City of Ottawa sues LRT insurers for $361M over Rideau sinkhole dispute

This image of the sinkhole at the corner of Sussex Drive and Rideau Street in downtown Ottawa was taken on Thursday, June 9, 2016. Crews were working to fill the hole with concrete. Monique Muise/Global News

The sinkhole that swallowed a van on Rideau Street in 2016 has also opened up expensive litigation between the City of Ottawa, Rideau Transit Group and the insurers covering the first stage of light-rail transit construction in the nation’s capital.

A confidential memo sent on behalf of Ottawa’s rail construction director, Michael Morgan, to city councillors Monday night said that the city is claiming $361 million in costs from insurers on Stage 1 LRT related to the sinkhole, which has been cited as a significant source of delays in opening the Confederation Line to transit riders.

The sinkhole opened on June 8, 2016, above a tunnel being built beneath Rideau Street for the light-rail track. No one was injured but it swallowed a van, which was ultimately left in the opening when it was filled over with concrete.

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New high-angle shot shows size and depth of massive Ottawa sinkhole – Jun 8, 2016

Ottawa is hoping to recoup so-called “soft costs” tied to the sinkhole, referring to financial, legal, staff and accounting costs incurred by the city plus lost revenue related to the LRT delays. The city had filed a claim for these costs to the group of insurers RTG tapped to cover construction activity for Stage 1 LRT, but those claims were denied.

The city claims the insurers breached the policy by failing to pay out insured losses related to the sinkhole.

Insurers did cover the city’s previous claim in November 2018 for $1.7 million in “hard costs,” city manager Steve Kanellakos told reporters Wednesday, which largely covered expenses such as police resources and traffic disruptions resulting from the sinkhole.

The confidential memo, obtained by Global News and first reported by the Ottawa Citizen on Wednesday, said the city’s claim was filed in court on May 11.

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Morgan’s memo, co-authored by the city’s external legal counsel Sharon Vogel, indicated the city’s proof of loss was first filed with the insurers in August 2020 but was denied in December of that year.

Included in those docs was a claim of $230 million from RTG against the city, which Ottawa would seek to recover from the insurers if it’s found liable.

Kanellakos declined Wednesday to give details on what RTG’s claim against the city includes, but said it relates generally to costs to repair the sinkhole and delays in completing the overall project.

Read more: Ottawa taking ‘proactive steps’ to avoid Stage 2 LRT delays

The city hopes to argue its suit alongside one filed by RTG in June 2019. The consortium tasked with building and maintaining Stage 1 LRT is also seeking $275 million in claims from the insurers after being denied coverage for what it alleges are insured losses related to the sinkhole.

Because both RTG and the city are seeking funds available under the policy, which includes a liability limit of up to $700 million for any one loss, Morgan said Ottawa is attempting to consolidate its legal action with RTG’s to ensure any successful claim from the contractor does not edge the city out of its potential payout.

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The city is filing its claim in Ontario Superior Court in Toronto rather than Ottawa to streamline the process of merging the two actions.

Mayor Jim Watson would not comment on the specifics of the lawsuit Wednesday but expressed his confidence in the city’s prospects.

“The legal action that we’re taking is obviously to ensure the protection of our taxpayers. We feel we have a very solid case,” he told reporters.

Earlier this year, city council approved adding $15 million to the contingency fund for Stage 1 LRT, citing the need to cover additional legal fees related to ongoing litigation on the project.

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No sinkholes expected on second stage LRT tunnel, Ottawa mayor says – Sep 25, 2020

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