Court Opinion

ID: 9460895
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:02:13.046799+00
Date Added: 2024-06-11T17:36:49.253366
License: Public Domain

OPINION
MERRILL, Circuit Judge:
On September 9, 1965, Hurricane Betsy struck the New Orleans area, causing physical damage to plants and facilities owned and operated by Kaiser Aluminum & Chemical Corporation at Chal-mette, Gramercy, Baton Rouge, Norco and New Orleans. As a result of this physical damage, Kaiser suffered property damage and business interruption losses of approximately $8,400,000.
This diversity case concerns Kaiser’s facility at Chalmette, Louisiana, one of the largest aluminum reduction plants in the world. As a result of wind damage caused by the hurricane, the aluminum production facilities at the Chalmette Plant were without electric power from 10 p.m. on September 9, 1965, until *30011:25 a.m. on September 11, 1965, during which period of 37 hours the molten metal in the reduction potlines solidified (“froze”). Aluminum production was not resumed until September 17, 1965, and full production was not obtained until several months thereafter. This resulted in a loss of production of 30,217,936 pounds of aluminum and a loss of profits of $3,979,913.27.
This case involves the insurance coverage afforded Kaiser for this loss of profits under a Physical Damage and Business Interruption policy issued by plaintiff and appellee, Manufacturers Mutual Fire Insurance Company, and a Boiler and Machinery policy issued by defendant and appellant, Royal Indemnity Company. Both policies afforded Kaiser insurance against the loss sustained due to interruptions of business as a result of on-premises physical damage caused by the peril insured against. In addition, Royal, by its Endorsement 8, extended its coverage to include business interruption losses arising out of a deprivation of power when caused by off-premises occurrences. Both policies contained an “idle period” clause to the effect that the insurer should not be liable for “loss with respect to any period during which goods would not have been produced or business operations or services maintained had no fire or other peril insured against occurred.”
Here Kaiser suffered on-premises damages to electrical transmission lines and distribution equipment that resulted in total shutdown of Kaiser’s on-premises power plant and total interruption of delivery of electrical energy to the aluminum reduction potlines. Within four to eight hours thereafter the pots solidified. On-premises damage unquestionably was the direct cause of the business interruption loss. United Gas Pipeline Co. supplied Kaiser with natural gas from off-premises sources, which gas was used by Kaiser to generate electricity through its on-premises power plant. Kaise,r’s normal requirement was 143,000 mcf. The record contains testimony to the effect that as a result of the hurricane about 74 per cent, of United’s available gas supply was cut off; that had Kaiser made a request for power the day following the hurricane United could have delivered up to 15,000 mcf and no more.
The dispute is as to the manner in which liability for the loss should be apportioned between the two companies. The recognized practice of the insurance industry where there is overlapping coverage is to ascertain whether, beyond the area of common coverage, there is an area where separate coverage is afforded by a policy. If so, then the company affording separate coverage must first respond to that loss which it alone covers; the remainder of its limit of liability then contributes to the loss commonly covered.
The problem facing the District Court was how to give effect to this principle as well as to the “idle period” clauses of the policies and to Royal’s Endorsement 8 coverage of off-premises damage under the facts of this case. Its solution, over the protest of Royal, was to make findings on the following hypothetical questions:
(a) Assuming that the Kaiser plant had suffered no on-premises wind damage, had continued to operate, and had continued to require its normal supply of natural gas (143,000 mcf), how much gas could United have supplied Kaiser on September 10 and September 11, 1965. — the first two days following the hurricane ?
(b) In the event that under this hypothetical set of facts United could not have supplied Kaiser with its full normal requirements on those two days, what hypothetical loss of profits would Kaiser have suffered?
Upon these questions the court found that United could have delivered only 15,000 mcf of gas to Kaiser on the two days following the hurricane; that the hypothetical, loss suffered by Kaiser due to this reduction in supply was $2,855,052; that Royal’s Endorsement 8 provided separate coverage for this hy*301pothetical loss of profits. Judgment against Royal was entered accordingly.1
Royal contends here, as it did below, that the issue of a hypothetical gas deprivation was irrelevant to the determination of the separate coverage afforded Kaiser by Endorsement 8. Royal urged the trial court, and urges us, to base this determination on the actual undisputed facts of the Kaiser loss. Since it was undisputed that the freeze-up of the potlines (the interruption of business giving rise to the loss) was the result of on-premises physical damage caused by the hurricane and was neither caused nor contributed to by any lack of incoming gas and electricity from off-premises sources, Royal contends that the trial court should have found as matter of law that there was no separate coverage under Endorsement 8. Royal summarizes its position by asserting that insurance policies are designed to cover actual, rather than hypothetical, losses and that it was error to impose liability under Endorsement 8 for a loss that in fact never was suffered.2
We do not, however, interpret in this fashion the action taken by the District Court.
As we view it, liability was imposed on both companies for the loss that actually was suffered — that resulting from the on-premises damage. Both policies, however, contained an “idle period” clause which provided for an exemption from this liability. It is this clause that required the court to indulge in hypotheses. Under the clause the court was required to hypothesize a situation in which no damage had been suffered by on-premises facilities. If, in that hypothetical situation, there was a period when (for reasons other than on-premises damage) goods would not have been produced or operations and services maintained, then, as to that hypothetically “idle” period there was no liability. The court found that there was such a period3 and that the exemption accordingly became effective.
While Manufacturers received the benefit of this exemption, Royal’s Endorsement 8 precluded Royal from enjoying it, since the endorsement provided coverage for the very risk that hypothetically had created the “idle period.” If we accept the hypothesis that makes the exemption effective, we must in turn extend that hypothesis to Endorsement 8. Assuming that off-premises damage would have “idled” the Kaiser plant, then Royal is, by the same assumption, liable under Endorsement 8.
It is not Endorsement 8, then, that imposes liability by hypothesis. Endorsement 8 precludes escape from liability elsewhere imposed where that escape is founded upon a factual hypothesis under which Royal would nevertheless remain liable.
Accordingly we find no error in the District Court’s resort to hypothesis.
Royal protests that the court’s findings upon the hypothetical questions are clearly erroneous. It asserts that the record, when properly read, establishes that United could have provided Kaiser with its minimum requirements without interruption. It may indeed be read to *302provide support for that contention, but it can also be read to support the findings of the District Court.
Royal protests that the actual facts render the hypothesis absurd since the on-premises facilities could not possibly have escaped damage from Hurricane Betsy; that the “idle period” clause should not be given effect under these circumstances. The clause, however, allows for no exception to its application.
Judgment affirmed.

. Pursuant to a written agreement between Manufacturers and Boyal, the parties each paid Kaiser 50 per cent of its total loss of profits of $3,979,913.27 in consideration of a full release from Kaiser. Manufacturers reserved the right to bring suit against Boyal to recover $1,427,520.00 (50% of $2,855,052.00), being that portion of its payment to Kaiser which it contended was an off-premises loss payable under Endorsement 8 of the Boyal policy. Judgment was for this amount.

. This view is echoed by Judge Ely in his dissenting opinion, infra. Bespecting that opinion we note that when Judge Ely’s burned out factory collapsed into the earthquake fault the idle period clause did not eliminate recovery for fire damage. It simply served to attribute loss of earnings to the earthquake.

. The “idle period” coincided with the actual period of nonoperation. It applied, however, only to seven out of the nine potlines that froze. As to two of the potlines, United could have provided the necessary power.