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Railroad sues insurance over 416 fire coverage

Were fire and subsequent mudslides one incident or two? That’s the $25 million question
A Durango & Silverton Narrow Gauge Railroad train goes over an area of track in September 2018 that was destroyed by floodwater and debris in July after more than a half inch of rain fell in the 416 Fire burn area north of Hermosa. (Jerry McBride/Durango Herald file)

The devastation wrought by the 416 Fire, which torched about 54,000 acres of forest north of Durango in 2018, and the damage inflicted by the rains that caused floodwaters and mudslides to flow from the burn scar were two different “occurrences,” says the Durango & Silverton Narrow Gauge Railroad.

Steadfast Insurance disagrees, saying that the mudslide and flooding damage would not have happened but for the fire.

Who is right in this linguistical conundrum? That’s the $25 million question, which is now to be hashed out in federal court.

D&SNG’s insurance policy indemnified the railroad for up to $25 million per occurrence with a policy aggregate of $50 million. In a complaint filed in United States District Court for the District of Colorado in April, American Heritage Railways, the parent company of D&SNG, and the father-son leadership team, Al and John Harper, allege that Steadfast breached its contract by refusing to cover only liability expenses up to the $25 million single-occurrence limit.

Steadfast maintains that the fire and mudslides were one occurrence.

The mudslides caused by heavy rainfall on the area burned by the 416 Fire in 2018 caused millions of dollars in damages. The Durango & Silverton Narrow Gauge Railroad is suing its insurance company, which has refused $25 million in coverage on the basis that the fire and mudslides were a singular occurrence. (Jerry McBride/Durango Herald file)

Multiple investigations concluded that a cinder from the smokestack of a coal-burning locomotive had started the blaze, and in March 2022 the railroad settled its legal disputes with both the federal government and private property and business owners.

D&SNG agreed to compensate the federal government $20 million for firefighting expenses. The train paid $15 million up front and the remaining $5 million will be paid with interest over 10 years. It also agreed to make changes in its operation to reduce the risk of wildfire and contribute $100,000 annually to a self-insured wildfire fund.

The train also settled legal disputes with property owners damaged by the deluge of mud and floodwaters that drained out of the burn zone, as well as business owners forced to shut down because of the fire.

The size of the settlement with the private parties remains unknown, but the company has said that claimants estimated damages to be as high as $71 million.

Steadfast paid out its $25 million per-occurrence limit, less legal expenses, but has refused to cover anything more. In its complaint, D&SNG calls the difference in its liability and Steadfast’s $25 million in coverage a “large shortfall.”

Cres Fleming one of the first on the scene of the 416 Fire, which started June 1, 2018, north of Durango. Two investigations found that an ember from the train was responsible for starting the fire, which burned 54,000 acres of forest. (Jerry McBride/Durango Herald file)

The $25 million question is whether the fire and mudslides were “substantially the same general harmful conditions.”

D&SNG and Steadfast agree, court documents show, that the insurance company acknowledge coverage for expenses related to the fire in June 2018, the month the fire started. But D&SNG says that after it notified Steadfast of additional claims related to the mudslides in September, the company refused to acknowledge coverage – an allegation Steadfast denies.

The 416 Fire burns down Hermosa Cliffs on June 6, 2018, above U.S. Highway 550. The federal government concluded that the Durango & Silverton Narrow Gauge Railroad caused the 416 Fire and settled a lawsuit over its firefighting expenses for $20 million. (Jerry McBride/Durango Herald file)

The train argues that the fire was not the “sole, uninterrupted, continuing cause of injuries” to properties damaged by flooding and mudslides, but that the torrential rainstorms that occurred were an intervening cause. The presence of an intervening cause breaks the causal sequence of events, the complaint argues, splitting the two into separate occurrences.

Steadfast has resisted this legal argument in a response to the complaint.

The plaintiffs are asking the court to award compensatory damages for the twice the amount of the denied coverage on the basis that it was “unreasonably denied or delayed.”

D&SNG and Steadfast did not immediately return requests for comment Tuesday.


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