Bituminous Cas. Corp. v. Lynn

• Decision Date: 02 October 1974
• Docket Number: Nos. 73-2043,73-2044,s. 73-2043
• Citation: 503 F.2d 636
• Parties: BITUMINOUS CASUALTY CORPORATION, Appellee and Cross-Appellant, v. James T. LYNN, Secretary of Housing and Urban Development, Appellant and Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 636

503 F.2d 636

BITUMINOUS CASUALTY CORPORATION, Appellee and Cross-Appellant, v. James T. LYNN, Secretary of Housing and Urban Development Appellant and Cross-Appellee.

Nos. 73-2043, 73-2044.

United States Court of Appeals, Sixth Circuit.

Decided Oct. 2, 1974.

Michael H. Stein, Appellate Section, Civil Div., Dept. of Justice, Washington, D.C., for appellant and cross-appellee; Irving Jaffe, Acting Asst. Atty. Gen., Washington, D.C., Eugene E. Siler, Jr., U.S. Atty., Lexington, Ky., William Kanter, Atty., Dept. of Justice, Washington, D.C., on brief.

Arnold M. Weiner, Baltimore, Md., for appellee and cross-appellant; Robert E. Cahill, Baltimore, Md., Charles Landrum, Jr., Sexington, Ky., on brief.

Before PHILLIPS, Chief Judge, and McCREE, and ENGEL, Circuit Judges.

PHILLIPS, Chief Judge.

This is an action to recover on a contract of reinsurance issued by the Department of Housing and Urban Development to Bituminous Casualty Corporation pursuant to the Urban Property Protection and Reinsurance Act of 1968, 12 U.S.C. 1749bbb-1 to 1749bbb-21.

In case No. 73-2043 the Secretary appeals from the judgment of the District Court awarding a recovery to Bituminous under its contract in the amount of $372,167.58 plus interest at six per cent per annum from the date of the judgment. In case No. 73-2044 Bituminous cross-appeals from the disallowance of pre-judgment interest from the date of the denial of its claim.

We affirm as to the judgment allowing recovery on the claim and the award of post-judgment interest and reverse as to the denial of pre-judgment interest.

The events giving rise to the claim against the Secretary of HUD were summarized by District Judge Bernard T. Moynahan, Jr., as follows:

'The claim arises from the violent destruction, during the night of August 24-25, 1968, of certain heavy mining equipment owned by Clairfield Equipment Company, Inc. ('Clairfield') and located at a mining site on Red Bird mountain in Leslie County, Kentucky. The destroyed equipment had been insured against loss, including loss from riot, by an inland marine policy issued by Bituminous to Clairfield. The premium paid by Clairfield to Bituminous for this policy was included in the total of inland marine premiums on which the Secretary calculated the premiums for the reinsurance contract.

'Clairfield was owned and controlled by the U. R. Arnold family. The insured equipment, was leased to two corporations, also operated by the Arnolds, which operated a strip mine and a deep mine at the site involved here. Approximately twenty employees, members of the Southern Labor Union, worked at these mines. The Arnolds also employed a lical resident to act as watchman and to guard the mine and equipment after working hours.

'At approximately 10:00 P.M., on the night of August 24, 1968, an armed gang of three or four men descended upon the watchman, assaulting him and forcibly removing from his person the guns which he had used to protect the mines and equipment. He was thrown to the ground, kicked about the head and told that he might be killed. The gang forcibly broke into a trailer containing high explosives, and, for more than four hours, with the watchman bound and blindfolded, they planted the explosives beneath every piece of valuable equipment on the site. As they went about their task, the gang continued to threaten the watchman and at one point some of them suggested that he be tied to the equipment and distroyed along with it. The destruction was accomplished by a prolonged series of explosions. The first of the blasts terrorized not only the watchman, but the members of the gang as well. A separate fuse was lit beneath each piece, and, for a sustained period, the mountain was shaken by a sequence of blasts. Persons living in the vicinity, including those on the other side of the mountain, as much as five miles away, were awakened and frightened by the tumult. The explosions were so violent that their houses were shaken. It appeared to some that 'the mountain was a ball of fire' and to others that 'the sky was it lit up'.'

Bituminous had purchased a standard form riot reinsurance policy from the Secretary. The policy provided:

'Pursuant to the provisions of the Urban Property Protection and Reinsurance Act of 1968 and subject to the terms and conditions herein set forth, the REINSURER hereby obligates itself to pay, as reinsurance of the COMPANY, the amount of the COMPANY'S excess aggregate losses resulting from riots or civil disorders in such lines of mandatory and optional coverage as may be designated herein separately for each State.'

