Paris Airport Collapse Insurance Recoveries Unclear

June 1, 2004

A portion of the newly constructed Terminal 2E at Paris' Charles de Gaulle airport collapsed on Sunday May 23, killing four people, and sending shock waves throughout France. Over a week later the cause of the collapse and its repercussions remain unclear.

News reports, which first appeared in Le Parisien, indicate that airport workers had experienced and reported a number of problems within the new terminal, which was opened less than a year ago. Cracked plaster, falling concrete and two separate incidents involving burst water mains, had been reported over the last two months. If confirmed, it would indicate that at least some sections of the building were demonstrably unsafe well before the fatal collapse.

An investigative commission under the direction of Jean Berthier, an engineering Professor at France's Ecole Nationale des Ponts et Chausées, has been appointed to examine the causes of the disaster, and is expected to make a preliminary report by the end of June. Possible causes include faulty architectural design, construction defects due perhaps to time pressures, or the use of faulty materials.

Architect Paul Andreu has maintained that the design was sound, but many sources have indicated that unrealistic construction deadlines may have pushed safety concerns to the side. Several incidents were reported during construction, but authorities indicated they had been repaired. The new Terminal, built at a cost of 750 million euros ($922.5 million) was a showpiece of French architectural engineering, and the collapse has cast a pall over other construction projects. It could be very costly, as well. The entire building may have to be demolished, if it is found to be unstable.

Payments will eventually be made by the various insurance companies who underwrote the structure, but who pays and how much hasn't been established. There are also potential recoveries for the loss of use of the terminal by Air France and the closure of shops and stores. The entire structure has been closed indefinitely pending the investigation, and is not expected to reopen soon. Air France has already announced plans to cancel some flights and to shift some operations to Orly Airport.

According to a report in Les Echos, the French Financial Daily newspaper, more than 400 firms were involved in the construction, and sorting out any direct links to the collapse will be a difficult process. Les Echos posited that, if a construction fault was found, it would fall under the construction insurance policy or PUC (police unique chantier). The policy covers events linked to any firm that participated in the construction for 10 years from completion. It also assures rapid payment to the owner of the terminal - the Paris Airport Authority (ADP).

The ADP itself may be limited in its recovery, however, as it is both the owner and the manager of the terminal building, and it directly employed the designer.

The coverage was placed through the broker Gras Savoye. AXA Corporate solutions was the lead carrier with around 60 percent of the risk, followed by GAN, a division of France's Groupama, with around 40 percent. According to the reports reinsurance was placed with Swiss Re, Munich Re, France's SCOR Group and General Re.

AXA said only that its exposure would not exceed 10 million euros ($12.3 million). GAN has said that cannot estimate the amount of the loss, while SCOR indicated that it would have no significant impact on its results.