794 F.2d 871 (3rd Cir. 1986), 85-3598, Compagnie Des Bauxites de Guinea v. Insurance Co. of North America

Docket Nº:Appeal of INSURANCE COMPANY OF NORTH AMERICA, Appellant in 85-3598.
Citation:794 F.2d 871
Party Name:COMPAGNIE DES BAUXITES DE GUINEA v. INSURANCE COMPANY OF NORTH AMERICA, the Insurance Corporation of Ireland, Ltd., Metcantile & General Reinsurance Co., Ltd., Hanover Eagle Star Insurance Co., Ltd., Hanover Insurance Company, Continental Assurance Company of London, Ltd., the Century Insurance Co., Ltd., Yuval, the Insurance Company of Israel, Ltd
Case Date:July 08, 1986
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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794 F.2d 871 (3rd Cir. 1986)

COMPAGNIE DES BAUXITES DE GUINEA

v.

INSURANCE COMPANY OF NORTH AMERICA, the Insurance

Corporation of Ireland, Ltd., Metcantile & General

Reinsurance Co., Ltd., Hanover Eagle Star Insurance Co.,

Ltd., Hanover Insurance Company, Continental Assurance

Company of London, Ltd., the Century Insurance Co., Ltd.,

Yuval, the Insurance Company of Israel, Ltd., Home Insurance

Co., Ltd., Slater Walker Insurance Company, Ltd., Yasuda

Fire & Marine Insurance Company (UK) Ltd., Nichido Fire &

Marine Insurance Co., Ltd., Turegum Insurance Company, Sahar

Insurance Co., Ltd., Excess Insurance Co., Ltd., Trident

Insurance Co., Ltd., Vesta (UK) Ltd., Chiyoda Fire & Marine

Insurance, Ltd., Tokyo, Stronghold Insurance Co., Ltd.,

British Reserve Insurance Co., Ltd., English & American

Insurance Co., Ltd., Consolidated European Reinsurance Co.,

Ltd. & L'Union Atlantique Sa D'Assurances Brussels, all

being corporations.

Appeal of INSURANCE COMPANY OF NORTH AMERICA, Appellant in 85-3598.

Appeal of COMPAGNIE DES BAUXITES DE GUINEA, Appellant in 85-3629.

Nos. 85-3598, 85-3629.

United States Court of Appeals, Third Circuit

July 8, 1986

Argued June 17, 1986.

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Stephen R. Mlinac (argued), Randall J. McConnell, Dickie, McCamey and Chilcote, Pittsburgh, Pa., Richard M. Shusterman, Thomas A. Allen, White and Williams, Philadelphia, Pa., for Insurance Co. of North America.

Cloyd R. Mellott (argued), Robert W. Doty, Andrew M. Roman, Larry K. Elliott, Mark J. Murphy, Eckert, Seamans, Cherin and Mellott, Pittsburgh, Pa., for Compagnie des Bauxites de Guinea.

Before SEITZ, HUNTER, and MANSMANN, Circuit Judges.

OPINION

JAMES HUNTER, III, Circuit Judge.

I. BACKGROUND

Compagnie Des Bauxites de Guinea ("CBG") is a multi-national corporation owned 49% by The Republic of Guinea and 51% by Halco Mining, Inc. ("Halco"). Halco is owned by the world's six largest aluminum producers. In 1969, CBG's predecessor began constructing the Boke Project, a facility to mine and process bauxite in Guinea. The first production year for the Boke Project began on October 1, 1973. The bauxite from Guinea was supplied to the aluminum companies owning Halco.

CBG mines bauxite in the interior of Guinea at Sangaredi and transports it by railway to the processing and shiploading facility at Kamsar, on the coast of Guinea. At Kamsar, the railroad ore cars are raised and the ore unloaded onto conveyors known as the "pan feeders." The bauxite is moved to the tippler building, a ninety-five foot high, reinforced concrete structure, where it is crushed. The crushed ore is then dried if necessary. A bucket wheel picks up the dried ore, which is then loaded onto ships at a dock connected to the processing facility.

CBG obtained an insurance policy, with a liability limit of ten million dollars, for business interruption loss coverage from the Insurance Company of North America ("INA"). INA's place of incorporation and principal place of business is Pennsylvania. The initial and renewal policy term was from February 12, 1974 to June 1, 1975. The policy insured against "losses resulting directly from necessary interruption of business caused by damage to or destruction of real or personal property."

Before beginning its first year of operations, CBG entered into contracts to supply 4.7 million metric tons of bauxite during its first production year, the period from October

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1, 1973 to September 30, 1974. However, during this first year, CBG shipped only about 3.6 million metric tons of bauxite and canceled several shipments. CBG entered into contracts to supply 6.8 million metric tons of bauxite during its second production year, which began on October 1, 1974.

On September 2, 1974, CBG discovered cracks in the tippler building. Mr. Hercules Pappas, the president of CBG, went to Guinea to review the problem with CBG's engineers. On September 16, 1974, Pappas concluded that there were serious problems with the structural integrity of the building and that crushing, and therefore shipments, of bauxite would have to be curtailed to avoid the building's collapse. He immediately canceled a great number of bauxite shipments.

Pappas testified that he canceled the shipments because of the cracks and not, as INA contended, for other reasons that were known before the discovery of the cracks. CBG's engineers had told Pappas to minimize production. Pappas admitted that he had overreacted by canceling so many shipments. Crushing and shipments during October, November, and December 1974 were higher than Pappas had anticipated after seeing the cracks, but were lower than CBG had projected before it knew about the cracks. Crushing during these three months was greater than it had been in any month in the first production year. CBG testified, however, that they had reasonably expected production to be significantly greater in the second year and that the actual crushing done, while greater than the first year's amount, was still much lower than their expectation. In its first year of production, less than 400,000 metric tons were crushed each month in all but one month. In October, November, and December 1974, CBG crushed between 450,000 and 475,000 metric tons per month. In May 1975, the first month of crushing after the tippler building was fully restored, CBG crushed 675,000 metric tons of bauxite. CBG had planned to crush over 500,000 metric tons per month in its second year of production. CBG was able to reinstate a number of the canceled shipments.

There was no crushing done from early January 1975 to April 18, 1975. During this time, the tippler building was repaired. CBG continued to make some shipments of bauxite by using its inventory. CBG contended that over the period from September 1974 to April 1975, it lost sales of 1,291,000 metric tons of bauxite. While restoring the tippler building, CBG also restored the mechanical pan feeder system's support. At trial, INA contended that the down-time did not result primarily from cracks in the tippler building but from a variety of other problems including a shortage of storage space, electrical repairs, mechanical repairs, a delay while waiting for raw bauxite, breakdowns of the pan feeders, and a need to redesign the tippler building and the pan feeder system.

CBG notified INA of its business interruption loss claim in June 1975. The district court found that INA received notice of the claim as of January 1975, when INA gained access to a report by Donald Mars, an international claims adjuster. In November 1974, another insurance company had sent Mars to the Boke facility to investigate a property damage claim with respect to the tippler building. While he was there, Mars also investigated, on behalf of INA, CBG's business interruption claims arising from damage to Bucket Wheel No. 3 and from a train derailment.

On January 23, 1975, Mars met with J.J. Gelinas, an employee in INA's European Head Office in Brussels. They met to discuss the train collision claim. On the basis of the meeting, Gelinas prepared a memo which was given to John Stel, the senior officer at INA's international claims subsidiary in Philadelphia. Gelinas...

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