COMPAGNIE DES BAUXITES v. Ins. Co. of N. America

• Decision Date: 21 June 1983
• Docket Number: Civ. A. No. 75-1228.
• Citation: 566 F. Supp. 258
• Parties: COMPAGNIE DES BAUXITES DE GUINEE, A Corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

566 F. Supp. 258

COMPAGNIE DES BAUXITES DE GUINEE, A Corporation, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.

Civ. A. No. 75-1228.

United States District Court, W.D. Pennsylvania.

June 21, 1983.

Cloyd R. Mellott, Robert Doty, Andrew Roman, Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pa., for plaintiff.

Randall J. McConnell, Jr., Stephen R. Mlinac, Dickie, McCamey & Chilcote, Pittsburgh, Pa., for defendant.

OPINION

SIMMONS, District Judge.

I. Introduction

Plaintiff, Compagnie Des Bauxites De Guinee, ("CBG"), instituted this diversity action under the business interruption provisions of an all risk policy of insurance issued by Defendant Insurance Company of North America, ("INA"), for losses allegedly sustained as the result of an accident occurring March 26, 1974, when the boom of an item of equipment known as "Bucket Wheel No. 3" failed and collapsed, resulting in extensive damage to Bucket Wheel No. 3, which allegedly caused Plaintiff CBG to suffer a business interruption loss. Plaintiff CBG owns and operates in the Republic of Guinea, West Africa, a mining and processing plant for bauxite ore. Bucket Wheel No. 3 is a large item of equipment which is used to reclaim dried bauxite stored in the Dried Ore Storage Building, located at Plaintiff CBG's bauxite processing and shiploading facilities in Kamsar, Guinea.

Defendant INA, on April 15, 1983, moved for the entry of summary judgment as a matter of law, contending that the Plaintiff CBG failed and omitted to provide a signed and sworn Proof of Loss within 60 days of the date of the damage, in violation of the provisions of the contract of insurance, and that Defendant INA was thereby severely prejudiced; and further, that the alleged damage to Bucket Wheel No. 3 did not constitute a sudden fortuitous and accidental event so as to cause coverage to attach, and that the cause of the damage suffered by Bucket Wheel No. 3 pre-existed the February 12, 1974 inception date of the contract of insurance. Both sides have thoroughly briefed the issues presented by Defendant INA's Motion, and hearing and argument on said Motion was held May 12, 1983. After considering the contentions of the parties, the Defendant's Motion will be granted on the grounds that no fortuitous event occurred for the reasons set forth in this Opinion.

II. Undisputed Facts

It is CBG's contention, as evidenced in their Pre Trial Statement and Answers to Interrogatories, that the damage suffered by Bucket Wheel No. 3 on March 26, 1974, was due entirely to design errors incorporated into that item of machinery. CBG's position with respect to this cause of damage has always been consistent, and CBG has never denied this contention, even during the course of the argument on this Motion. See Transcript, May 12, 1983 at pp. 10-11.

The Report of Plaintiff's experts, O'Donnell & Associates, Inc., attached to and made a part of Plaintiff's Pre Trial Statement, states as follows:

2.0 CONCLUSION

Based upon our study and analysis, which is described in greater detail below, it is our conclusion that the boom of the Bucket Wheel collapsed as a result of errors in its design. In reaching this conclusion as to the cause of the boom failure, we reviewed design drawings and specifications, photographs of the collapsed machine, reports written by the various interested parties speculating upon the cause of failure, hand and computer calculations, and other documents. Also, one of our engineers visited the site to observe the Bucket Wheel in operation and perform tests.

3.0 OBSERVATIONS AND ANALYSIS

. . . . .

A new machine should not fail early in its life while doing the job it was designed to perform. If it does, the design is defective. We have now verified by calculations, computer analyses and tests that the collapse was due to a fatigue failure caused by the stresses on the boom associated with reversal of slewing direction. These stresses were significantly larger than those used in designing the Bucket Wheel. Although these increased stresses were not large enough to produce visible damage to the boom, they eventually initiated a tiny crack at a highly stressed point which grew larger with each cycle until the boom suddenly collapsed on March 26, 1974.

. . . . .

3.2 Role of Prior Incidents

Some of the contemporaneous reports on the Bucket Wheel collapse suggested that overload incidents occurring prior to March 26, 1974, significantly contributed to the collapse of the boom. The fatigue analysis which we performed demonstrates to the contrary that the collapse occurred as a result of the cyclic stresses associated with normal operation, and not as a result of the prior incidents.

