Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
An insurer wasn’t responsible for indemnifying a Kendallville-based company for the cost of replacing an aluminum furnace refractory destroyed in an explosion, the 7th Circuit Court of Appeals ruled Friday in affirming a district court’s judgment .
According to court records, Aluminum Recovery Technologies operates a smelter and recovers aluminum from scrap metal.
The company renovated and enlarged Furnace #4, which failed the day it was put back into operation. Molten aluminum escaped and damaged both the plant and the furnace itself.
ACE American Insurance paid some of ART’s losses, but not the cost of replacing the furnace’s refractory.
Eventually, all of the refractory from Furnace #4 was removed and replaced at a cost approaching $400,000.
In the lawsuit under the diversity jurisdiction, the District Court of the Northern District of Indiana held that the insurer didn’t need to indemnify ACE for that outlay.
After the furnace failed, the insurer retained Engineering Systems Inc. to determine why. Francisco Godoy, a mechanical engineer, conducted the investigation on its behalf.
On the first day of the investigation the refractory nearest the site of the lead was removed. On the second day, additional refractory was removed to extend the inspection. Eventually, ART had to tear out and replace all of the remaining refractory to put the furnace back in operation.
When ART demanded indemnity for this expense, the insurer invoked an exclusion in the policy which stated that the policy did not cover any refractory lining or catalyst.
Engineering Systems concluded that faulty welding led the furnace’s frame to fail, allowing aluminum to escape. Thus, the policy’s exclusion blocks reimbursement for the cost of replacing the refractory.
ART claimed that an explosion in the furnace caused the structure’s failure. If that was the case, then the exclusion did not apply.
The district court agreed with the insurer.
The 7th Circuit affirmed, writing that like the district court, it did not need to determine the sequence because even if it’s assumed that an explosion of some kind came first, the policy’s exclusion applied unless that explosion caused the leak.
The court noted that a straightforward way to show causation would be to present an expert witness who could identify the nature of the explosion and how it led to the furnace’s frame to fail.
Godoy, the insurer’s expert engineer, concluded the faulty welding explained the failure. William Sale of K-Industrial of Indiana, LLC, ART’s refractory contractor, agreed with the assessment but offered no evidence.
“The need for other evidence to make an inference of causation plausible is equally great elsewhere in the law. All ART offers, however, is the temporal sequence,” Judge Frank Easterbrook wrote.
ART claimed that the insurer engaged in unnecessarily destructive testing. It stated that the cost of repairing the refractory lining would have been under $10,000 had Godoy removed less of the material during his investigation. ART insisted that the insurer cover the excess expense.
“This line of argument goes nowhere, however, because ART agreed to the plan of investigation, including the destructive testing,” Easterbrook wrote. “If ART’s representatives were unaware that the insurer would not cover the cost of rebuilding the refractory lining, that is ART’s own problem.”
The 7th Circuit affirmed the district court’s judgment, finding it enough that ART agreed to Godoy’s proposed investigative protocol.
“Perhaps ART’s representatives consented because they believed (as the insurer contends) that recasting the whole refractory lining was inevitable once the furnace failed, no matter how the testing was done. We need not speculate about ART’s thinking, however,” Easterbrook wrote.
The case is Aluminum Recovery Technologies Inc. v. ACE American Insurance Company, 22-2556.
Please enable JavaScript to view this content.