Baker & O'Brien, Inc.

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Dissecting the Root Cause of Equipment Failure – Was the Hurricane to Blame?

Arbitration, United States

January 1, 2015

When a Category 5 hurricane swept through the U.S. Gulf Coast, a petrochemical plant was forced to shut down and suffered equipment damage.  The owner filed an insurance claim for business interruption and property damage.  The plant is supplied with utility steam from an adjacent refinery, which also suffered damage during the hurricane.  Several months after the hurricane, the petrochemical plant suffered another shutdown—and additional losses—when three of the adjacent refinery’s boilers failed and the steam supply was disrupted.  A statistical analysis of the refinery’s steam system revealed a much higher boiler failure rate following the hurricane, leading the petrochemical plant owner to conclude that the economic damages suffered during the second shutdown should be included as part of the original hurricane insurance claim.

Although statistical analysis of equipment performance can be useful in analyzing trends and characteristics associated with equipment failures, such studies can be misleading when trying to identify the “root” cause of a specific failure event.  Only detailed analysis of an individual equipment failure can serve to ascertain whether any common

degradation mechanisms or events may have contributed to the failure, and identify the root cause

Baker & O’Brien was retained to conduct such a detailed analysis of the failure events associated with the refinery’s three boilers that caused the steam supply disruption.  Our objective was to express an opinion as to whether each failure was hurricane-related or whether it was due to other unrelated cause(s).  Our findings and opinions were presented in a report which was submitted into evidence.  During a subsequent meeting between the claimant and the respondent, the case was settled.