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Kennecott: One of the Biggest Mining Claims Globally in Recent History

ABOUT

The Bingham Canyon Mine (also referred to as Kennecott Copper Mine), is an open-pit mining operation extracting a large copper deposit in Utah, in the United States. The mine has been in production since 1906, and has resulted in the creation of a pit over 0.6 miles (970 m) deep, 2.5 miles (4 km) wide, and covering 1,900 acres (770 ha).

The mine is considered to be the largest man-made excavation in the world and is owned by Rio Tinto Group, headquartered in the United Kingdom. The copper operations at the site are managed through Kennecott Utah Copper Corporation (KUC) which operates the mine, a concentrator plant, a smelter, and a refinery.

The mine experienced a massive landslide in April 2013.

THE EVENT

In April 2013 the north east wall of the mining pit collapsed, resulting in approximately 150 million tonnes of rock and soil sliding in to the pit and covering the pit floor.

As a result, the main access road to the pit floor was cut over a length of some 800 metres, mining equipment (in particular three of the four shovels being used for production in the pit) with a replacement value of many hundreds of millions was destroyed and the production faces were buried under approximately 100 metres of rubble.

The mining authority immediately issued a notice prohibiting access to the pit for safety reasons. Within a few weeks this restriction was relaxed to permit limited production activities in an area of the pit unaffected by the debris by using the one remaining shovel which was “captive” in that area. The ore that was mined was transferred out of the pit via a conveyor tunnel through one of the walls of the pit not affected by the slide.

THE CONSEQUENCES

Reinstatement of the main access road into the pit was completed by 31 October 2013, which also coincided with the time it took KUC to replace the destroyed mining equipment. During this 6 month period only limited production from the pit was possible.

THE CLAIM

KUC made a claim under the material damage and business interruption policy issued by the Rio Tinto captive insurer in relation to various heads of loss totalling approximately USD1.5 billion. The captive in turn claimed under its facultative reinsurance program, which had been placed in various layers and percentages with close to 50 reinsurers in various parts of the world. Both the underlying policy and all reinsurance contracts were expressly subject to Australian law.

In terms of business interruption losses, KUC elected to claim under the Gross Earnings Endorsement of the policy, rather than under the Gross Profit Endorsement.

A unique point of difference for this matter was the necessity to draw on legal precedent from the United States given the absence of relevant case law in Australia and the United Kingdom in relation to the interpretation and application of the Gross Earnings Endorsement.

THE PROCESS

Wotton + Kearney were appointed to undertake the lead role in representing the interests of the entire reinsurance market in relation to the claim. Due to the disparate nature of the reinsurance program, another insurance law firm based in London was also appointed by the reinsurers to work in collaboration with Wotton + Kearney.

A reinsurer steering group was established to oversee the management of the claim. As effective and timely communication was imperative to achieving an outcome that would satisfy the reinsurance market Wotton + Kearney and the other appointed insurance law firm consulted regularly with the steering group, both in writing and, more importantly, by means of conference calls.

THE RESULT

The matter settled at mediation in late 2016 for a substantial compromise. Reinsurers reported that they were reassured by the outcome and acknowledged Wotton + Kearney as having taken the lead in attaining a result for the benefit of the entire reinsurance market.

Reinsurers also positively acknowledged the ability of Wotton + Kearney and the other appointed insurance law firm to work together in a uniquely collegiate manner for the benefit of all reinsurers.

Insurers and reinsurers generally regard this claim as a landmark case in assisting with the interpretation of complex policy provisions which often appear in material damage and business interruption policies issued to the mining sector in Australia.

© Wotton + Kearney 2017
This publication is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this publication. Persons listed may not be admitted in all states and territories.
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