Newmont Mines Ltd. v. Hanover Ins. Co., 330

• Citation: 784 F.2d 127
• Decision Date: 20 February 1986
• Docket Number: No. 330,D,330
• Parties: NEWMONT MINES LIMITED and Esso Resources Canada Limited, Plaintiffs-Appellees, v. HANOVER INSURANCE COMPANY & Utica Mutual Insurance Company, Defendants-Appellants. ocket 85-7590.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 127

784 F.2d 127

NEWMONT MINES LIMITED and Esso Resources Canada Limited, Plaintiffs-Appellees, v. HANOVER INSURANCE COMPANY & Utica Mutual Insurance Company,

Defendants-Appellants.

No. 330, Docket 85-7590.

United States Court of Appeals, Second Circuit.

Argued Nov. 18, 1985.

Decided Feb. 20, 1986.

Michael A. Cooper, New York City (Sullivan & Cromwell, New York City, of counsel), for plaintiff-appellee (Esso Resources).

William P. Frank, New York City(Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), for plaintiff-appellee (Newmont Mines Ltd.)

Arthur N. Brook, New York City (Rein, Mound & Cotton, New York City, of counsel), for defendants-appellants.

Before VAN GRAAFEILAND, NEWMAN and MINER, Circuit Judges.

MINER, Circuit Judge:

This action arises out of the collapse on two different days of two separate sections of the roof of a cooper concentrator mill building located at the Granduc minesite in Tide Lake, British Columbia, Canada, and the refusal of two of the building's four insurers, Hanover Insurance Company ("Hanover"), and Utica Mutual Insurance Company ("Utica"), ¹ to indemnify the building's owner, Newmont Mines Limited ("Newmont"), for the resulting losses. Hanover and Utica appeal from a final judgment in the amount of $2,500,000 (Canadian), plus prejudgment interest computed from February 20, 1980, entered after a jury trial in the United States District Court for the Southern District of New York, 609 F.Supp. 295 (Sprizzo, J.). The two insurers were found liable for failure to pay, under the terms of property damage insurance policies issued by them, for the expenses incurred by Newmont in the repair of the damaged building. The insurers' primary contentions on this appeal are that they are not liable because the insured failed to inform them of a material increase in the risk and that, even if they are liable, the two collapses constituted one occurrence and thus the maximum amounts payable under the policies "for any one occurrence" should not have been calculated separately for each collapse. For the reasons set forth below, we affirm.

I. BACKGROUND

The Granduc minesite is located near the Alaskan border in an area of British Columbia subject to heavy snowfalls and substantial snow accumulation. The centerpiece of the minesite and the focus of this lawsuit is the concentrator facility: a huge wedge-shaped, multi-function structure with a sloping roof nearly fifteen stories high at its peak. The concentrator is 442 feet long by 240 feet wide and has a large roof with a slope length of approximately 500 feet. Due to the size of the concentrator, structural design principles required that an expansion joint be installed in the middle of the building to permit expansion and contraction to occur without causing damage. Consequently, the concentrator was designed and constructed as two adjacent structures, each approximately 220 feet long and each capable of supporting vertical and horizontal loads independent of the other. The two structures are separated in the middle by a double set of columns, located at what has been designated line G.

Because this region receives the highest annual snowfall in the world--as much as 1200 inches per year--the concentrator facility was specially designed to act as a giant snow slide, which would deposit snow from the roof into a catch basin at the base of the building. The roof was slanted at a thirty-degree angle, with the belief that this slope, together with the natural convection of heat generated in the building from ordinary operations, would cause the snow to slide off the roof. ² Indeed, this system of removing snow from the concentrator's roof was successful until the 1978-1979 winter.

Newmont owned and operated the concentrator from 1970 until mid-1978, when it ceased operations at the Granduc mine due to depressed economic conditions in the copper industry. Prior to closing the Granduc mine, and because the concentrator would no longer be in operation or heated, Newmont sought advice regarding appropriate snow clearance procedures from Swan Wooster Engineering ("Swan Wooster"), one of the engineering firms that participated in the design of the concentrator. Swan Wooster recommended periodic inspections of the concentrator and removal of snow accumulated in the catch basin at the base of the building. Newmont also discussed the cessation of operations with Allendale, one of the companies insuring the concentrator facility. By letter dated August 8, 1978, Newmont informed Allendale of its plans to permanently close the Granduc mine and its intended inspection and snow clearance program. No similar letter was sent to Hanover or Utica.

