Boeing Found Not Negligent for Solar Array Defects

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PARIS — Boeing’s satellite manufacturing division has won the first of two arbitration cases alleging the company committed gross negligence in the way it handled solar array defects on the early 702-model satellites, and has secured a court judgment forcing Boeing insurers to pay the damages if the company loses the second case, Boeing said Feb. 9.

In its 10-K filing with the U.S. Securities and Exchange Commission (SEC), Chicago-based Boeing said the International Chamber of Commerce on Jan. 7 rejected the claims of insurance underwriters demanding $219 million, plus interest. The underwriters had paid Thuraya Satellite Telecommunications Co. of Abu Dhabi some $252 million in claims related to the defective solar array on Thuraya’s first satellite, Thuraya D1, launched in October 2000.

Thuraya D1 was the second of six first-generation 702 model satellites, all launched between December 1999 and May 2001, that were fitted with innovative solar array designs that later proved to reduce the satellites’ service lives.

Insurance underwriters paid out some $875 million in claims to the first 702-model owners —PanAmSat, now part of Intelsat; Thuraya; Telesat Canada; and XM Satellite Radio, now Sirius XM Radio — related to the solar-array issue.

Thuraya’s insurers sought reimbursement of their payment, and Thuraya had reserved the right to file a separate claim of $146 million for losses that were not covered by the original claim.

In its SEC filing, Boeing said the arbitration panel not only rejected the insurers’ claims, but also awarded Boeing a reimbursement of expenses the company incurred in defending itself.

While not directly addressing the possibility of a separate Thuraya claim, Boeing said: “We believe this matter is now closed and do not expect any further actions to be taken.”

Telesat Canada’s Anik F1 satellite was launched in November 2000, one month after Thuraya D1. Ottawa-based Telesat and its insurers are seeking $385 million in damages and $10 million in lost profit from Boeing related to the Anik F1 problem. Boeing said the arbitration proceedings are scheduled to start in November 2010.

Boeing’s insurers had protested that Boeing’s corporate insurance does not provide coverage for damages related to gross negligence of this type. The company’s insurers filed two separate actions in the Circuit Court of Cook County, Ill., to defend their position with respect to the Thuraya and Telesat cases.

On Jan. 16, the court ruled in favor of Boeing in a decision that will “require the insurers to provide insurance coverage to defend the claim” against Telesat, Boeing said. No such ruling has been rendered in the Thuraya case but Boeing’s win in arbitration has rendered the matter largely irrelevant, Boeing said.