I/N Kote v. Hartford Steam Boiler Inspection and Ins. Co.

Citation115 F.3d 1312
Decision Date11 July 1997
Docket NumberNo. 96-2052,96-2052
PartiesI/N KOTE, an Indiana general partnership, Plaintiff-Appellant, v. The HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, a Connecticut corporation, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Louis R. Hegeman, Barry S. Hyman, Gould & Ratner, Michele Odorizzi (argued), Mayer, Brown & Platt, Chicago, IL, for Plaintiff-Appellant.

Mark N. Senak, Thomas B. Keegan, Edward W. Gleason, Susan M. Griesgraber, Charles L. Philbrick, Richard B. Allyn, Terrence R. Joy (argued), Robins, Kaplan, Miller & Ciresi, Minneapolis, MN, for Defendant-Appellee.

Before EASTERBROOK, MANION and ROVNER, Circuit Judges.

MANION, Circuit Judge.

I/N Kote and Hartford Steam Boiler Inspection and Insurance Company dispute the meaning of an exclusion to coverage contained within a policy Hartford issued to Kote. The dispute presents us with the question of whether revolving cylinders known as "rolls" which extend through a "furnace" are part of the "furnace." The district court concluded that the affected rolls were part of the furnace; thus Hartford was not obligated to cover substantial losses resulting from heat damage to the rolls. Because we conclude that Hartford's furnace exclusion does not clearly nor unmistakably exclude from coverage the rolls extending through the furnace, we reverse and remand.

I.

Between 1989 and 1991, I/N Kote, a general partnership between subsidiaries of Inland Steel Corporation and Nippon Steel Corporation, built a half-billion dollar state-of-the-art galvanizing facility in New Carlisle, Indiana. The facility includes both an electro-galvanizing line as well as a hot dip continuous galvanizing line. This case concerns the latter, which was completed in November of 1991 and went on line sometime in December 1991 or January 1992.

The I/N Kote Continuous Galvanizing Line

I/N Kote's facility includes a highly automated Hot Dip Continuous Galvanizing Line 1 ("CGL") which applies zinc to the surface of a continuous length of steel. The CGL anneals (a process of heating and slowly cooling hard steel to soften it and render it flexible and formable) and galvanizes (a process of coating steel with zinc to retard oxidation) a continuous strip of steel substrate. The CGL consists of a series of operations, each contained in a separate section along the length of a very long building. The process begins in the "entry section" where steel substrate arrives in 45-ton coils which are uncoiled and welded together, end to end. The now-continuous strip of steel passes through an alkaline and electrolytic "cleaning section," which feeds into the "entry looper" storage section. The entry looper stores up a sufficient stock of steel coming out of the welder so that the steel can be carried through the rest of the line at a steady, regulated speed unaffected by the uncoiling and welding of the incoming steel.

After exiting the entry looper, the steel band enters the annealing furnace, a ten-story-high enclosure where it passes through four zones, each also called a "furnace": first it enters the "radiant tube furnace," after which it passes through the "soaking furnace"; from there the steel strip is carried through the "slow cooling furnace" and the "jet-cooling furnace." The radiant tube furnace employs gas-fired radiant tubes to raise the steel to a temperature between 825 to 900 degrees Celsius; the soaking furnace maintains this temperature with electrical radiant tubes; the slow cooling furnace uses water-cooled heat exchangers and fans to slowly lower the temperature of the steel and the jet-cool furnace plunge cools the steel to roughly 500 degrees Celsius, the correct temperature for immersion in the molten zinc in the next stage of the line. The four "furnaces" contained within the annealing furnace section of the line are pressurized enclosures containing a hydrogen and nitrogen atmosphere to prevent oxidation of the steel substrate during annealing which might interfere with the galvanizing process. There is no open combustion; the heat is generated either by gas combustion inside tubes which then radiate the heat and warm the steel, or by electric radiant tubes. No heat is applied during the latter two phases, the slow cooling furnace phase, and the jet-cool furnace phase; instead heat is extracted during these operations.

