22 May Article : The true cost of utility strikes and damage
Neal was standing about 10 feet away from the hole when a massive explosion knocked him off his feet. A door, brick and debris rained down on him, crushing one side of the firefighter helmet he says he neglected to wear 99 times out of 100. The blast killed four people, injured 12 others and destroyed six buildings.
Neal suffered only minor injuries – a split in the middle finger of his left hand that required 27 stitches and several bad bruises. “The potential was there for something a lot worse,” he says. “It just wasn’t my time. That’s the only explanation I can come up with.”
What it means to you
If you are a construction contractor who does any kind of excavating, the St. Cloud explosion is an example of the worst thing that could happen to your business as a result of damaging an underground utility. But if you think it would take a catastrophe of that scale to shut down your company, the 21st century and its ultra reliance on utilities of all types might have some frightening surprises in store for you. These days a misjudgment at a seemingly mundane jobsite could leave you fighting for your company’s financial survival.
Imagine knocking out electricity to a large shopping mall on the day after Thanksgiving. While restoring the electrical line would likely cost less than $10,000, loss of service claims from retailers could easily reach six figures, says Mark Palma, a partner with law firm Hinshaw & Culbertson in Minneapolis and a legal consultant for several industry associations working to prevent underground utility damage. An increasing number of home businesses are also making risk disproportionate to anticipation; cutting off electricity or telephone service to a subdivision could affect several small companies.
Kidney dialysis and other life-sustaining medical treatment can be done in the home now, lending even more disturbing implications to previously run-of-the-mill electrical line strikes in residential areas. “Because we’re so dependent on utilities, any interruption of service could be life threatening,” Palma says.
In general, the most expensive cuts are the ones that happen in densely populated areas, says James Bush, a producer with insurance broker Arthur A. Gallagher Risk Management Solutions and a board member of the Common Ground Alliance. It could be a severed fiber optic line that serves part of downtown Chicago or a cut water pipe that floods several buildings. “It’s like real estate,” Bush says. “At the end of the day it’s about where it is. If you cut a gas line in the middle of nowhere and no one is injured, there’s not going to be much damage.”
Repairing a severed underground line can cost as little as $200 for a small copper wire. But, as in the shopping mall example, the repair costs might be the least of your worries. “It used to be the largest cost was restoration,” Palma says. “The largest cost now is transitioning from restoration to service interruption costs.” These charges are the expenses the utility company incurs as a result of failing to provide service to its customers. They can come about because a customer sued the utility for loss of service or because the utility company was not able to meet the standards of its service-level agreements. An increasing number of utility companies are charging contractors for these costs, and telecom companies are particularly aggressive in pursuing such claims. In the largest settlement Palma has heard of a horizontal directional drilling company agreed to pay $100 million just for loss of service.
One of the first things AT&T does when a contractor damages its network is assign the incident a project number for damage charges, says Tom Gullette, a network operations manager for AT&T. All expenses resulting from the damaged line are recorded under this number, and if the ensuing investigation finds the contractor at fault, AT&T will send him the itemized bill. The first charges on the ticket are for AT&T to move its crew from an existing job to the damage site to repair the line. “That costs us money in that we’re having people do work that we didn’t plan for them to do,” says John Kern, director of AT&T’s global network operations center.
Most telecom companies have contracts with at least some of their customers that require them to pay penalties if service is interrupted for a certain amount of time – minutes, in some cases. With AT&T’s higher-level service agreements, a service interruption of less than an hour in a single building could cost the company a month’s worth of revenue from the affected customer, Kern says. “We would turn around and try to recover that from whoever damaged our infrastructure,” he says. Because charges resulting from loss of service vary drastically, there is no standard range for these costs. Palma does say, however, that service interruption claims – both in their number and in the dollar amount of individual cases – have increased sharply in recent years.
Most telecom companies build the backbones of their networks with spare facilities and integrated hardware and software that automatically re-routes traffic in the case of a severed line, keeping massive service outages from occurring. But loss of service to entire subdivisions or industrial parks is still possible.
While gas companies typically don’t charge contractors for service interruption, there are costs you might not think of associated with damaging this kind of line. A gas company will probably bill you for the time it takes one of its employees to go door to door to re-ignite pilot lights, says Andrew Lu, director of operations and engineering for the American Gas Association. If the company has to shut off a valve in order to make an area safe while it repairs a damaged line, hundreds of its customers could lose service, meaning re-lighting the pilots will take the employee a lot of time and cost you a lot of money.
The companies also use a model for calculating how much gas escapes into the air. They plug in how long the gas was leaking and at what pressure and bill you accordingly. “With the price of gas now that’s not insignificant,” Lu says.
The financial implications
So what happens if one of your crews hits a buried utility line?
If the utility company concludes the hit occurred because of an error on its part, you might not be charged for anything. If not, damage to underground utilities, along with damage to third parties, is covered by your general liability insurance policy. When damage is limited to the cut line, however, chances are the costs will fall under your deductible, says Bush. Construction companies’ general liability deductibles range from $5,000 to $250,000, depending on the size of the firm, he says.
