Opinion ID: 741882
Heading Depth: 3
Heading Rank: 2

Heading: Whether the rolls are part of the furnace.

Text: 31 Determining that the pressurized enclosure in which steel is annealed is a furnace, however, does not answer the pivotal question here: are the rolls part of the furnace? The more technical McGraw-Hill Encyclopedia of Science and Invention provides three pages detailing furnace construction without describing the mechanical processes for moving a load or charge into and out of the furnace. The more general New Illustrated Science and Invention Encyclopedia explains that there are two types of furnace, those designed for intermittent (batch) operation and those designed for continuous use. The latter, which could describe I/N Kote's facility, generally consists of a number of zones, preheat, firing, and cooling, and the charge is pushed through the zones on cars using a hydraulic ram which operates from the entrance. This does not tell us that the cars are part of the furnace. Indeed, since they pass into and out of the furnace, we would expect not. Yet they are necessary to make the furnace do to the charge what it is designed to do. 32 Our critique of the district court opinion helps form our own view on this matter. The district court adopted the analysis employed in Occidental Chemical Corp. v. American Manufacturers Mutual Ins. Co., 820 F.Supp. 74 (S.D.N.Y.1993). In Occidental Chemical, the United States District Court for the Southern District of New York, applying California law to an insurance claim arising from a damaged rotary kiln located in North Carolina, determined for a number of reasons that the trunnions located outside of a rotary kiln were part of the kiln for purposes of a kiln exclusion. Whether or not the analysis was appropriate for the kiln in Occidental Chemical, for the reasons discussed below with reference to the I/N Kote facility, we do not believe it is sufficient to reach the conclusion that the only reasonable interpretation in this case is that the 33 damaged rolls are part of the object that is a furnace. 33 The district court reasoned that the 33 rolls that carry steel through the annealing furnace were part of the furnace because they, like the furnace, were supplied by Stein Heurtey, which oversaw the construction of the annealing furnace and installation of the rolls at the New Carlisle facility. Further, the rolls fell within the specifications for the annealing furnace equipment, the primary portion of each roll was located inside the furnace environment, and the rolls were qualitatively different from other rolls because they were designed to operate at higher temperatures. Finally, although technically operable without the rolls, the court reasoned that the furnace would be effectively useless for its designated purpose if the 33 furnace rolls were removed. 34 We find this reasoning unconvincing in several respects. First, the fact that the same subcontractor supplied and installed both the furnace and the rolls speaks to the subcontract bidding process rather than that the two items are part of the same unit. Had Stein Heurtey also provided and installed other portions of the line, the electrolytic cleaning section for instance, we would not infer that that unit was part of the furnace. We would find similarly little merit in a hypothetical argument that the rolls were not part of the furnace because they had been supplied and installed by a subcontractor other than Stein Heurtey. 2 In a facility as immense, complex, and interconnected as this, which company designed, manufactured, or installed which component cannot define for insurance purposes the limits of an exclusion. For similar reasons it is not significant that the specifications for the rolls fell within those for other aspects of the furnace. Because the rolls must extend through the furnace walls with tolerances apparently tight enough to maintain the pressurized hydrogen nitrogen atmosphere inside, and because they must be designed to withstand the various temperatures at each different zone, we would be surprised if the specifications between furnace and rolls were not interconnected. But we would also expect to see related specifications for automobile axles, bearings, brake discs, and wheels; the interconnected specifications do not blur the distinctions between the objects. The rolls are undisputedly part of the robotics, which include the independently controlled 600-roll mechanism designed to transport, position, and tension the steel substrate through the facility. Hartford insists that in addition to being part of the robotics, the 33 rolls carrying the steel through the furnace are also part of the furnace. That the 33 rolls controlling these functions as the steel passes through the annealing furnace were designed in relation to the annealing furnace does not lead us to the conclusion that they are necessarily part of the furnace. 