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Newmont Mines Limited and Esso Resources Canada Limited v. Hanover Insurance Co.

February 20, 1986


Defendant insurance companies appeal from a judgment entered after a jury verdict in the United States District Court for the Southern District of New York (Sprizzo, J.) in an action to recover under two property damage insurance policies for losses arising out of the collapse of two separate portions of an insured building. Affirmed.

Author: Miner

Before: VAN GRAAFEILAND, NEWMAN and MINER, Circuit Judges

MINER, Circuit Judge:

This action arises out of the collapse on two different days of two separate sections of the roof of a copper concentrator mill building located at the Granduc minesite in Tide Lake, British Columbia, Canada, and the refusal of two of the building's four insurers, Hanover Insurance Company ("Hanover"), and Utica Mutual Insurance Company ("Utica"),*fn1 to indemnify the building's owner, Newmont Mines Limited ("Newmont"), for the resulting losses. Hanover and Utica appeal from a final judgment in the amount of $2,500,000 (Canadian), plus prejudgment interest computed from February 20, 1980, entered after a jury trial in the United States District Court for the Southern District of New York (Sprizzo, J.). The two insurers were found liable for failure to pay, under the terms of property damage insurance policies issued by them, for the expenses incurred by Newmont in the repair of the damaged building. The insurers' primary contentions on this appeal are that they are not liable because the insured failed to inform them of a material increase in the risk and that, even if they are liable, the two collapses constituted one occurrence and thus the maximum amounts payable under the policies "for any one occurrence" should not have been calculated separately from each collapse. For the reasons set forth below, we affirm.


The Granduc minesite is located near the Alaskan border in an area of British Columbia subject to heavy snowfalls and substantial snow accumulation. The centerpiece of the minesite and the focus of this lawsuit is the concentrator facility: a huge wedge-shaped, multi-function structure with a sloping roof nearly fifteen stories high at its peak. The concentrator is 442 feet long by 240 feet wide and has a large roof with a slope length of approximately 500 feet. Due to the size of the concentrator, structural design principles required that an expansion joint be installed in the middle of the building to permit expansion and contraction to occur without causing damage. Consequently, the concentrator was designed and constructed as two adjacent structures, each approximately 220 feet long and each capable of supporting vertical and horizontal loads independent of the other. The two structures are separated in the middle by a double set of columns, located at what has been designated line G.

Because this region receives the highest annual snowfall in the world -- as much as 1200 inches per year -- the concentrator facility was specially designed to act as a giant snow slide, which would deposit snow from the roof into a catch basin at the base of the building. The roof was slanted at a thirty-degree angle, with the belief that this slope, together with the natural convection of heat generated in the building from ordinary operations, would cause the snow to slide off the roof.*fn2 Indeed, this system of removing snow from the concentrator's roof was successful until the 1978-1979 winter.

Newmont owned and operated the concentrator from 1970 until mid-1978, when it ceased operations at the Granduc mine due to depressed economic conditions in the copper industry. Prior to closing the Granduc mine, and because the concentrator would no longer be in operation or heated, Newmont sought advice regarding appropriate snow clearance procedures from Swan Wooster Engineering ("Swan Wooster"), one of the engineering firms that participated in the design of the concentrator. Swan Wooster recommended periodic inspections of the concentrator and removal of snow accumulated in the catch basin at the base of the building. Newmont also discussed the cessation of operations with Allendale, one of the companies insuring the concentrator facility. By letter dated August 8, 1978, Newmont informed Allendale of its plans to permanently close the Granduc mine and its intended inspection and snow clearance program. No similar letter was sent to Hanover or Utica.

Thereafter, in accordance with Swan Wooster's recommendations, Newmont personnel regularly inspected the concentrator and, when need, removed accumulated snow from the base of the building. Beginning in mid-December 1978 and continuing thereafter, Newmont personnel observed that snow was not sliding from the roof. On March 1, 1979, Kurt Dahlke, an employee of Newmont, inspected the concentrator, observed approximately eight to ten feet of snow on the roof, and reported: "Everything ok. No sliding, no build-up."*fn3

On the next inspection trip, on March 14th, Newmont personnel discovered that a section of the concentrator roof, measuring approximately 55 to 200 feet and located just below the midline of the concentrator (line G), had collapsed sometime between March 1st and March 14th. The collapse was due to the weight of ice and snow. On March 17th, a second section of the roof, measuring approximately eighty by seventy feet and located in the upper half of the building some seventy-five feet above the area of the first hole, collapsed due to the weight of ice and snow. Both collapses occurred in portions of the roof having a load capacity of 140 pounds per square foot.

Subsequently, on May 31, 1979, Newmont conveyed its title to the Granduc mine property, including the damaged concentrator, to Esso Resources Canada Limited ("Esso") pursuant to a written agreement of purchase and sale. In a supplementary letter agreement, Newmont agreed to pursue its rights under its insurance policies and hold any proceeds in trust for Esso. Thereafter, Esso repaired the damaged concentrator building at a total cost of approximately $6.6 million (Canadian).