If property damage is more extensive or a utility company wants to be reimbursed for loss of service or, in the worst case, someone is injured or killed, costs can expand exponentially.
If the case is limited to the damaged utility line and loss-of-service claims, and you judge your company will be responsible for charges exceeding your deductible, you would contact your insurance carrier, which would begin negotiations with the utility company. When they agree upon an amount, the insurance company will pay the claim and bill you for your deductible. Most of the time there are no lawsuits in situations like this, although the utility company and insurance carrier can take years to come to an agreement, leaving you puzzled two years later, for example, when you renew your insurance policy and find your rates have gone up. To avoid this situation, Palma suggests hiring a lawyer or claims consultant to monitor negotiations for you. That way you won’t have someone else “writing a check out of your checkbook, so to speak,” he says. “The worst thing you can do is turn it over to an insurance company and not have anything to do with it again.”
If parties other than a utility company sustained property damage or people were harmed, litigation is much more likely. Still, these lawsuits rarely make it to court. In 2003 settlements in six suits connected to the St. Cloud explosion diverted a trial to decide who was responsible for the deaths, injuries and property damage.
If there is a lawsuit, in most cases your insurance company will handle it as well, and will hire its own lawyer. As in the situation described above, negotiations will ensue and the insurance company will try to come to a monetary agreement with the other party. But if the insurance company ascertains a settlement or jury award will be larger than the amount of insurance you carry – which is often the case with incidents involving fatalities – it is likely to turn over the policy limit early in negotiations and bolt the scene, leaving you in the spotlight, Palma says. With the insurance company out of the picture, the injured party will go after your business. A settlement or jury award could force you to sell your firm’s assets, which would most likely mean the death of your company.
On the bright side
The good news is that in most cases utility strikes are minor, and while there are no hard statistics to prove it, industry experts agree the annual number of incidents is going down. Bob Kipp, president of the Common Ground Alliance, a group dedicated to preventing underground utility damage, estimates there are 400,000 to 500,000 utility strikes per year in the United States. Of those, 95 percent cost less than $500, and homeowners and landscapers are responsible for most of them.
“There’s a lot of finger pointing at Joe’s Excavating Service,” Kipp says. “It does take heavy-duty machinery to break a large line, but most breaks are not big.”
One Call centers process more than 20 million requests annually. Overall, contractors are doing a great job, as are utility companies and One Call personnel, Palma says. That’s why there aren’t more catastrophic events. “Most days everything goes well,” Palma says. “Every now and then the stars align and something goes terribly wrong.”
A series of factors have caused an accelerated decrease in the number of incidents over the past three years.
Palma says contractors are more involved in the damage prevention process and are members of groups such as the Associated General Contractors of America and the National Utility Contractors Association that are putting an emphasis on the problem and providing training materials – in Spanish as well as English. As a result, contractors are using One Call more often, are doing a better job of educating their employees and are hand exposing more utilities. Even though exposing buried lines is required by law in most states, until recently a lot of contractors weren’t taking that step, Palma says. Many have begun potholing with vacuum excavators. Equipment manufacturers are also making their products safer and are holding more training classes.
Bush says fewer underground utility damage claims are being reported to insurance companies. And while higher deductibles are one reason for this, he says the other is that best practices communication efforts by CGA and other associations are paying off. “In today’s world contractors who are doing this kind of work have a lot more resources,” he says. “They just need to utilize those resources more.”
That’s something the construction company involved in the St. Cloud disaster didn’t do. The incident is a worst-case scenario legally and financially for several reasons.
The property damage was extensive – affecting an entire city block. And not only were there deaths, but the fatality list included third parties – people not employed by the construction firm. Two power company employees – a gas technician and a utility locator technician – died, along with a post office worker on her lunch break and a resident of one of the buildings that was destroyed. Cases in which innocent bystanders are killed or injured almost always result in larger out-of-court settlements or jury awards, Palma says.
The National Transportation Safety Board primarily blamed the construction company for the catastrophe and found it was at fault on two levels: for not following procedures to prevent damage to underground utilities and for waiting too long – 30 minutes – to notify the gas line operator or emergency responders (someone not associated with the construction project called 911).
Meanwhile gas from what turned out to be a large, high-pressure pipeline was collecting in the sandy soil underground and in the basement of a nearby building that contained a pizza restaurant and a deli. Water heaters in the basement most likely ignited the gas. A power company construction crew dispatched to shut down the damaged portion of the line was two blocks away from the accident site when the explosion occurred.
If emergency responders had been contacted sooner, Neal says the building that blew up might have been ventilated in time to avert the blast. He says he became a poster child for lobbying efforts that produced a Minnesota law requiring an immediate 911 call after gas line strikes. “I can’t stress enough,” Neal says, “if you make a mistake, for God’s sake, make your first call to 911. Don’t overanalyze it and don’t be afraid to call the people who can fix it.”
REFERENCE : cover, cable. (2017). The true cost of utility strikes and damage – Underground Cable Covers. [online] Underground Cable Covers. Available at: https://undergroundcablecovers.com/2017/06/09/true-cost-utility-strikes-damage/ [Accessed 22 May 2019].