35 The district court's determination that the primary portion of the rolls was located inside the furnace environment is not compelled by the structure of the facility. Even isolating a single roll mechanism from the other 599, we are left with a complex unit that consists of dozens, if not hundreds of parts, only one of which, the barrel of the roll, extends into the interior of the furnace chamber. The roll itself consists of a barrel, two end bells, and two stub shafts. It is connected to a mechanism that is integral to its function: a power coupling, a drive shaft, a gear box, a motor, supports, and a control mechanism independent from that of the furnace. To conclude that the primary portion of the roll was inside the furnace requires that one's measurement be by mass rather than by number of component parts, an arbitrary measurement at best. And although the barrels extending through the furnace were of a different composition than production rolls located in other parts of the line, this would not compel a conclusion that they are thereby part of the furnace. At a number of stages along the line the roll barrels are metallurgically more complex than the common production rolls used generally throughout the line. 36 To isolate each roll and describe it as part of its location removes the entire robotic mechanism from coverage. Under such an analysis, the rolls in the entry looper are only covered because the entry looper is covered; likewise for the rolls in each other section of the plant. Under this construction coverage exists for the robotics only indirectly through their location: if that location is covered so are the robotics; if the location is not covered, the robotics are not covered. The problem with this reasoning is that the coverage Hartford agreed to provide was for the continuous galvanizing line, the unique feature of which is the robotic transport system. Object Definition No. 7 specifically covers robotics. The binder specifically states that robotics considered as production equipment. To thereafter interpret the policy only to cover various operations within the plant along with appurtenant robotic mechanisms essentially converts the policy coverage for the robotics into illusory coverage. The diagram of the plant indicates that a substantial portion of the robotics carrying the steel substrate are inside parts of the facility identified as furnaces. Indeed, at oral argument Hartford explained that 20-25 percent of I/N Kote's line was not covered under its construction of the policy, despite the Extended Comprehensive Coverage issued by Hartford which explicitly covered I/N Kote's Continuous Galvanizing Line, including, also explicitly, robotics. 37 Finally, Hartford contends, and the district court agreed, the rolls are part of the furnace because without one or more of them the furnace cannot perform its function of annealing steel. This analysis relies on defining the furnace operation not as one of producing or applying heat but of annealing a continuous strip of steel. Thus, the argument goes, because a broken roll prevents the steel strip from passing through the various steps of the furnace, and that in turn prevents the furnace from annealing the steel, the rolls are an integral part of the furnace. Obviously the rolls are an integral part of the process because unless the steel can move through the annealing furnace in a controlled manner, the precise annealing process will not occur and the furnace cannot perform its function of annealing steel. But under such reasoning any of the 600 rolls on the line become part of the furnace. The steel passing through the annealing furnace is merely a section of a continuous strip that also passes at the same rate through each of the other sections of the facility from the entry looper to the delivery looper. The rolls are critical to transporting the steel along the entire line. A broken roll anywhere along the line, depending upon its location, could cause the steel to stop moving. If the steel is not moving, of course the annealing furnace cannot perform its function of raising and then reducing the temperature of the steel. Thus, under Hartford's broken roll analysis, any critical roll along the entire line (without which the steel will not move) is part of the furnace, because absent that one roll the furnace cannot perform its function as an annealing furnace. In this complex, interconnected machine called the continuous galvanizing line, an analysis contingent on whether a furnace can perform its annealing function without certain rolls is much too broad. The steel transport mechanism by necessity incorporates the rolls into each of the of the operations along the line. If a roll extending through the furnace breaks and stops the steel from moving, the molten zinc pot also will stop performing its function of coating the steel with zinc. Under such an analysis the broken rolls in question here would also be part of the molten zinc pot. Such a broad construction will not work. It incorporates the entire line into the determination of what is included in any one operational zone along the line and is contrary to the rule of insurance contract construction which mandates that exclusions be construed narrowly. 