. . . . .

... Consequently, it is our conclusion that the collapse of the boom not only was attributable to normal operation, but would have occurred even if there had been no prior incidents. (Underlining Supplied).

Further, the Plaintiff's Pre Trial Report of O'Donnell and Associates also discusses the problem of overloading in the Analysis and Observations section as follows:

The reports on the Bucket Wheel accident consistently describe the collapse as occurring in two stages. Immediately prior to collapse, the Bucket Wheel was operating at normal loads less than its full rated capacity. Suddenly, the whole machine made an abrupt motion, and, almost immediately following this abrupt motion, the machine shut down. The reports concluded that the boom was already permanently deformed at this stage of the collapse. Such an abrupt collapse without warning and under normal loading suggests failure due to fatigue.

III. Discussion

"All risk" policies of insurance cover only damages or losses arising from a fortuitous circumstance or casualty. Courts have utilized this concept of a "fortuitous" event as a fundamental principle of law in interpreting insurance contracts. The term "all risk" does not mean that "all losses" are covered; it is only those losses which are of a fortuitous nature or which are caused by a fortuitous event which are covered. The determination of whether an event is "fortuitous" is a question of law for the Court. Avis v. Hartford Fire Insurance Co., 192 S.E.2d 593, 16 N.C.App. 588 (1972), on appeal, 195 S.E.2d 545, 283 N.C. 142 (1973). See also Dow Chemical Co. v. Royal Indemnity Co., 635 F.2d 379 (5th Cir.1981); Atlantic Lines Limited v. American Insurance Co., 547 F.2d 11 (2d Cir.1976); Redna Marine Corporation v. Poland, 46 F.R.D. 81 (S.D.N.Y.1969).

An all risk policy of insurance does not cover a certainty, and therefore a fortuitous event is required for coverage to attach, even under an all risk policy. A "fortuitous" event must be one which happens by chance or accident, unexpectedly or without known cause, accidental, or undesigned. Black's Law Dictionary (Rev. 4th Ed.1968). The damage or loss must result from an extraneous cause, and not from an inherent defect in the subject matter or from the inherent deficient qualities, nature and properties of the subject matter.

The "all-risk" event so covered would not include an undisclosed event that existed prior to coverage, or an event caused by the consummation during the period of coverage of an indwelling fault in the goods that had existed prior to that coverage. Otherwise the underwriters are in the position of either having to pay for undisclosed loss or damage actually caused prior to the time of coverage or uncontemplated loss or damage caused from deteriorating agents present within the goods when the goods were shipped.

Greene v. Cheetham, 293 F.2d 933, 936-37 (2d Cir.1961). See also Mellon v. Federal Insurance Co., 14 F.2d 997 (S.D.N.Y.1926) (A. Hand, J.). "Fortuity" requires the presence of a risk. Regardless of the contractual agreement of the parties, Courts have recognized that to permit insurance coverage for a non-fortuitous event would be contrary to public policy. "It must always be borne in mind that the policies are of insurance and not of warranty of soundness.... The perils insured against are risks." Mellon v. Federal Insurance Co., supra.

From the undisputed facts as presented in this case, it is apparent that the damage suffered by Bucket Wheel No. 3 was caused by design errors incorporated into the Bucket Wheel. Under these circumstances, no sudden and fortuitous event occurred which gave rise to a business interruption loss during the period of policy coverage. Plaintiff's expert has indicated that the boom of the Bucket Wheel collapsed due to stresses significantly larger than those calculated and used in the design of the Bucket Wheel. Plaintiff's expert further concluded that the collapse of the boom was attributable to normal operations, and that said collapse occurred when the Bucket Wheel was operating at normal loads less than the full-rated capacity. This collapse could not be a sudden and fortuitous event, rather, it was the result of a gradual and cumulative deterioration caused by the very inherent deficiencies in the design of the Bucket Wheel. At the time of the collapse the machine was clearly being used in a normal manner, and in the course of normal operations it collapsed, which collapse was certain and inevitable due to the inherent design deficiencies, and was in no way caused by chance or happened unexpectedly.

There was no extraneous force to the boom of the Bucket Wheel from without, and the damage and resulting business interruption loss stemmed from the natural and predictable behavior and inherent qualities of the admittedly mal-designed...