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Wednesday, 05 May 2010 15:14

Ghost Town liability insurance lapsed prior to Feb. 5 mudslide

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Ghost Town in the Sky failed to make timely payments on its liability insurance policy, and as a result it lapsed just days before a massive mudslide originating from the theme park wreaked havoc on the mountainside below.

Now, property owners downhill of the mudslide whose homes were damaged may have no recourse to pay for repairs to their homes.

It is unwelcome news, although not surprising, to Kurt Biedler, a homeowner in the path of the slide whose home is now unlivable.

“We are victims of shabby business,” Biedler said. “Ghost Town is the Sky has effectively turned my life upside down and it is a very difficult thing for anyone to put with. It is not an easy thing knowing that a company, whether it is bankrupt or not, has been allowed to pull the shenanigans they have.”

Biedler and his wife have a mortgage on a house that has been destroyed. They say they are innocent victims with no clear or obvious path for recourse. But that isn’t going to stop Biedler from trying.

“We are still exploring our options of what we are going to do. There are always options,” Biedler said.

Ghost Town CEO Steve Shiver and others knew almost a year before the mudslide that the mountain was unstable. Ghost Town hired an engineer to examine the slumping portion of the mountainside in early 2009. The report calls into question the structural integrity of a massive series of retaining walls holding back a section of the mountainside that had proved troublesome on and off for 30 years.

“The MSE wall is not functioning as intended at this time and structural failure of the wall is possible if not replaced,” the report by Haywood County engineer Pat Burgin states.

The report was made in March 2009. However, Ghost Town owners failed to alert anyone of the potential danger — not the town, county, emergency agencies or homeowners living below.

Insurance saga

Ghost Town was three months behind in liability insurance payments when a cancelation was issued on Jan. 28.

The mudslide happened on Feb. 5. Five days later, on Feb. 10, Ghost Town wired $27,400 to cover the past due bill. Insurance was reinstated, but it was too late to cover damages stemming from the mudslide, the insurance company contends.

The insurance company, First Mercury Insurance, has been contacted by three homeowners suffering damage in the mudslide, according to the company. But First Mercury says it will not cover the claims, citing a lapse of Ghost Town’s liability insurance policy at the time of the slide.

“Some homes were in the direct path of the landslide and certain homeowners appear to be pursuing claims against Ghost Town for damages,” an attorney for First Mercury wrote in a federal bankruptcy court filing. “First Mercury contends that it has no duty to defend or indemnify any claims that may arise from the landslide because the policy was cancelled prior to the landslide, and therefore does not afford any coverage.”

Homeowners could redirect their claims and lodge them against Ghost Town directly instead of the insurance company, but First Mercury admits in the court filing that route could be futile, stating there is “little to no likelihood of recovering anything from (Ghost Town) itself.”

Ghost Town has been in federal bankruptcy court for more than a year. This week, Ghost Town brokered a deal to sell the amusement park to one of its current owners, but under a new corporate entity — walking away from several million in debt in the process and starting over with a clean slate.

The former corporate entity of Ghost Town may cease to exist once the new corporate structure takes over. The new entity, while comprised of the same major player, may not be responsible for claims against the old corporate entity.

It’s the same principle that allows the amusement park to leave behind millions in unpaid debt while the primary owner remains at the helm.

First Mercury Insurance points out in its court filings that Ghost Town may not be liable for damage claims anyway. Lawsuits would have to hash out whether Ghost Town is at fault for the slide before the insurance company would have forked over damages under the policy, even if it was valid.

When The Smoky Mountain News first reported on Ghost Town’s insurance lapse two months ago, Ghost Town partners insisted their coverage had never lapsed. Failure to keep insurance current is a violation of bankruptcy rules.

Ghost Town has not filed a response to the court filing of First Mercury outlining issues with the insurance coverage.

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