Central Louisiana Elec. Co., Inc. v. Westinghouse Elec. Corp.
| Decision Date | 06 May 1991 |
| Docket Number | No. 90-C-2485,90-C-2485 |
| Citation | 579 So.2d 981 |
| Parties | CENTRAL LOUISIANA ELECTRIC CO., INC. v. WESTINGHOUSE ELECTRIC CORPORATION, et al. |
| Court | Louisiana Supreme Court |
William O. Bonin, Landry, Watkins & Bonin, New Iberia, for Cent. LA Elec. Co. plaintiff-applicant.
Robert E. Couhig, Jr., Leslie A. Lanusse, and John W. Lindner, II, New Orleans, for Westinghouse Elec. Corp., et al. defendants-respondents.
The issue presented in this case is whether an insurance policy which provides coverage for loss or damage to property directly caused by an accident, but which specifically excludes corrosion from the definition of accident, covers the cost of replacing an entire blade unit due to the presence of corrosive pitting and resultant cracks.
The plaintiff, Central Louisiana Electric Company, Inc. (CLECO) is a public utility company engaged in the business of generating, transmitting and distributing electricity. CLECO generates electricity by means of steam powered turbine generators. A general understanding of the manner in which a turbine generator operates is necessary in order to appreciate the nature of the plaintiff's claims under the policy issued by the defendants.
Simply stated, steam enters through a valve in the middle portion of the unit and passes through a series of blades which revolve at a rate of 3,600 revolutions per minute. The steam exits the unit at both ends. One end of the unit is referred to as the governor end and the other is known as the generator end. The blades in the last ring on each end of the unit are called the L-0 blades. The adjoining inner ring of blades are designated as the L-1 blades. The L-1 blades are grouped in threes and are attached by a strip of metal called a shroud. The portion of each blade which fits into the shroud is termed the tenon.
On June 2, 1982, an alarm sounded at the CLECO generating station in Baldwin, Louisiana indicating the turbine generator unit had sustained high vibrations. Consequently, the unit was shut down. A preliminary internal investigation conducted by CLECO and Westinghouse (the manufacturer of the unit) revealed a portion of an L-1 shroud had broken and struck other blades located in the governor end of the unit. Specifically, fourteen blade clusters of the governor end L-1 blade ring and three blade clusters of the governor end L-0 blade ring were damaged by the broken segment. These blades were removed and new blades were installed. It is undisputed that the cost of replacing these specific blades damaged as a result of the June 2 incident was within the deductible of CLECO's boiler and machinery insurance policy.
After the preliminary investigation, CLECO asked Westinghouse to conduct a more detailed examination of the unit to determine the root cause of the June 2 shut down. A metallurgical analysis was performed on eleven L-1 blade groups removed from the governor end of the unit. The analysis revealed corrosion assisted cracking which initiated at corrosion pits in nine of the thirty-three tenons examined. 1 Additionally, corrosion pitting was documented on several shrouds. The corrosion pitting found in two locations was of the "generic" type peculiar to the Westinghouse L-1 blades. 2
On the basis of its findings, Westinghouse recommended that CLECO replace both rings of L-1 blades (governor and generator) with "free-standing" non-shrouded blades because it was believed the collection of impurities at the blade tips would eventually cause severe damage to the rest of the equipment. 3 Based on the report provided by Westinghouse, CLECO decided to replace all the L-1 blades located at both ends of the unit with "free-standing" blades at a cost of $838,077.07 in order to prevent future damage to the machinery.
CLECO subsequently sought payment for the replacement of these blades under the boiler and machinery insurance policy issued by the various defendant-underwriters. The underwriters denied CLECO's claim based upon findings that the replacement of all the L-1 blades located in the unit was not necessitated by the June 2 accident. Specifically, the underwriters denied coverage because the policy expressly excluded corrosion damage from the definition of "Accident."
In May of 1983, CLECO brought suit against Westinghouse Electric Corporation 4 and several insurance companies and underwriters believed to have issued the policy in question. Subsequently, CLECO and Westinghouse entered into a settlement agreement and Westinghouse was dismissed from the suit on February 2, 1985. Pursuant to a pre-trial stipulation, the parties agreed on the proper party defendants to the action.
