Fire Rebuilds Stoke Flames of Claims if Not Handled Appropriately

Today’s refining, chemical, petrochemical, and heavy industrial facilities process and utilize hazardous chemicals, and despite the best laid plans and procedures, accidents do happen. Accidents could range from fires to explosions, resulting in chemical releases and damage to equipment and the facility, hopefully with minimal or no injury to personnel.

Insurance is often called upon to reimburse the owner for property damage and business interruption expenses following the fire, all of which could result in claims and disputes if not handled appropriately. Heeding some lessons learned during the rebuild process can help minimize the opportunities for claims and disputes following a fire or explosion.

Extinguishing the Fire and Preserving Surrounding Assets

There are many critical items that should be considered following a fire or explosion. First and foremost, safety of all personnel should drive all responses. It is important to account for all personnel and rescue and treat those injured.

Additionally, the plant’s fire response procedures should include controlling and extinguishing the fire to minimize further damage. Dousing the fire with sufficient water may also help control vapor emissions and reduce air pollution.

Oftentimes, due to the sudden nature of the fire or explosion, the plant is unable to follow its normal shutdown and decommissioning procedures. It is important that unaffected systems be preserved or “safed” as soon as possible. Preserving a system typically includes a nitrogen purge to keep the air and moisture out of the system. Safing, on the other hand, includes removing hazardous chemicals or flammable hydrocarbons and a nitrogen purge to keep out moisture during the fire rebuild period. The fire damaged area should be isolated using blinds and/or by crimping pipes to facilitate safing non-affected systems and to prevent feeding additional flammable liquids and gases to the fire zone.

Incident Investigation

Shortly after the fire, various governmental and industry agencies require that an incident investigation begin. 29 C.F.R §1910.119 (m) Process Safety Management under OSHA, 40 C.F.R. Part 68 §68.81 Risk Management Program under the EPA, and the US Chemical Safety and Hazardous Investigation Board (also known as the US Chemical Safety Board) all require an incident investigation following a fire or explosion. An incident investigation is performed to investigate the likely cause of the fire or explosion and to make recommendations to limit the potential for a recurrence and/or mitigate the consequences of such an event.

A typical incident investigation includes conducting interviews, gathering and reviewing data and documents, reviewing the plant’s safety procedures, reviewing maintenance records with particular emphasis on mechanical integrity programs, and possibly conducting forensic analysis. It is important to recognize that an incident investigation could take several months and delay any effective rebuild efforts, as the fire area must be preserved until the investigation is complete. Therefore, owners and their insurers are advised to include sufficient time in the rebuild schedule and recognize that access to the fire area may be limited until the investigation is complete.

Damage Assessment

A thorough damage assessment is important, as it will be the starting point for any rebuild efforts. Various industry guidelines exist which provide methodologies for evaluating whether various plant systems, equipment, and piping systems are fit-for-service or require repair or replacement. API RP-579 contains guidelines for conducting damage assessments and testing, from visual inspections to hardness testing and, in some cases, finite-element-analysis.

It is important to recognize that damage may result in areas not directly in the fire zone, as heat may conduct itself along pipes and wires. This is especially important for instrument and electrical systems. It is often difficult to identify damaged wiring systems with visual inspections, and thus damaged instrument and electrical systems will likely be identified during the commissioning and start-up phases when those systems are tested. Furthermore, instrument and electrical systems may be damaged and corroded due to prolonged exposure to firewater, and thus it is advisable to check, as a minimum, critical systems for functionality prior to introducing hazardous feedstock into the unit.

A thorough insulation inspection is also recommended, as insulation can be damaged due to both fire and the deluge of firewater. Wet insulation generally must be replaced.

Coordination with the Plant’s Insurance Carrier

It is important to include any insurance carriers in the rebuild discussions and keep them informed of critical decisions, as this will help ensure a quick and full recovery of available insurance proceeds. Agree with the insurance company, if possible, on the extent of repairs, recognizing that there will always be additional damage, called discovery work, that is identified during the rebuild and/or commissioning phases.