3 38 But whether or not the furnace can anneal steel is the wrong focus. Whether the furnace is annealing steel depends upon whether there is steel present and moving through its various zones. If no steel is present, the annealing furnace is still a furnace and can perform the function of a furnace: producing or applying heat to a load or charge. See supra p. 1318. While the ultimate function of the furnace can assist us in determining what is and what is not part of the furnace, that in the absence of the load (here the steel) the furnace does not perform its function does not indicate that the load, or the mechanism that holds or transports the load, is part of the furnace. For example, a bread oven's function is to bake bread. Absent bread, it does not perform this function. That does not make the bread or the pans that hold the bread part of the oven, nor does the bread oven cease to be an oven in the absence of bread. The oven can still heat and cool as it is manufactured to do, it just does so without a charge or a load. Its status as an oven has not changed. 39 Because insurance policy exclusions are to be construed narrowly, we believe the correct focus on what parts of this facility are parts of the furnace must be confined to what makes that object function as a furnace qua furnace, not whether at some given moment it cannot perform its ultimate function of annealing steel. The purpose of the entire facility is to anneal and galvanize steel. The purpose of the furnace portion of the facility is to produce, contain within an enclosure, and apply heat to a charge or load. The charge or load is not a part of the furnace merely because the heat is applied to it. Whether or not the mechanism that holds or transports the charge or load is part of the furnace depends on its relation to the furnace. And that depends upon how broadly or narrowly one construes furnace. But because any furnace is part of the exclusion, the rules of insurance policy construction require that we construe it narrowly. The same rules require that we construe inclusions broadly. How these two rules interact where the roll mechanisms intersect the furnace requires that we take another look at the roll mechanism. 40 There is no question that the failed roll barrel was part of the roll mechanism. And each of the 33 roll mechanisms were part of the overall 600-roll mechanism that operated independently of any section of the line such as the furnaces. There is no question that these robotics were covered by the policy. The binder explicitly states that robotics are part of production equipment and Object Definition No. 7 explicitly covers any mechanical or electrical machine or apparatus ... including ... robotic equipment. There is no dispute over whether those rolls that carry steel outside of the objects called furnaces are covered. Without specifically excluding certain of the rolls an insured would very plausibly assume that all rolls are covered. Hartford contends that the only thing that keeps these 33 rolls from being covered is that they are part of the furnace. But as described earlier, only the roll barrel and the end caps extend inside the furnace. The bulk of a roll mechanism lies outside the walls of the furnace. Hartford has not argued that those portions of these roll mechanisms that lie outside the furnace are part of the furnace, only that the roll barrels are. Under this argument the roll only becomes part of the furnace to the extent it lies inside the furnace. Interestingly, while the roll passes through the furnace, it is not connected to the furnace; it must be free to rotate and the parts of the mechanism that actually hold and rotate the roll are located outside the furnace. 41 While it is clear that the rolls are part of the roller mechanism, perhaps one can argue, as Hartford has and as the district court concluded, that the rolls, at least their barrels, are part of the furnace as well. But they are more a part of the roller mechanism than they are a part of the furnace. The furnace can function as a furnace without them. But a roll mechanism cannot function at all without a roll barrel. The barrel is integral to the roll mechanism as a roll mechanism. It is not integral to the furnace as a furnace. Because of their location in the policy, we must read any part of the robotics broadly and any part of the furnace narrowly. Where the robotics pass through the furnace and their status becomes ambiguous within the terms of the policy, this rule of construction leads to coverage. Thus, the barrels and end caps of the roll mechanisms must be construed as part of the covered robotics rather than as part of the excluded furnace. 42 No doubt we could suggest ways that Hartford could specifically exclude certain rolls from coverage, but we are not permitted nor inclined to rewrite ambiguous insurance policies. See American Nat. Fire Ins. Co. v. Rose Acre Farms, 107 F.3d 451, 457 (7th Cir.1997) (applying Indiana rules of construction).