Court Opinion

ID: 2996667
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:30:39.023178+00
Date Added: 2024-06-11T18:01:29.906901
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 03-1887
COMMONWEALTH INSURANCE COMPANY, HARTFORD
FIRE INSURANCE COMPANY, NAVIGATORS INSURANCE
COMPANY, EMPLOYERS INSURANCE OF WAUSAU, and
NEW YORK MARINE & GENERAL INSURANCE COMPANY,
                                                          Plaintiffs,
                                v.

STONE CONTAINER CORPORATION,
              Defendant-Counterclaim Plaintiff-Appellant,
                                v.

INDUSTRIAL RISK INSURERS,
                           Counterclaim Defendant-Appellee.
                         ____________
           Appeal from the United States District Court
      for the Northern District of Illinois, Eastern Division.
       No. 99 C 8471—Charles P. Kocoras, Chief Judge.
                         ____________
  ARGUED OCTOBER 21, 2003—DECIDED DECEMBER 9, 2003
                    ____________

 Before BAUER, DIANE P. WOOD, and EVANS, Circuit
Judges.
2                                                  No. 03-1887

  EVANS, Circuit Judge. This insurance dispute leads us
into familiar territory—the question of who is responsible
for over $80 million in losses the Stone Container Corpora-
tion incurred when one of its pulp and paper plants ex-
ploded. This is the third time claims stemming from that
event have reached our court. See Stone Container Corp. v.
Hartford Steam Boiler, 165 F.3d 1157 (7th Cir. 1999);
Commonwealth Ins. Co. v. Stone Container Corp., 323
F.3d 507 (7th Cir. 2003) (Stone 1 and Stone 2). In this case,
Stone argues that the “all-risk” insurance policy it pur-
chased from Industrial Risk Insurers (IRI) covers its losses.
Based upon an exclusion in the policy for ruptures of
pressure vessels, however, the district court granted IRI
summary judgment. 2001 U.S. Dist. LEXIS 24064 (N.D. Ill.
2002). Stone appeals.
  Like our previous forays into issues surrounding the plant
explosion, this case, too, is but “a small part of a much
larger dispute.” Stone 2, 323 F.3d at 508.1 Thus, before
addressing the claims here, we briefly examine the history
of Stone’s insurance coverage and the litigation that
preceded this case.
  Stone manufactures paper products. It makes pulp in
huge steel tanks called “pulp digesters.” Wood chips and
chemicals are placed in the tank, which is then sealed and
subjected to heat and pressure from piped in steam. The
chips then decompose into pulp fiber.
  Between 1991 and 1993, Stone had property damage
and business interruption insurance coverage in place for

1
  Not only is this the third time we examine Stone’s explosion,
but, we note, Stone’s suit against all-risk insurers Commonwealth
Insurance Company, Hartford Fire Insurance Company, Naviga-
tors Insurance Company, Employers Insurance of Wausau, and
New York Marine & General Insurance Company remain before
the district court.
No. 03-1887                                                 3

losses in excess of $20 million. Arkwright Mutual Insurance
Company issued the single all-risk insurance policy, which
included boiler and machinery (B&M) coverage.
  Because of its poor loss history, however, in 1994 Stone
was unable to purchase a similar all-risk policy. Specifi-
cally, many insurers were not willing to write B&M cov-
erage for the company. Thus, Stone had a patchwork of
coverage. IRI and other “all-risk” insurers provided all-risk
property insurance in the layer excess of $20 million,
subject to a B&M exclusion. Hartford Steam Boiler (HSB)
provided B&M coverage in that layer.
  On April 13, 1994, a thin area of steel shell in one of
Stone’s tanks ruptured. Within milliseconds, the tank
exploded and launched a 28-ton piece of the tank over 200
feet. Besides much property damage, several workers were
killed. The company incurred over $80 million of losses.
  Following the loss, all-risk insurers—Commonwealth
Insurance Company, Hartford Fire Insurance Company,
Navigators Insurance Company, Employers Insurance of
Wausau, and New York Marine & General Insurance
Company—filed a lawsuit seeking a declaratory judgment
that their policies did not provide coverage. This suit was
dismissed without prejudice so that Stone could pursue an
action against HSB, whose policy covered “accidents to
objects,” including pressure vessels. There was, however, an
exclusion for explosions, which HSB relied on to deny cov-
erage. The district court granted Stone summary judgment,
holding that the event did not constitute an explosion. Stone
Container Corp. v. Hartford Steam Boiler Inspection Co.,
936 F. Supp. 487 (N.D. Ill. 1996).
  We reversed, finding that “[o]ne of the tanks in one of
Stone’s plants exploded when a thin area of steel shell
ruptured during the high-pressure operation of the tank.”
Stone 1, 165 F.3d at 1160 (emphasis added). We further
noted that “it is the digester itself that, as a result of the
4                                                No. 03-1887