The construction means and methods should also be agreed upon with the insurance carriers, as construction means and methods can have a direct impact on repair costs, as well as schedule duration, which directly impacts the business interruption claim. For example, depending on the extent of damage, it may be less expensive to “clear cut” the fire damaged area as opposed to surgically demolishing/repairing the damage. Clear cutting involves removing all pipe and steel from a given area and reinstalling new items. A clear cut approach typically leads to higher labor productivity, and hence, lower repair costs, as trying to surgically remove and reinstall items in a congested area can be more time consuming.

Sudden fires and explosions often do not allow the owner to follow its normal planned shutdown procedures, and as such, damage to systems and equipment may result. For example, improperly decommissioned furnaces can result in furnace tubes cracking or becoming fouled with coke deposits. The sudden shutdown following a fire and inability to properly decommission and drain the unit of flammable/hazardous chemicals may result in a more complex commissioning following the fire rebuild. Furthermore, extended shutdowns during repairs may require systems outside the fire zone to be commissioned, as it is not uncommon for systems to rust or deteriorate while sitting idle for extended periods of time. 

Agree with the insurance carriers on any required code upgrades that may be necessary given the age of the existing facility. Oftentimes, owners are required to upgrade older facilities if industry codes have changed since the facility was originally built.

Lastly, there is typically a balance between repair costs (property damage) and business interruption costs. Not all repair options require the same construction duration, and as such, one must carefully balance schedule-driven costs with capital costs. It is advisable to agree with the insurance carriers on the appropriate use of incentives, premiums, overtime, and other acceleration measures, as there is typically a cost-benefit analysis associated with such acceleration measures.

Repairing the Facility

The next step is to retain qualified contractors and conduct the repairs. Resist the temptation to “upgrade,” recognizing that insurance companies will only pay for repairing “like-with-like” where possible. If upgrades are desirable, segregate those costs such that the insurance company can easily track and understand them, which will ensure they are not included in any insurance claim.

Likewise, should any maintenance work be performed during the shutdown, it is important to segregate those costs, as the insurance company typically will not pay for normal maintenance work outside of the fire damaged area. It may be advisable to utilize different contractors for upgrade/maintenance work, as opposed to the repair work, to facilitate cost segregation. In addition, with respect to business interruptions claims, owners are advised that any maintenance/upgrade work should be performed as non-critical path work. As an alternative, owners should clearly demonstrate that any critical path schedule delay associated with upgrades and maintenance work is not included in the business interruption claim.

Lastly, owners are advised to utilize an engineering and construction contract that puts some cost containment pressure on the contractor. Typically, a lump sum contract is not advisable due to the uncertainty and difficulty of the required repairs. There are various contracting strategies to consider, such as a target price with a fixed fee, a target price with a sharing of any under runs/overruns, or a unit price contract which places the productivity risk with the contractor. All of these strategies put cost containment pressure on the contractor.

Commissioning the Facility

Commissioning a facility occurs after mechanical completion and involves checking that the plant or system is safe and has been built according to the design. It also involves activities to ensure the plant is ready for start-up.

Commissioning a plant after a fire may be more complex than a typical commissioning following a planned shutdown. This is because, during a normal turnaround, piping and equipment systems are maintained in a controlled environment and protected from debris, moisture, and harmful chemicals. However, in a fire rebuild, typically there are multiple breaches in equipment and piping systems, resulting in water, air, hydrocarbons, and other chemicals sitting in these systems for an extended period of time.

A sudden and uncontrolled shutdown may result in the need to commission systems both inside and outside the fire zone. This is especially true if the unit sat idle for an extended period of time pending repairs. Discovery of additional fire-related damage to instruments and electrical systems should also be expected during commissioning, as this is typically when the systems are functionally tested and made ready for start-up. Therefore, it is advisable for all parties to recognize that commissioning a unit after a fire rebuild may take longer and cost more than commissioning following a planned shutdown.

Conclusion

Fire rebuilds can be complex and may not be as straightforward as a typical construction project. However, as with any construction project, claims and disputes can arise if various issues are not handled properly. Thankfully, fires or explosions rarely occur, but if they do, these lessons learned will provide some guidance for consideration prior to rebuilding the facility.

Source: Christopher J. Sullivan

Released: April 28th, 2010 07:15 AM

Phone: (713) 626-2525

Fax: (713)626-2555

Email: cjsullivan@interface-consulting.com

Category: construction litigation assistance