Boeing Is Target Of Insurer Action Tied to Satellites

The Wall Street Journal 09/13/04
author: Andy Pasztor
(Copyright (c) 2004, Dow Jones & Company, Inc.)

Insurance underwriters have begun legal proceedings accusing Boeing Co. of negligence in manufacturing defective satellites, and for the first time are seeking hundreds of millions of dollars in damages from the company.

On Friday, in an unusual legal action against a major satellite maker, underwriters formally sought arbitration from the International Chamber of Commerce in Paris for $250 million in damages related to defects in early versions of Boeing's top-of-the-line 702 spacecraft, according to one industry official involved in the issue.

The insurers want the Chicago aerospace giant to compensate them for the claims they have paid, asserting that the manufacturer failed to quickly remedy the problems or properly alert customers about them. It's the first time underwriters have taken such action against Boeing.
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Major satellite insurers already have paid out about $800 million to settle claims over chronic malfunctions of the solar-power generating systems that have sharply reduced electric power and orbital life. Boeing has acknowledged that a design problem caused the malfunctions on the first six 702 models owned by four different satellite operators, and it since has changed the design.

Launched between 1999 and 2001, the defective solar arrays led to a spike in satellite-insurance premiums and prompted expensive replacement programs by the affected owners. The technical problems severely damaged the reputation of Boeing's satellite unit, depressed the unit's sales and helped spark a management shake-up.

The case filed last week involves Thuraya Satellite Communications Co., a Middle Eastern mobile-telephone system that has received about $250 million from insurers. Other 702s with power problems are owned by Telesat of Canada, a unit of BCE Inc.; XM Satellite Radio Holdings Inc.; and PanAmSat Corp.

Yet more legal actions for the Boeing Satellite Division...