Clause XV(2) defined 'riots or civil disorders' to mean:

'a. any tumultuous disturbance of the public peace by three or more persons mutually assisting one another in execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind;

'b. two or more unlawful and terroristic acts or occurrences which, under similar circumstances, take place within reasonable proximity as to time and place, at least two of which acts or occurrences each result in property damage of any kind in excess of $1,000 or;

'c. any other unlawful and terroristic act or occurrence, resulting in property damage of any kind, which may reasonably be determined by the REINSURER, on the basis of evidence submitted by the COMPANY, to have been under the circumstances, a form of civil disorder.'

Bituminous submitted its claim to HUD which summarily rejected it because 'it (did) not appear that this loss arose incident to a riot or civil disorder as defined in the Standard Reinsurance Contract.' After Bituminous requested reconsideration of the denial of its claim, HUD amplified its reasons for the denial:

'Nevertheless, it was the recommendation of our internal Claims Review Committee, and my ultimate decision as Administrator, that the type of loss involved was not one covered, or intended by the Congress to be covered, under the Standard Reinsurance Contract. It was our conclusion that the loss resulted from traditional malicious mischief rather than from the type of riot or civil disorder envisaged by the Urban Property Protection and Reinsurance Act of 1968.

'Specifically, the Congress, in broadening the scope of the program from the catastrophic coverage originally contemplated, stated: 'It has been pointed out that there has recently been a pattern of losses resulting from intentionally caused fire or other property damage which may or may not be connected in time or place to riots or group activity, but which could be determined to be a form of civil disorder. It is the view of the committee that losses of this nature might be considered by the Secretary when he issues regulations delineating the precise scope of 'losses resulting from riots or civil disorders.' House Report No. 1585, Committee on Banking and Currency, 90th Congress, 2d Session, p. 80. 'Both the testimony which led to the expansion of the scope of the Act, and the reference in the Committee Report to the recent pattern of intentionally-caused losses, make clear that the types of civil disorder intended to be covered were isolated or related acts of terrorism directed at an identifiable population or significant segment thereof by militant groups, often having racial cause, but having in common a primary motivation of civil protest or civil disruption; as distinguished, for example, from destructive acts directed toward a single employer or organization (as is typical of labor disputes), and particularly as distinguished from isolated acts which do not involve, either directly or indirectly, a community or a population. In summary, what we believe the Congress intended, and what we certainly intended by the (B) and (C) definitions of our Contract, was coverage primarily for terroristic acts affecting a population, which cause property damage, but which fall short of the mass riots which occurred in Watts, Newark, and Detroit, for example. Under the circumstances presented, where motive is unknown, the possible related acts were distant both in time and place, and no population was affected, we do not believe that we can stretch either the intention of the Congress or the wording of the Contract to provide the reinsurance coverage you seek.'

Thereupon, Bituminous filed suit pursuant to the provisions for judicial review set forth in 12 U.S.C. 1749bbb-11(b)(1). ¹ There being no dispute as to any material fact, both parties moved for summary judgment. The District Court in an amended memorandum opinion, held that the loss was covered under paragraphs (a) and (b) of clause XV(2), supra, awarded post-judgment interest and denied pre-judgment interest.

1) LIABILITY

It has not been disputed that the definition contained in paragraph (a), supra, corresponds with the common law description of a riot. See Providence Washington Insurance Co. v. Lynn, 492 F.2d 979 (1st Cir. 1974). See also generally 54 Am.Jur.2d Mobs and Riots 1 (1971); Annotation, 121 A.L.R. 250.

The Secretary's argument proceeds on two theories: (1) The definition of riot should be construed narrowly so as to make it consistent with the legislative intent underlying the reinsurance program; and (2) the acts giving rise to the loss, in any event, do not constitute a common law riot.

While admitting that the Act and the reinsurance contract were designed to cover losses sustained in rural as well as urban areas, the Secretary contends that they were designed to provide protection against riots such as those that occurred in the 1960's. In adopting this position, the Secretary would have us read a 'motivation' element into the contract definition of a riot. Specifically, it is argued that the riot must be motivated by social or political reasons and not by 'labor strife unrelated to . . . ideological or racial disturbances.' We do not read the contract so narrowly.

As a general rule, contracts of the United States...