Aluminum Recovery Techns., Inc. v. ACE Am. Ins.

• Decision Date: 13 May 2019
• Docket Number: CASE NUMBER: 1:17 CV 383
• Parties: ALUMINUM RECOVERY TECHNOLOGIES, INC. Plaintiff, v. ACE AMERICAN INSURANCE CO. Defendant.
• Court: U.S. District Court — Northern District of Indiana

ALUMINUM RECOVERY TECHNOLOGIES, INC. Plaintiff, v. ACE AMERICAN INSURANCE CO. Defendant.

CASE NUMBER: 1:17 CV 383

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA FORT WAYNE DIVISION

May 13, 2019

OPINION AND ORDER

Plaintiff, Aluminum Recovery Technologies, Inc., ("ART") is dissatisfied with the insurance recovery it received from its insurer, ACE American Insurance Co. ("ACE") after ART suffered a loss from a furnace failure that released molten aluminum into ART's Kendallville, Indiana plant. As a result, ART filed the present suit seeking a declaratory judgment as to its rights and obligations under the Policy as well as separate counts alleging breach of contract, negligence, and bad faith. Presently before the Court is ACE's Motion for Summary Judgment [DE 24]. For the following reasons, the Motion will be GRANTED in part and DENIED in part. The parties are encouraged to conduct settlement negotiations on the remaining claims and report to the Court prior to the Court's scheduling the case further.

APPLICABLE STANDARD

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The movant bears the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of designated evidence that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). After "a properly supported motion for summary judgment is made, the adverse party must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quotation marks and citation omitted).

A factual issue is material only if resolving the factual issue might change the outcome of the case under the governing law. See Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir. 1992). A factual issue is genuine only if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the evidence presented. See Anderson, 477 U.S. at 248. In deciding a motion for summary judgment, the court "may not 'assess the credibility of witnesses, choose between competing reasonable inferences, or balance the relative weight of conflicting evidence.' " Bassett v. I.C. Sys., Inc., 715 F. Supp. 2d 803, 808 (N.D. Ill. 2010) (quoting Stokes v. Bd. of Educ. of the City of Chi., 599 F.3d 617, 619 (7th Cir. 2010)). Instead, it must view all the evidence in the record in the light most favorable to the non-moving party and resolve all factual disputes in favor of the non-moving party. See Anderson, 477 U.S. at 255.

FACTUAL BACKGROUND

The following facts are largely undisputed. However, where in dispute, the evidence is presented, as it must be at this stage, in the light most favorable to the non-movant.

ART is an Indiana corporation with its principal place of business in Kendallville, Indiana. [DE 1, at ¶1]. ACE is a Pennsylvania domiciled insurance company authorized to issue property and casualty insurance policies in Indiana. Id. at ¶2. ART and ACE were parties to a contract of property insurance under policy no. EPRN0 915 8765 for the policy period of March 1, 2015 to March 1, 2016 ("the Policy"). A complete copy of the Policy has been filed in the record as DE 25-1.

In January, 2016, ART completed a construction project to expand the size and capacity of furnace #4 at its Kendallville, Indiana plant ("the Kendallville plant"). On February 8, 2016, while furnace #4 was being loaded for the first time after completion of that project, its containment was lost and it had a breakout whereby molten aluminum escaped through a crack in the furnace wall and leaked onto the factory floor in the Kendallville plant.

I. Amounts Paid Pursuant to the Policy and Relevant Policy Provisions

Pursuant to the terms of the Policy, ACE paid ART $264,562.00 for the covered property damage loss sustained as a result of the failure of furnace #4. This amount reflected a total property damage loss of $274,562.00, less a $10,000.00 property damage deductible. This amount is not disputed by the parties.

In addition, ACE paid ART $173,878.00 for extra expense incurred as a result of the failure of furnace #4, extra expenses totaling $232,284.00 - less a deductible of $58,946.00 which was based upon 10 times the plant's daily value of production. ART asserts that this amount is not the full amount due to it under the Policy and that ACE also owes it for property damage to the refractory lining. Specifically, ART asserts: (1) ACE has not reimbursed it for all the extra operating expenses compensable under the Policy; (2) ACE has not reimbursed it for the property damage to furnace #4 refractory lining; and (3) ACE was negligent and acted in bad faith during its investigation of the cause of the breakout.

