decided: December 22, 1983.
COMPAGNIE DES BAUXITES DE GUINEE, A CORPORATION, APPELLANT,
INSURANCE COMPANY OF NORTH AMERICA, THE INSURANCE CORPORATION OF IRELAND, LTD., MERCANTILE & GENERAL REINSURANCE CO., LTD,*FN* EAGLE STAR INSURANCE CO., LTD, HANOVER INSURANCE COMPANY, CONTINENTAL ASSURANCE COMPANY OF LONDON, LTD., THE CENTURY INSURANCE CO., LTD., YUVAL, THE INSURANCE COMPANY OF ISRAEL, LTD., HOME INSURANCE CO., LTD., SLATER, WALKER INSURANCE CO., LTD., YASUDA FIRE & MARINE INSURANCE COMPANY (UK) LTD., NICHIDO FIRE & MARINE INSURANCE CO., LTD., TUREGUM INSURANCE COMPANY, SAHAR INSURANCE CO., LTD., EXCESS INSURANCE CO., LTD., TRIDENT INSURANCE CO., LTD., VESTA (UK) LTD.,*FN* CHIYODA FIRE & MARINE INSURANCE, LTD., TOKYO,*FN* STRONGHOLD INSURANCE CO., LTD., BRITISH RESERVE INSURANCE CO., ENGLISH & AMERICAN INSURANCE CO., LTD., CONSOLIDATED EUROPEAN REINSURANCE CO., LTD., AND L'UNION ATLANTIQUE S.A. D'ASSURANCES, BRUSSELS,*FN* ALL BEING CORPORATIONS
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA.
Seitz, Chief Judge, Gibbons and Rosenn, Circuit Judges.
Compagnie des Bauxites de Guinee (CBG) is appealing an order of the district court granting summary judgment to the Insurance Company of North America (INA) and a number of foreign excess insurers (the excess insurers), in CBG's action to recover on its business interruption insurance policies. This is a diversity action in which the district court, following a hearing, determined that Pennsylvania law was controlling, a ruling not challenged on appeal. The Court of Appeals has jurisdiction under 28 U.S.C. § 1291.
This appeal involves one of several suits filed by CBG against its insurers to recover for business interruption losses arising from various casualties at its bauxite mining and processing facility in the Republic of Guinea. A more complete statement of the facts as well as some of the history of this case can be found in our opinion in Compagnie des Bauxites de Guinee v. Insurance Company of North America, 651 F.2d 877 (3d Cir. 1981), aff'd sub nom. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 72 L. Ed. 2d 492, 102 S. Ct. 2099 (1982).
CBG holds all-risk business interruption insurance policies, with a $10 million primary layer carried by INA and a $10 million excess layer carried, in varying percentages, by the excess insurers.*fn1 At issue is whether CBG may recover from its insurers for the business interruption caused by the structural failure of its tippler building and crusherhouse. This facility raises freight cars loaded with bauxite ore and empties their contents into a feed hopper. Machinery within the structure separates chunks of ore too large to ship and transports them to hammermills where they are crushed to a consistency suitable for shipment. At some time in 1974, not long after the plant became operational, CBG became aware of serious damage to the concrete structural members of the tippler/crusherhouse, as well as to the feeders onto which the ore cars are emptied. CBG alleges that it suffered a protracted and costly business interruption during the time needed to rebuild and reinforce the structure and machinery.
The cause of the damage was the subject of much investigation and discovery. An early report by an adjuster for the insurer of the structure itself concluded that the damage was caused by blocks of bauxite much larger than anticipated being fed into the machinery. CBG claims that only after the damage occurred did it learn that the engineers for the conveyor system had not followed CBG's specifications. The machinery had been designed to accommodate the weight of crushed bauxite, 84 lbs/cubic foot, rather than the weight of bauxite blocks, 159 lbs/cubic foot. It was also discovered that the structural engineers for the building and supports used an incorrect equation to compute the severe stresses to which the structure would be subjected.
INA and the excess insurers separately filed motions for summary judgment based on several grounds. First, they argued that the design defects in the equipment and structure meant that the structural failure and ensuing business interruption was inevitable rather than fortuitous, and that as a matter of law CBG could not recover for losses not caused by a fortuitous event. Second, they alleged that CBG did not file timely notice of loss as required by the terms of the insurance policy, and that they suffered prejudice from this delay. Third, they alleged that CBG did not file suit within 12 months of the date of the loss, also as required by the policy.
The district judge ruled that factual disputes precluded entry of summary judgment based on the latter two grounds, but he granted summary judgment based on the first ground. He held that insurance covers only risks, not certainties, so that a loss must be caused by a fortuitous event in order to be covered. He then held that the design defects made the failure of the tippler/crusherhouse inevitable, and thus that no fortuitous loss had occurred. He further held that regardless of the terms of the insurance contract or the knowledge of the parties at the time it is made, it would be contrary to public policy to cover losses not caused by a fortuitous event. Compagnie des Bauxites de Guinee v. Insurance Company of North America, 554 F. Supp. 1080 (W.D. Pa. 1983).
We need not address the public policy rationale if we determine that CBG's loss was fortuitous, and we proceed directly to that issue. There appears to be no decision by any Pennsylvania court defining a fortuitous event. Thus, the duty of the district judge under the Erie doctrine was to predict what definition of a fortuitous event the Pennsylvania Supreme Court would apply if this case were before it. Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir. 1981). The district judge made his prediction of Pennsylvania law based on cases from other jurisdictions and treatises on insurance law, although he characterized his holding as one of general insurance law rather than a prediction of Pennsylvania law. We must first determine what standard of review we should apply to the district court's holding.
We believe that we should review the district judge's prediction as a determination of law, as to which our review is plenary, rather than as a finding of fact reviewed by the clearly erroneous standard of Fed. R. Civ. P. 52. Another panel of this court recently used this standard to review a district judge's construction of a state statute not yet construed by the Pennsylvania Supreme Court. Connecticut Mutual Life Insurance Co. v. Wyman, 718 F.2d 63, 65 (3d Cir. 1983). Although our review is plenary, this does not mean that in ...
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