The trial court found the insurance policy provided coverage for the replacement of all the L-1 blades located in the unit. Specifically, the trial court stated: "[T]he decision to replace all blades of the L-1 turbine was based upon the accident of June 2, 1982." Consequently, the trial court awarded CLECO damages in the amount of $424,827.07. 5 The trial court also found the defendants had acted arbitrarily and capriciously in refusing to pay the plaintiff's claim. Consequently, the court awarded penalties equal to 12% of the damage award and attorney's fees equal to one-third of the damage award.
The Court of Appeal, First Circuit reversed. The appellate court held the policy did not provide coverage for the replacement of the L-1 blades damaged due to corrosion because corrosion is explicitly excluded from the types of events which trigger coverage under the policy. 569 So.2d 120. Because the appellate court found the policy did not provide coverage, it did not address the issues of penalties, attorney's fees or legal interest.
We granted writs to review the lower court decisions.
In order to resolve this lawsuit, an examination of the language and terms used in the boiler and machinery policy which is the subject of this dispute is necessary. The relevant provisions of the policy are as follows:
INSURING AGREEMENT
The Company hereby agrees with the named Insured respecting loss from an Accident as defined herein, as follows:
COVERAGE A--PROPERTY OF THE INSURED--To pay the Insured for loss or damage to property of the Insured directly caused by such accident to an Object, including loss or damage to property of the Insured consisting of accounts, ... or securities directly caused by such Accident to an Object.
* * * * * *
1. Unless otherwise provided herein, "Accident" shall mean any sudden and accidental occurrence to the Object, or part thereof, which results in damage to the Object and necessitates repair or replacement of the Object or part thereof; but Accident shall not mean (a) depletion, deterioration, corrosion, or erosion of materials, (b) wear and tear,....
It is undisputed the damage to the fourteen blade clusters of the L-1 blade ring and the three blade clusters of the L-0 blade ring discovered during the preliminary inspection was caused directly by the failure of the L-1 shroud which precipitated the June 2 shut down. Because the cost of replacing these blades was within the deductible of CLECO's boiler and machinery insurance policy, the issue of coverage as to these blades alone is not at issue.
The crucial issue presented by this case is whether the policy language covers the cost of replacing all the L-1 blades located at both ends of the unit with "free-standing" nonshrouded blades. CLECO admits the cost of replacing corroded blades is not covered under the policy. However, CLECO argues the resulting cracks and damage caused by corrosion are not "corrosion" and thus are covered under the policy language. It is CLECO's contention that the policy at issue is ambiguous and that the appellate court erred in broadly extending the term "corrosion" to include cracks caused by corrosion. In response, the defendant-underwriters argue the policy unambiguously provides coverage only for damages directly caused by sudden and accidental occurrences and specifically excludes coverage for damages resulting from corrosion.
For the following reasons, we find no merit in CLECO's position. In interpreting the boiler and machinery policy at issue, we are guided by certain elementary principles of construction. When the language in an insurance contract is clear and unambiguous the agreement must be enforced as written. Pareti v. Sentry Indem. Co., 536 So.2d 417 (La.1988). An insurance contract is to be construed as a whole, and one part thereof should not be construed separately and at the expense of disregarding other sections or provisions. Benton Casing Service, Inc. v. Avemco Ins. Co., 379 So.2d 225 (La.1979).
Based on our review of all the pertinent policy provisions, it is apparent that CLECO has failed to read the relevant policy provisions dealing with recovery for loss or damage in their entirety. When the various provisions of the policy related to damage or loss to property are read as a whole, there is no ambiguity in the policy language or terms.
The policy expressly provides coverage "for loss or damage to property of the Insured directly caused by [an] accident to an Object." Thus, coverage depends on whether the damaged condition of the L-1 blades was "directly caused" by an accident. 6 Our review of the record establishes the alleged damage to the L-1 blades which were replaced consisted of corrosion assisted cracking. 7 Thus, our first inquiry must be into the "direct cause" of this cracking. 8 If the peril that directly caused the damage is one of the particular perils insured against, 9 the policy provides coverage. On the other hand, if the direct cause of the damage is not one of the specific risks insured against, coverage is precluded. 10
Ms. Sallie Bachman, a metallurgist employed by Westinghouse, established the cracks were caused when the corrosion pits, which act as stress concentrators, were...
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