The Policy contains numerous endorsement provisions relevant to this case including an endorsement provision for business interruption and extra expense coverage:

COMBINED BUSINESS INTERRUPTION AND

EXTRA EXPENSE INSURANCE ENDORSEMENT

A. AMOUNT OF INSURANCE: ...

1. Against loss directly resulting from necessary interruption of the Insured's business and the consequent reduction in Gross Earnings, caused by damage to or destruction of real or personal property covered under this Policy ... by the peril(s) insured against during the term of this Policy;

2. Against loss directly resulting from necessary Extra Expense, as hereinafter defined, incurred by the Insured in order to continue as nearly as practicable the normal operation and normal Gross Earnings of the Insured's business following damage to or destruction of real or personal property covered under this Policy by the peril(s) insured against during the term of this Policy;

...

B. COVERAGE:

Subject to all terms, conditions and stipulation of the Policy to which this endorsement is attached, not in conflict herewith, this Policy is extended to insure against loss resulting directly from:

1. Necessary interruption of the Insured's business and the consequent reduction in Gross Earnings caused by damage to or destruction of real or personal property ...;

2. Necessary Extra Expense, as hereinafter defined, incurred by the Insured in order to continue as nearly as practicable the normal operation and normal Gross Earnings of the Insured's business following damage to or destruction of real or personal property;

by the peril(s) insured against during the term of this Policy, which property is on premises occupied by the Insured and situated as herein described.

C. MEASURE OF RECOVERY:

In the event of such damage or destruction, this Company shall be liable for:

A. The ACTUAL LOSS SUSTAINED by the Insured resulting directly from such interruption of business, but not exceeding the reduction in Gross Earnings less charges and expenses which do not necessarily continue during the interruption of business (hereinafter referred to as "Loss of Earnings");

B. Such NECESSARY EXTRA EXPENSE incurred by the Insured;for only such length of time ... as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property herein described as has been damaged or destroyed, commencing with the date of such damage or destruction and not limited by the date of termination of this Policy.

Applicable only to Loss of Earnings, due consideration shall be given to the continuation of normal charges and expenses, including payroll expense, to the extent necessary to resume operations of the Insured's business with the same quality of service which existed immediately preceding the date of damage or destruction.

...

F. GROSS EARNINGS:

... "Gross Earnings" are defined as the sum of:

1. Total net sales value of production,

2. Total net sales of merchandise, and

3. Other earnings derived from operation of the business,

less the cost of:

4. Raw stock from which such production is derived,

5. Supplies consisting of materials consumed directly in the conversion of such raw stock into finished stock or in supplying the service(s) sold by the Insured,

6. Merchandise sold, including packaging materials therefor, and

7. Service(s) purchased from outsiders (not employees of the Insured) for resale which do not continue under contract.

No other costs shall be deducted in determining Gross Earnings. In determining Gross Earnings due consideration shall be given to the experience of the business before the date of damage or destruction and the probable experience thereafter had no loss occurred.

G. EXTRA EXPENSE

The term "Extra Expense," ... is defined as the excess (if any) of the cost(s) incurred during the period of restoration, chargeable to the operation of theInsured's business, over and above the cost(s) that would normally have been incurred to conduct the business during the same period had no destruction occurred. Any salvage value of property obtained for temporary use during the period of restoration, which remains after the resumption of normal operations, shall be taken into consideration in the adjustment of any loss hereunder.

[DE 25-1, at pp. 51-52].

The Policy also contains numerous exclusions, including a refractory exclusion provision as follows:

PROPERTY EXCLUDED:

This Policy does not cover:

r. Any refractory lining or catalyst, except for damage or destruction directly resulting from the perils of fire, lightning, windstorm, hail, explosion...

[DE 25-1, at pp. 28-29].

II. The Loss and Subsequent Events

As discussed at the outset, on the morning of February 8, 2016, furnace #4 at the Kendallville plant failed causing molten aluminum to pour onto the factory floor. Donald Mosely ("Mosely"), a supervisor for ART, was on the floor working at the time of the furnace failure. He testified that shortly before the molten aluminum was noted on the factory floor, there was an explosion in the furnace. (Deposition of Donald...