— 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.
The company also said it won a victory in arbitration following a dispute with a Japanese satellite operator about who was at fault when the operator’s satellite was placed in a too-low orbit and was eventually declared a total loss.
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, United Arab Emirates, 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 ; 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 ‘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.
Insurance officials have long based their 702-related claims against Boeing on allegations of what Boeing knew about the solar-panel defect and when it knew it. Officials have said that their case should be strongest for those operators whose satellites were launched later. Whether the one-month difference between Thuraya and Telesat will play a role in the arbitration case’s ruling is unknown.
The two Sirius XM Satellite Radio satellites that were the last in the series of defective spacecraft are not subject to arbitration proceedings, although one large underwriter ultimately refused to pay its share of the claim for the loss of the satellites. One insurer said, however, that the refusal to pay the claim could have related more to what information Sirius XM gave its underwriters, rather than the information flow between Boeing and Sirius XM.
In a Feb. 11 statement on the Thuraya decision, Boeing spokeswoman Diana Ball said: “[W]e continue to believe that Boeing’s actions were consistent with industry standards and that Boeing fully shared information with Thuraya in a timely manner.”
In an unrelated case, Boeing won a partial victory against insurers for Space Communications Corp. (SCC) of , whose Superbird-6 satellite was launched into a too-low orbit in April 2004 aboard an Atlas rocket. The Atlas launch team said it was Boeing, as satellite prime contractor, that had set the satellite orbital injection parameters and that the Atlas vehicle had performed to these specifications.
The underwriters agreed that Boeing was at fault and sought to recover from Boeing more than $240 million in claims they had paid to SCC. In a Feb. 4 ruling, an arbitration panel rejected the insurers’ claim amount but agreed to award them “a portion of the warranty payback,” Boeing said. The company declined to specify the amount of the payment but said it is “pleased overall with the arbitration panel’s decision.”
