GE Must Arbitrate|Faulty Turbine Dispute

(CN) - An insurance company can try to recover the $3.8 million it lost on a faulty steam turbine generator built by General Electric in arbitration, a federal judge in Los Angeles ruled.

GE built the generator under a contract with the Los Angeles Department of Water and Power (LADWP), which is insured by Allianz Global Risk.

The turbine was defective and ultimately malfunctioned, forcing Allianz to pay about $3.8 million to cover costly repairs.

GE and the state department had agreed to arbitrate all contract disputes related to the turbine, but GE had no such agreement with Allianz.

Also, the insurer did not reimburse the utility department directly. It paid the repair company, LA Power Joint Venture.

But U.S. District Judge Dean Pregerson granted Allianz's motion to compel arbitration, because the dispute stemmed from the defective turbine.

"Here the wellspring of the dispute is the turbine GE delivered to LADWP pursuant to a contract for sale. If the turbine was defective as delivered, then GE likely breached its contractual obligations to LADWP," Pregerson wrote.

He said it didn't matter that GE had not agreed to arbitrate disputes with either Allianz or LA Power.

"That Allianz paid LA Power -- on behalf of LADWP -- to carry out the necessary repairs is of no consequence; the parties' dispute hinges on whether GE fulfilled its contractual duties to LADWP," he wrote. "Other related issues -- whether the statute of limitations bars Allianz's claims, for example -- are ancillary to the underlying breach of contract claim."

Pregerson said the rest of GE's claims "are for arbitrators to resolve."

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