Legal advice with respect to a dispute relating to a potential insurance claim arising from the losses caused by a defective tunnel construction in the Busan-Masan Double Track Private Investment Project.

In March 2020, during the construction of the double track as part of the Busan-Masan Double Track Private Investment Project, the segment of the underground tunnel that passes underneath a river was damaged, which led to the leakage of underground water and soil into the tunnel.  Since the occurrence of this accident, repairs are being undertaken to date, which are expected to result in repair/recovery costs amounting approximately to USD300 million and loss of profit up to USD100 million due to the delay of construction (KRW400 billion)

With respect to the construction, client has subscribed to Construction All Risk (“CAR”) Insurance, and presently there is a dispute regarding insurance proceeds payment between the client and the co-insurers relating to the accident, which is likely to develop into a legal dispute.  The legal issues that may be addressed in the prospective lawsuit are the subject of the insured interest, cause of the accident and whether the accident falls under a covered risk, obligation to explain the policy and whether the exclusions may apply to the accident due to the defective design and/or construction.  Especially, the lawsuit will require interpretations of the exclusions under the special conditions that reflect the special characteristics of the linear construction, e.g., warranty concerning sections clause and special conditions concerning the construction of tunnels, galleries, subsurface structures or installations under CAR policy.

Considering the lack of relevant of precedents relating to construction insurance in Korea, our team is providing comprehensive strategic advice regarding insurance claims to be made in the future, as well as advice on interpretation of the policies which include a wide jurisdictional research.  This case will be an important precedent and is expected to involve legal disputes in various insurance topics over the next several years.