OK — once more into the breach.
This is my third column looking at the long tale of problems with a power line that was strung across the province to bring Muskrat Falls power to Newfoundland’s Northeast Avalon Peninsula.
I hope we’re getting close to the end of that particular saga.
Here’s an extremely short version of what I’ve written before, to put things in context: the Labrador Island Link Partnership is building the power line across the island. It bought power cables where strands of wire popped out as the line was strung. It was a fault the LILP had identified in testing, but LILP had been told by the supplier, General Cable, that the problem was fixed.
Strands continued to pop out and parts of the power line had to be restrung, and to keep the project on schedule — a critical concern — the LILP agreed to pay General Cable to fix the problem with the cables. The LILP also paid to restring the cable, saying they would address the question of who would bear the final liability for all the costs later.
The LILP says it cost $57.7 million to do all the remedial work, and there is a lawsuit in the Newfoundland and Labrador Supreme Court under LILP’s name to recover the damages, along with any other damages the court might award.
One important point to make, and one where I was mistaken in the last column I wrote on this: no matter what happens in the lawsuit, the overall costs of the $57.7 million won’t be added to the bottom line of the project, because of two crucial points.
As a result, even if the LILP’s side wins, it likely won’t be fully reimbursed for the losses it’s claiming.
The LILP has already successfully made a $25-million insurance claim for part of the damages, and the company has also found a way to factor the rest into the overall project costs.
But here’s where it gets really interesting: LILP may be the name on the lawsuit documents, but it is actually the LILP’s insurer who has taken on the lawsuit.
As a result, even if the LILP’s side wins, it likely won’t be fully reimbursed for the losses it’s claiming. And, while you have to keep in mind that the no one knows how a judge will decide a case, the insurer involved might even turn a profit from the LILP’s woes.
It works like this: from any court settlement or decision, the insurer (who is paying the legal fees for the action) would get the first $15 million up front.
After that, the insurer and the LILP will split any remaining funds, so if the insurer wins the whole amount in court, $57.7 million, the insurer will pocket the first $15 million and $21.35 million of the remainder, totaling $36.35 million, a number that would handily cover the $25 million it paid out to settle the LILP claim. (It would also be able to apply to the court for the recovery of some part of its legal costs, which, as I said, is far from a sure thing.)
For its part, the LILP has the $25 million it’s already received in insurance money, and potentially an additional $21.35 million, meaning it could recover, in total, some $46.35 million of the $57.7 million it had to spend on what it claims is someone else’s mistake.
It’s big stakes and big dollars, trundling through the courts the way corporate lawsuits do: slowly, thoroughly and with the outside excitement of paint drying in slow motion.
But it shows just one of the problems when a tight timeline means that you have your back against the wall, and everybody — even your suppliers — know it.
Russell Wangersky’s column appears in 36 SaltWire newspapers and websites in Atlantic Canada. He can be reached at [email protected] — Twitter: @wangersky.
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