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EASTERN ASSOCIATED COAL CORP. v. AETNA CAS. & SUR.

August 22, 1979

EASTERN ASSOCIATED COAL CORP.
v.
AETNA CASUALTY & SURETY CO.



The opinion of the court was delivered by: KNOX

The defendant has filed the usual motions for judgment NOV and for a new trial. Both matters have been thoroughly argued and briefed and are now before the court for decision.

 The plaintiff is engaged in the business of mining and supplying both metallurgical coal which is used in steel plants in the making of steel, and so-called steam coal which is largely sold to power plants for use in their boilers. Metallurgical coal is required to have a sulphur content substantially below that of steam coal.

 We are concerned here with a loss claimed by the plaintiff to result from interruption of its business in the Joanne Mine located near Rachel, West Virginia, by a fire which occurred January 14, 1974. At that time, the evidence shows that a fire broke out in the underground part of the mine, efforts to stop it were unsuccessful, and the mine was closed off and sealed for a period of about one year until June 1974. We are only concerned here under the policy with the period of one year after the fire. It appears, however, that considerable work was necessary to return the mine to active production. Production was resumed on a limited basis in late December 1974.

 The insurance with which we are concerned here involves various fire and casualty policies issued by numerous insurance companies. The policies were originally purchased through insurance agents in package policies issued in 1972 which insured against damage by fire to plaintiff's real and personal property and also against damages resulting from interruption of its business. The annual premium was $ 44,417. The policies were issued in four layers. The first layer, subject to a $ 500,000 deductible covered losses up to $ 5,000,000 or a net of $ 4,500,00 after applying the deductible. The second layer with which we are concerned in this case insured losses over $ 5,000,000 up to $ 10,000,000. The third and fourth layers with which we are not concerned covered losses in excess of $ 10,000,000 and $ 15,000,000 respectively.

 The insurers involved in the first layer of coverage for the $ 5,000,000, less the $ 500,000 deductible paid plaintiff the full amount of $ 4,500,000 due on that layer. It appears, however, that defendants admit that there was an excess of $ 287,277 over and above the $ 5,000,000 which would be due from the second layer of insurance regardless of the outcome of the other issues. While there was some dispute about this at the time of trial, it appears there was no serious dispute as to this matter and it was dropped at argument.

 The business interruption clauses of the policy insured the defendants against, Inter alia, "loss of earnings". In paragraph 10 with respect to this matter, it was specifically provided as follows:

 
"b. Business Interruption Recovery in the event of loss hereunder shall be the ACTUAL LOSS SUSTAINED by the Assured directly resulting from such interruption of business, but not exceeding the reduction in earnings less charges and expenses which do not necessarily continue during the interruption of business, . . . Due consideration shall be given to the continuation of normal charges and expenses, including payroll expense, to the extent necessary to resume operations of the Assured with the same quality of service which existed immediately preceding the loss.
 
"EARNINGS DEFINED : For the purpose of this insurance "Earnings' are defined as the sum of: (a) Total net sales value of production,
 
(c) Other earnings derived from operation of the business, Less the direct cost of :
 
(1) Raw Stock from which such production is derived;
 
(2) Merchandise sold, including packaging materials therefor;
 
(3) Materials and supplies consumed directly in service(s) sold; and
 
(4) Service(s) purchased from outsiders (not employees of the Assured) for resale which do not continue under contract.
 
No other costs shall be deducted in determining "Earnings'. In determining "Earnings', due consideration shall be given to the experience of the business before the date of damage or destruction and the probable experience thereafter had no loss occurred.
 
"EXPENSES INCURRED TO REDUCE LOSS : Any and all expenses incurred by the Assured to reduce loss hereunder is covered by this insurance to the extent only of the loss which would have been sustained had such expense not been incurred."

 The evidence further shows that during the year following the fire there was an unprecedented demand for both high volatile metallurgical coal and steam coal of the types produced in the Joanne Mine, this being the first so-called energy crisis experienced in this country. It was estimated that the mine would have produced during the year following the fire 181,742 tons of metallurgical coal and 433,917 tons of steam coal.

 Prior to the fire, metallurgical coal was under contract for sale to Sharon Steel Corporation under a ten-year coal supply agreement dated June 18, 1969, which provided for payment at $ 7.25 per ton f. o. b. for metallurgical coal subject to escalation for various reasons. At the time of the fire the price for this coal was $ 13.34 per ton which was substantially lower than the market price. Steam coal from the mine had been sold largely to Ontario Hydro-Electric Power.

 Under the contract with Sharon Steel, Sharon was not required to buy any minimum tonnage of Eastern's metallurgical production but, except for one year, Sharon had taken all the metallurgical coal from this mine.

 Following the fire, Eastern claimed it was excused from supplying coal to Sharon under a Force majeure clause contained in the contract providing for excuses in cases of strikes, labor shortages, fires, floodings or accidents at the mine or other matters beyond the control of the seller. A suit was instituted in the Court of Common Pleas of Allegheny County, Pennsylvania, by Sharon to compel compliance with the contract by the defendant but the arbitration went against plaintiff. Provision had been made for the supply of substitute coal from plaintiff's Wharton No. 4 Mine, also located in West Virginia, but after the fire no coal was available from this mine because the coal from Wharton No. 4 was contractually committed to other customers. The arbitrators held that the Force majeure clause did not excuse plaintiff's failure to supply coal to Sharon, holding that by reason of a certain other clause in the contract, plaintiff had an obligation to supply Sharon's requirements from other sources in the event of deficiencies at the Joanne Mine. The arbitrators therefore held that Eastern must supply the deficiency from its Wharton No. 4 Mine, which proved impossible, or otherwise it must arrange for the supply to Sharon of other high volatile coal of a quality and at a price acceptable to Sharon. As a result of the arbitration award, ...


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