurance coverage, the district said.

TIG has refused payment. A Sept. 6 trial date is set in U.S. District Court in Tacoma, Wash., to determine the amount of damages owed to the utility district by TIG.

Repair and construction work included construction of a 6,500-foot-long concrete-lined power canal inside the original canal. In addition, generators were rewound and new runners, electrical equipment, and governors were installed.

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