rupture in its wall, blew up.” Id. at 1159-60. Thus, because
Stone’s loss constituted an explosion of equipment other
than the specially identified types of equipment covered
against explosion by HSB, HSB’s policy did not cover the
loss. Id. at 1160.
   Our decision in Stone 1 led the all-risk insurers to rein-
state their declaratory judgment action. Stone answered
and asserted third-party claims against Aon Risk Services,
Inc., its insurance broker, for breach of contract, negligence,
and breach of fiduciary duty for failing to obtain adequate
insurance coverage for Stone, and against IRI. The district
court granted summary judgment for Aon on the ground
that Stone’s claims were time-barred. We affirmed in Stone
2.
  The district court in this case granted summary judgment
to IRI after concluding that its policy excluded coverage for
losses based on the “rupture” of pressure vessels. Since the
evidence established that the explosion and resulting
damage was caused by a rupture, as we held in Stone 1,
there was no coverage under the IRI policy.
  Because this is a diversity case, we apply Illinois law.
That law, with regard to interpreting insurance policies,
provides:
    The primary objective in construing the language of the
    policy is to ascertain and give effect to the intentions of
    the parties as expressed in their agreement. If the
    terms of the policy are clear and unambiguous, they
    must be given their plain and ordinary meaning, but if
    the terms are susceptible to more than one meaning,
    they are considered ambiguous and will be construed
    strictly against the insurer who drafted the policy.
    Courts will not strain to find ambiguity in an insurance
    policy where none exists.
McKinney v. Allstate Insurance Co., 188 Ill. 2d 493, 497
(1999) (internal citations omitted). Thus, our first task is to
No. 03-1887                                                5

determine whether the language of the policy is ambiguous.
Exclusion H of IRI’s C-AR (comprehensive all-risk) policy
reads:
    H. BOILER AND MACHINERY EXCLUSIONS—
    Unless endorsed hereon, this policy does not insure
    against:
    1. explosion in or of the following property owned, op-
       erated or controlled by the Insured: steam boilers,
       including equipment attached to and forming a part
       thereof; steam turbines; steam engines; steam pipes
       interconnecting any of the foregoing; or gas tur-
       bines; except that liability is specifically assumed
       for loss resulting from Explosion of accumulated
       gases or unconsumed fuel within the firebox (or the
       combustion chamber) of any fired vessel, other than
       gas turbines, or with the flues or passages which
       conduct the gases of combustion therefrom;
    2. rupture, bursting, cracking, burning or bulging
       of . . . pressure vessels, including equipment at-
       tached to and forming a part thereof . . . .
                           ***
        nor does this policy insure against resulting dam-
        age to property caused by such Occurrences except
        damage from a . . . combustion Explosion . . . .
We think the policy exclusion is unambiguous. “A policy
provision is ambiguous only if it is subject to more than one
reasonable interpretation.” Lapham-Hickory Steel Corp. v.
Protection Mut., 166 Ill. 2d 520, 529 (1995). Exclusion H2
clearly establishes that IRI does not insure against the
“rupture . . . of . . . pressure vessels.”
  This exclusion, moreover, is clearly applicable since
Stone’s losses were caused by a rupture. In Stone 1, we
noted that “[o]ne of the tanks in one of Stone’s plants ex-
6                                                 No. 03-1887

ploded when a thin area of its steel shell ruptured during
the high-pressure operation of the tank.” 165 F.3d at 1159
(emphasis added). That conclusion, moreover, is amply
supported by the record. After the explosion, Stone retained
Packer Engineering to perform an independent investiga-
tion of the cause of the digester failure. Packer’s report
concluded that the cause was a “rupture.” Furthermore,
Stone’s agents consistently referred to the loss as being
caused by a rupture. In describing the event to its employ-
ees, Stone, in a press release approved by Jim Heider, who
was in charge of Stone’s Mill Division at the time of the
explosion, stated that “one (1) of 22 batch digesters rup-
tured . . . .” In a letter from one of its attorneys, Stone
referred to the event as a “catastrophic rupture.” In its filing
with the SEC, Stone reported that it paid fines to OSHA
resulting from “the April 13, 1994, digester vessel rupture
at the company’s Panama City, Florida pulp and paper-
board mill . . . .” And, in its prior litigation against HSB
before this court, Stone argued that “[t]he No. 15 pulp
digester at the Stone Container Paper Mill . . . ruptured
catastrophically . . . .”
  This does not, however, completely resolve the issue. The
rupture itself led to an explosion. Stone 1, 165 F.3d at 1159.
Based on this, Stone argues that H1, which excludes from
coverage explosions of certain property, not H2, is
the critical policy language we should look to. Under H1,
explosions of pressure vessels, unlike other listed property,
are not expressly excluded. Thus, by inference, they are
covered. See National Union Fire Ins. Co. v. Glenview Park
Dist., 158 Ill. 2d 116, 123 (1994) (exclusions will not be ap-
plied unless they are “clear, definite and explicit”).
  If Stone is correct, under H2, coverage would be excluded
for the damage the rupture caused, but under H1 the com-
pany could recover for the losses that resulted from the
explosion. Since the two occurrences happened virtually
No. 03-1887                                                      7

