CN Railway Awarded $23.7 Million after 14 Year Insurance Fight

November 24, 2008

Canada’s highest court ordered insurers to pay Canadian National Railway C$30 million (US$23.7 million) Friday, ending a 14-year fight over a problematic tunnel-boring machine.

The Supreme Court, in a 4-3 decision, rejected the insurers’ claim they were not liable for expenses caused by the complicated machine’s breakdown in 1994 because it was caused by a faulty design.

The machine was specially designed by Canadian National to cut a tunnel between Sarnia, Ontario, and Port Huron, Michigan, under the St. Clair River, and was at the time largest tunnel-boring machine in the world.

A problem with the machine’s seals caused a 229-day delay in completing the tunnel, but Canadian National’s attempt to collect its insurance on the project was rejected on the grounds the breakdown was the railway’s fault.

Experts were never able to determine why some seals on the machine failed while others did not.

“The design exhausted the state of the art but left residual risk. Failure is not the same thing as fault or impropriety,” Justice William Binnie wrote for the court’s majority.

The dissenting justices, who agreed with an Ontario Court of Appeal ruling, said the fact that the machine did not work as originally planned and had to be fixed, meant the design was at fault.

The insurers were ordered to pay CN C$29.6 million for costs caused by the machine’s problems and another C$1.2 million for its court costs.

The insurers included Royal & Sun Alliance Insurance Co of Canada, Axa Assurances Inc, Continental Casualty Co of Canada, Reliance Insurance Co., Aviva Canada and St. Paul Fire and Marine Insurance Co.

(Reporting Allan Dowd, editing by Rob Wilson)

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