The insurance policies issued by Hanover and Utica (as well as those issued by Adriatic and Allendale) insured Newmont's interest in various properties located in twelve different states of the United States and in British Columbia. The four insurance companies provided "layered" insurance coverage against a variety of perils, including that of collapse caused by the weight of ice and snow. The first layer of insurance was provided by the Hanover and Adriatic policies, each of which covered fifty percent of the first $500,000 (in excess of $25,000 deductible) for any one occurrence. The Utica policy provided intermediate coverage of $1,000,000 in excess of $525,000 for any one occurrence. The Allendale policy provided a third layer of coverage with a $1,525,000 deductible for any one occurrence and a limit of liability of $9,189,000 for the Granduc mine property.

The terms and conditions of the Hanover and Utica policies were set forth in identical typewritten "manuscript" policies prepared by Newmont's insurance broker, Johnson & Higgins. Representatives of Hanover and Utica reviewed and approved the terms of the manuscript policies and appended certain standard-form statutory conditions; the companies then issued the policies. In so doing, neither Hanover nor Utica inspected, either personally or through a representative, any of Newmont's properties covered by the policies. Neither company made any inquiry of Newmont or its brokers regarding the properties, any special climatic conditions at any of the sites, or the design specifications of the buildings. Instead, Hanover and Utica were content in their knowledge that Allendale, the excess carrier, provided fire prevention and engineering services to Newmont and otherwise monitored the Granduc properties.

Newmont filed proof of claim with the four insurance companies in January of 1980. All four companies refused to pay their respective apportioned shares of the claimed loss by the date called for in the policies, February 20, 1980, and thus Newmont and Esso commenced this suit on February 29, 1980. Adriatic and Allendale reached settlement with Newmont and Esso and were dismissed from the action prior to trial. Hanover and Utica denied liability for the loss and asserted several affirmative defenses. They contended at trial -- as they do on appeal -- that Newmont's cessation of operations at the Granduc mine in 1978 and the consequent absence of heat in the concentrator building constituted a material change in the risk insured by them. They further maintained that under British Columbia's Insurance Act they were entitled to notice of a material change in the risk and that the failure of Newmont to give such notice to them resulted in the suspension of insurance coverage. Hanover and Utica also asserted that the collapses of the two sections of the roof constituted one occurrence rather than two because both were caused by the same accumulation of snow and ice on the roof.*fn4 Finally, both companies argued that Newmont and Esso failed entirely to prove the amount of damages attributable to the alleged second occurrence.

In response to special interrogatories, the jury rejected each of these contentions and concluded that although there was a change in the risk it was not material and that, in any event, Hanover and Utica had knowingly waived any obligation on the part of Newmont to notify them of a material change in risk. The jury also found that the collapses of the two sections of the concentrator roof constituted two separate occurrences and that the cost of repairing the damage caused by the first collapse was $1,936,606 (Canadian) and the cost of repairing the damage caused by the second collapse was $4,663,394 (Canadian).

Hanover and Utica moved for judgment notwithstanding the verdict or, alternatively, for a new trial. By order dated December 11, 1984, Judge Sprizzo denied their motion on the ground that sufficient evidence was introduced at trial to support the jury's findings, and requested additional briefing as to the appropriate date and exchange rate for converting the jury's award from Canadian dollars into United States dollars for purposes of entering judgment. After the additional briefing was completed, the district court held that the "breach-day" rule applied and that the exchange rate prevailing on February 20, 1980 (the day Utica and Hanover became obligated under their policies to pay the claims) should be used for converting the award into United States dollars. Newmont Mines Limited v. Adriatic Insurance Co., 609 F. Supp. 295, 298 (S.D.N.Y. 1985). Judgment ultimately was entered in favor of Newmont and Esso for $2,000,000 (Canadian) as against Utica and $500,000 (Canadian) as against Hanover, together with prejudgment interest on both amounts from February 20, 1980.*fn5

Hanover and Utica appeal, contending: (1) Newmont's cessation of operations and hear at Granduc constituted a material change in the insured risk, which released them from all liability for the losses; (2) the two collapses constituted a single "occurrence" and thus the maximum amounts payable under the policies "for any one occurrence" should have not been calculated separately for each collapse; (3) Newmont and Esso failed to prove the amount of damages attributable to each of the alleged two occurrences; and (4) the amount of the judgment should have been converted from Canadian dollars to United States dollars at the exchange rate prevailing on the date of judgment rather than the rate in effect on the date of the alleged breach.


A. Material Change in the Risk

Hanover's and Utica's pivotal argument regarding their liability is that the cessation of heat at Granduc was a change material to the risk insured by them, which released them from all liability for the losses. Under British Columbian law, which is agreed to govern the substantive issues in this action, "any change material to the risk and within the control and knowledge of the insured shall avoid the contract as to the part affected thereby, unless the change is promptly notified in writing to the insuror." Insurance Act, B.C. Rev. Stat. ch. 200 ยง 220, Statutory Condition No. 4 (1979). In response to special interrogatories four and five, the jury stated that while the cessation of operations and heat at the Granduc mine was a change in the insured risk, it was not a material change.

Hanover and Utica take sharp issue with that finding. In order to overcome the jury's finding, however, Hanover and Utica bear a heavy burden. The evidence presented to the jury must be viewed in the light most favorable to Newmont and all inferences must be drawn in its favor. As we ...

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