simultaneously, within milliseconds, determining causation
and thus apportioning damages between the covered event
and the non-covered event would be extremely challenging.
At a minimum, we would be required to examine Illinois
law with regard to dual or concurrent causation. See
Transamerica Ins. Co. v. South, 975 F.2d 321, 330 (7th Cir.
1992) (discussing Illinois law regarding dual causation).
  Such an analysis is not necessary. The language of
Stone’s policy itself is clear. The last part of exclusion H2
states that the policy does not insure against “resulting
damage . . . caused by such Occurrences [rupture, bursting,
cracking, burning or bulging] except damage from a . . .
combustion Explosion . . . .” By its terms, then, the policy
excludes explosions (“damage”) that results from ruptures,
unless the resulting explosion is a “combustion Explosion”
(which neither party claims this was).2 Because the lan-
guage in exclusion H is unambiguous in barring coverage,
there is no need to examine any extrinsic evidence. See
Alpine State Bank v. Ohio Cas. Ins. Co., 941 F.2d 554, 559
(7th Cir. 1991) (holding that the trial court erred when it
allowed extrinsic evidence to interpret unambiguous policy
language); Mank v. West American Ins. Co., 249 Ill. 3d 827,
830 (Ill. App. Ct. 5th Dist. 1993) (“No extrinsic evidence of
the party’s intent needs to be considered where the contract
is determined to be unambiguous.”).
  The district judge also properly granted IRI summary
judgment on Stone’s claim that IRI violated the Illinois

2
   Stone argues that the term “damages” [sic] in this clause refers
only to “money lost,” not resulting physical harm. This interpreta-
tion is flawed. Stone ignores the exception to the exclusion for
damage resulting from a “combustion Explosion.” By including
this language, it is clear that under exclusion H an explosion,
other than a combustion explosion, is considered a “resulting
damage.”
8                                                No. 03-1887

Consumer Fraud and Deceptive Business Practices Act, 18
ILCS 505/2, 505/10a. Stone claims that IRI misrepresented
the scope of its insurance coverage in one of its publications
and failed to disclose the gap that existed between IRI’s and
HSB’s insurance policies.
  To begin, Stone cannot establish that IRI acted decep-
tively. See Oliveira v. Amoco Oil Co., 201 Ill. 2d 134, 149
(2002) (stating the elements necessary to sustain a cause of
action under the Illinois Consumer Fraud statute). The
publication Stone relies on states that the “major hazard”
with digesters is “explosion from vessel failure.” It does not,
however, make any representations concerning insurance
coverage for such explosions.
   Nor is there evidence that IRI issued the publication
intending for Stone to rely on it to determine the scope of
coverage. See id. Dobosz v. State Farm Fire & Cas. Co., 120
Ill. App. 3d 674 (Ill. App. Ct. 2d Dist. 1983), cited by Stone,
is not applicable. There, the court treated a brochure as
part of the insurance contract between the parties when
State Farm’s agent sent Dobosz a copy of the company’s
brochure and indicated that it described the available
coverage. Id. at 677. The agent further told Dobosz it would
take a long time to explain the policy itself and stated that
the brochure showed what the policy covered. Id. Dobosz
testified, moreover, that he relied on the brochure to
indicate the risks against which his home would be insured.
Id. In contrast, here, Stone is a large corporate entity which
hired a professional corporate insurance broker. There is no
evidence that IRI told Stone to depend on the publication,
and Stone fails to establish that it relied on the brochure in
lieu of, for example, reading the language of the insurance
policy.
  Finally, IRI did not have a duty to disclose the existence
of a gap in coverage to Stone. See, e.g., Nielson v. United
Servs. Auto. Ass’n, 244 Ill. App. 3d 658, 663 (Ill. App. Ct. 2d
No. 03-1887                                               9

1993). Insured parties have the burden of knowing the
contents of their insurance policies. An insurer “does not
have the duty of reviewing the adequacy of an insured’s
coverage, even when it knows of facts that indicate that the
coverage is inadequate.” Lazzara v. Howard A. Esser, Inc.,
802 F.2d 260, 274 (7th Cir. 1986); Nielson, 244 Ill. App. 3d
at 663. Thus, such a nondisclosure does not provide a basis
for liability under the Consumer Fraud Act.
  The judgment of the district court is AFFIRMED.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                  USCA-02-C-0072—12-09-03