Thereafter, in accordance with Swan Wooster's recommendations, Newmont personnel regularly inspected the concentrator and, when needed, removed accumulated snow from the base of the building. Beginning in mid-December 1978 and continuing thereafter, Newmont personnel observed that snow was not sliding from the roof. On March 1, 1979, Kurt Dahlke, an employee of Newmont, inspected the concentrator, observed approximately eight to ten feet of snow on the roof, and reported: "Everything ok. No sliding, no build-up." ³

On the next inspection trip, on March 14th, Newmont personnel discovered that a section of the concentrator roof, measuring approximately 55 by 200 feet and located just below the midline of the concentrator (line G), had collapsed sometime between March 1st and March 14th. The collapse was due to the weight of ice and snow. On March 17th, a second section of the roof, measuring approximately eighty by seventy feet and located in the upper half of the building some seventy-five feet above the area of the first hole, collapsed due to the weight of ice and snow. Both collapses occurred in portions of the roof having a load capacity of 140 pounds per square foot.

Subsequently, on May 31, 1979, Newmont conveyed its title to the Granduc mine property, including the damaged concentrator, to Esso Resources Canada Limited ("Esso") pursuant to a written agreement of purchase and sale. In a supplementary letter agreement, Newmont agreed to pursue its rights under its insurance policies and to hold any proceeds in trust for Esso. Thereafter, Esso repaired the damaged concentrator building at a total cost of approximately $6.6 million (Canadian).

The insurance policies issued by Hanover and Utica (as well as those issued by Adriatic and Allendale) insured Newmont's interest in various properties located in twelve different states of the United States and in British Columbia. The four insurance companies provided "layered" insurance coverage against a variety of perils, including that of collapse caused by the weight of ice and snow. The first layer of insurance was provided by the Hanover and Adriatic policies, each of which covered fifty percent of the first $500,000 (in excess of a $25,000 deductible) for any one occurrence. The Utica policy provided intermediate coverage of $1,000,000 in excess of $525,000 for any one occurrence. The Allendale policy provided a third layer of coverage with a $1,525,000 deductible for any one occurrence and a limit of liability of $9,189,000 for the Granduc mine property.

The terms and conditions of the Hanover and Utica policies were set forth in identical typewritten "manuscript" policies prepared by Newmont's insurance broker, Johnson & Higgins. Representatives of Hanover and Utica reviewed and approved the terms of the manuscript policies and appended certain standard-form statutory conditions; the companies then issued the policies. In so doing, neither Hanover nor Utica inspected, either personally or through a representative, any of Newmont's properties covered by the policies. Neither company made any inquiry of Newmont or its brokers regarding the properties, any special climatic conditions at any of the sites, or the design specifications of the buildings. Instead, Hanover and Utica were content in their knowledge that Allendale, the excess carrier, provided fire prevention and engineering services to Newmont and otherwise monitored the Granduc properties.

Newmont filed proof of claim with the four insurance companies in January of 1980. All four companies refused to pay their respective apportioned shares of the claimed loss by the date called for in the policies, February 20, 1980, and thus Newmont and Esso commenced this suit on February 29, 1980. Adriatic and Allendale reached settlements with Newmont and Esso and were dismissed from the action prior to trial. Hanover and Utica denied liability for the loss and asserted several affirmative defenses. They contended at trial--as they do on appeal--that Newmont's cessation of operations at the Granduc mine in 1978 and the consequent absence of heat in the concentrator building constituted a material change in the risk insured by them. They further maintained that under British Columbia's Insurance Act they were entitled to notice of a material change in the risk and that the failure of Newmont to give such notice to them resulted in the suspension of insurance coverage. Hanover and Utica also asserted that the collapses of the two sections of the roof constituted one occurrence rather than two because both were caused by the same accumulation of snow and ice on the roof. ⁴ Finally, both companies argued that Newmont and Esso failed entirely to prove the amount of damages attributable to the alleged second occurrence.

In response to special interrogatories, the jury rejected each of these contentions and concluded that although there was a change in the risk it was not material and that, in any event, Hanover and Utica had knowingly waived any obligation on the part of Newmont to notify them of a material change in risk. The jury also found that the collapses of the two sections of the concentrator roof constituted two separate occurrences and that the cost of repairing the damage...