Opinion ID: 771996
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 TFV owned two vessels that it used to transport iron ore: the M/V Rio Caroni (a bulk carrier) and the F/T Boca Grande (a floating terminal and transfer station). The Rio Caroni carried iron ore down the Orinoco River in Venezuela from various inland points and, on arrival at the mouth of the river, unloaded the ore onto the Boca Grande. The Boca Grande then placed the ore on ocean-going vessels. 3 In August 1992, TFV's predecessor, Deltamar S.A., entered into a contract with the NKK Corporation for the conversion of the Rio Caroni from bulk carrier to self-unloading shuttle vessel. As part of the conversion, NKK was required to build a materials handling system--consisting essentially of a series of conveyor belts and a boom--that would be placed on the Rio Caroni to facilitate the movement of iron ore onto the vessel and its discharge from the vessel. NKK subcontracted the design and furnishing of the materials handling system to EDC, Inc., which was to provide NKK with engineering expertise, drawings and parts. In turn, NKK would then assemble the provided parts to complete the conversion of the Rio Caroni. See Appx. 119. 4 One of the parts EDC contracted to supply was a boom cylinder, which formed part of the boom's hoisting mechanism. Because EDC was itself unable to build the boom cylinder, EDC subcontracted the manufacture of this part to the Sheffer Corporation. Exactly which party designed the boom cylinder is unclear from the record on appeal. The purchase order for the boom cylinder, which refers to a Sheffer Hydraulic Boom Hoist Cylinder, indicates that Sheffer regularly offered several standard boom cylinder models for sale to the public. See Appx. 142. However, the numerous specifications in the purchase order--for example, the purchase order stated that blind or piston end of the cylinder to have pivot mount... suitable for 350 mm pin--indicate that EDC provided at least some special parameters with which Sheffer's cylinder was required to comply. See id. As such, the boom cylinder appears to be a modified Sheffer cylinder, custom-built to EDC's specifications. 5 On April 15, 1995, the Rio Caroni's new boom suddenly collapsed while the vessel was unloading ore onto the Boca Grande, damaging both vessels. An investigation by Walter Herbist, president of EDC, revealed that the boom's collapse was due to a sudden fracture of the steel rod-eye, a component of the boom cylinder that had been built for EDC by Sheffer. See Appx. 151. However, Herbist's report was not able to pinpoint the exact cause of the rod-eye's failure, giving ten possible reasons for it--including possible design and manufacturing defects. At the request of TFV, EDC arranged for metallurgical testing of the rod-eye by Professional Services Industries, Inc. (PSI) to determine the precise cause of the rod-eye's failure. PSI determined that the rod-eye failed in a brittle manner, possibly due to its fabrication from an inferior grade of steel. See Appx. 161-62. Following PSI's analysis of the rod-eye, EDC refused to pay a monthly storage fee for the rod-eye. Consequently, the rod-eye was discarded by PSI prior to the commencement of this suit, and it cannot now be recovered.
6 On August 21, 1996, TFV filed suit in the United States District Court for the District of New Jersey against NKK, EDCand Sheffer, seeking an award of $3.6 million for the physical damage to its vessels, as well as compensation for economic losses attributed to the vessels' being out of operation. In its answer to TFV's complaint, EDC asserted a cross-claim against Sheffer, alleging that Sheffer should pay any judgment entered against EDC because it had improperly manufactured the rod-eye. The district court had subject matter jurisdiction over this cause pursuant to 28 U.S.C. S 1332. 7 Through discovery, TFV learned that EDC was insured under a policy with Hartford. This Comprehensive General Liability and Business Liability Policy provided a $2 million aggregate limit for business liability claims. On March 6, 1998, TFV notified Hartford of the accident and pending litigation. (Thus, Hartford became aware of the accident approximately three years after the accident occurred and not until after this litigation was instituted.) On May 15, 1998, EDC brought suit in New Jersey state court, seeking from Hartford coverage and/or a defense of TFV's suit. Hartford denied both coverage and a defense; thereafter, for reasons not reflected in the record on appeal, the state court action was dismissed. Hartford was then brought into the instant action as a third-party defendant by way of EDC's third-party complaint. In its third-party answer to this complaint, dated July 8, 1998, Hartford denied that its policy covered EDC for the losses sustained on TFV's vessels and refused to defend EDC in the present action. See Appx. 46-53. 8 On August 10, 1998, approximately one month after being joined in the present lawsuit, Hartford, along with the other parties to this suit, attended an all-day settlement conference before the magistrate judge assigned to this case. At the conference, TFV agreed to settle its claims against all parties for $1.85 million. During the settlement conference, the magistrate judge informed Hartford that it could settle on behalf of EDC for $750,000. If Hartford chose not to settle, the magistrate advised the participants that EDC was going to consent to judgment in the amount of $1 million and assign its rights under the insurance contract to TFV. At Hartford's request, the magistrate judge allowed it two weeks to consider which of the two options it would accept. 9 Hartford chose not to settle on behalf of EDC. Instead, in a letter dated August 18, 1998, Hartford informed EDC that it would now agree to provide EDC with a defense, subject to a reservation of rights as to coverage of the claim. See Appx. 377. On August 26, counsel for all parties participated in a telephone conference with the magistrate judge, during which the judge informed Hartford that, in spite of Hartford's offer to defend EDC, the parties had signed a settlement agreement. Under the final terms of the settlement, TFV received $500,000 from Sheffer and $350,000 from various parties, including NKK and the supplier of the steel used in the rod-eye's manufacture. The settlement also made EDC liable to TFV for $1 million. However, because EDC could not afford to pay the $1 million settlement amount, it consented instead to a judgment against it in favor of TFV. TFV agreed not to execute this judgment, and in exchange EDC assigned all of its claims against Hartford to TFV. 10 Thus, following the settlement, TFV and Hartford were the only two parties remaining in this suit. TFV moved, and Hartford cross-moved, for summary judgment. The district court granted Hartford's motion for summary judgment, finding that the late notice of the accident voided coverage. The district court also found that Hartford suffered substantial prejudice due to the late notice because EDC's consent to disposal of the rod-eye prevented Hartford from examining the rod-eye itself. The district court believed that Hartford was further prejudiced because the late notice prevented it from filing a cross-claim for indemnification against Sheffer. 11 TFV appeals. We have appellate jurisdiction over both the grant of Hartford'ssummary judgment motion and the denial of TFV's motion. See 28 U.S.C. S 1291.