From the annealing furnace section, the steel passes into the "pot," a ceramic tank containing molten zinc. Exiting the "pot," the steel passes through a holding zone where the temperature is moderated and the steel is subject to a nitrogen gas blanket to provide for proper adhesion of the zinc. The strip is further cooled in an "atomized water fog cooler." From there the strip passes through an "air jet cooler" and then into a "galvannealing furnace" where the cooling and heating zones are controlled to create a proper finish on the steel. The strip next passes through a water quench tank, and then a "skim pass mill" to provide a smooth finish. The steel enters a "delivery looper" which plays the same function, in reverse, as the entry looper, holding excess steel in order to assure the continuous strip moves through the critical stages of the line at a uniform speed. From the delivery looper the steel is sheared back into lengths and recoiled onto reels.

Because each stage of the line performs a constant function and maintains a uniform temperature, the process of annealing and galvanizing occurs by moving the steel substrate through the stages at a rate which exposes any given section of the steel to each of the steps in the process for an exact period of time. As any section of steel is connected to the next, in one continuous length, the entire strip of steel must be moved at a steady and carefully controlled rate. The speed and tension are controlled by the facility's robotics, which consist primarily of 600 large roller mechanisms, which are referred to as "rolls": revolving cylinders shaped roughly like rolling pins, over and around the barrel of which the steel is transported. The speed and tension of the continuous steel strip are dependent on the speed at which the rolls rotate; their rotation is controlled by computers and motors that were purchased from Melpac and General Electric. These controls operate independently from those that control the function of the various steps, such as the radiant tube temperature, the cooling jets, or the molten zinc temperature. For example, unlike the roll mechanisms, their motors, and computers, the annealing furnace is regulated by a Yamatake control system which monitors and regulates the atmosphere, combustion system, and waste gasses.

While the barrels of the rolls (the part of the roll that actually carries the steel strip) are all approximately the same width, size, and weight, and while the rolls all perform essentially the same function of controlling speed, tension, and position of the steel as it passes through the various steps of the process, not all the rolls are identical. Some rolls are located in areas subject to extreme conditions such as heat, corrosion (the sink roll is submerged in molten zinc in order to assure the steel's passage through and coating by the liquid metal), or moisture (the rolls in the quenchers are immersed in water and therefore the barrels are constructed of stainless steel). At issue in this case are the 33 rolls contained in the area of the line identified as the "annealing furnace." Because these barrels extend through the area of the "furnace" subject to extreme temperatures, they are constructed of a special centrifugally cast alloy and each roll costs approximately $75,000, compared to the roughly $20,000 cost of a common production roll. (The sink roll costs $85,000 and an "NSC top roll" costs $100,000.) Only the barrel of the roll extends into the high temperature of the annealing furnace. The balance of the roll mechanism, the shafts, the bearings, power couplings, drive shaft, gear box, and motor are all located on the outside of the annealing furnace walls and remain at ambient temperature. According to the schematics in the record, the end bells, which are located on either end of the barrel, connecting the barrel to the shafts, apparently are subject to the furnace temperatures on their barrel side but not so on their shaft side.

I/N Kote's Loss

On January 30, 1992, tension readings began to fluctuate and an unusual noise emanated from inside the annealing furnace. I/N Kote shut down the line and found a broken roll inside the annealing furnace at position 26. The roll was "blanked" by removing it from the furnace and welding steel plates over the holes on either side of the furnace through which the roll had passed. I/N Kote began to bring the system back on line with the steel strip passing directly from roll 25 to roll 27. Because of the missing roll, I/N Kote engineers slowed the speed at which the steel strip passed along and through the line and adjusted the temperatures of the various operations. In this manner, the line could continue to anneal and galvanize the steel strip but at a lower speed and lower output. On February 3, while in the process of bringing the operation back on line, I/N Kote discovered another broken roll inside the annealing furnace at position 2.

I/N Kote viewed this second event as an "alarming trend" and shut down the line in order to inspect the remaining rolls. I/N Kote discovered that 29 of the 31 remaining unbroken rolls were cracked. The cracked rolls were all temporarily mechanically repaired with "collars" and the broken rolls replaced with spare rolls also fitted with "collars." The line resumed operation on April 1, 1992 and continued to operate until June 15, 1992 when it was again shut down until July 1 while engineers replaced the broken and cracked rolls...

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