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De Guinee v. Insurance Co.


decided: November 10, 1983.



Seitz, Chief Judge, Gibbons and Rosenn, Circuit Judges.

Author: Gibbons


GIBBONS, Circuit Judge:

Compagnie des Bauxites de Guinee (CBG) appeals from a judgment against Insurance Company of North America (INA) for $72,273 in its suit on an insurance policy. CBG contends that the judgment should have been no less than $5,732,402, and seeks a new trial. We conclude that the jury's verdict on which the judgment was entered is supported by evidence in the record and that no trial errors warrant the granting of a new trial. Thus we affirm.


CBG, a Delaware corporation, has its principal place of business in the Republic of Guinea, where it mines, processes, and ships bauxite ore. The CBG mine is in the interior of the country, about 85 miles from its processing and shiploading facility on the West Coast of Africa at Kamsar. Connecting the mine and the Kamsar facilities is a railroad operated by CBG over which ore cars transport the ore to a crusher house in which the ore is crushed. After crushing, the ore is kiln dried, and stored in sheds to await shipment. Shipment is by ocean vessels which deliver the ore to aluminum producers in the United States, Canada, France, West Germany and Italy. Those shipments are made pursuant to long term contracts.

On July 17, 1974 one CBG train enroute from the mine to Kamsar collided head-on with another CBG train returning empty. Two locomotives and 30 ore cars were destroyed, seven other ore cars were damaged, and 800 feet of railroad track were destroyed. As a result of the collision all rail traffic was stopped for several days while the wreckage was cleared and a temporary by-pass track laid around the site.

INA is a Pennsylvania corporation which issues casualty insurance. On February 2, 1974, INA issued to CBG a policy insuring against "loss resulting directly from necessary interruption of business caused by damage to or destruction of real or personal property . . . ." When notified of the loss INA admitted that the destruction of the locomotives, ore cars, and track were perils falling within the insuring clause of the policy. The policy requires that the insured render a signed and sworn proof of the loss sustained. Because there were other casualties at Kamsar at about the same time that were unrelated to the train wreck, CBG apparently was unable to prepare a proof of loss within 60 days, and INA granted several extensions of the 60 day policy deadline. A proof of loss was finally submitted in March of 1975, claiming $2,654,682.81. INA, while acknowledging that the loss was covered, informed CBG that the proof of loss did not conform to the requirements of the policy. Fruitless negotiations followed, and CBG filed suit in December, 1975.


As noted above, the policy insures against "loss resulting directly from necessary interruption of business caused by damage to or destruction of real or personal property . . . by the peril(s) insured aginst." It provides, further, that "in the event of such damage or destruction this Company shall be liable for the ACTUAL LOSS SUSTAINED by the Insured resulting directly from such interruption of business . . . ." That undertaking is qualified, however, by the provision that "it is a condition of this insurance that if the Insured could reduce the loss resulting from interruption of business, . . . by making use of stock (raw, in process or finished) at the location(s) described herein or elsewhere, such reduction shall be taken into account in arriving at the amount of loss hereunder." Finally, the policy provides for additional coverage for "such expenses as are necessarily incurred for the purpose of reducing loss under this policy . . . ."

At the trial the parties stipulated that CBG expended $72,273 in reducing the losses resulting from the train collision, and the court directed the entry of a verdict for this sum. It is not in dispute on this appeal. What is in dispute is claimed losses resulting from interference with bauxite production allegedly caused by the interruption of rail service. CBG stipulated at trial that new ore cars received around November 15, 1974 would be considered replacements for those destroyed or damaged in the collision, and thus that the period of recovery for business interruption would terminate as of that date. Thus the trial involved establishment of losses due to business interruption caused by the destruction of locomotives, ore cars and track, between July 17 and mid-November, 1974. INA took the position that no loss of bauxite production occurred during that period as a result of the destruction of the locomotives, ore cars and track, but that CBG was attempting to attribute to their destruction production losses that actually resulted from other causes. INA also took the position that in any event the inventory of processed bauxite in storage during the relevant period sufficed to meet CBG's contractual obligations for shipments, and must be taken into account in arriving at the amount of the loss. Extensive conflicting evidence was presented on both issues.

Both contested issues were given to the jury in the form of special interrogatories as follows:

2. Did CBG experience a loss in production sometime during the period between July 24, 1974 and November 17, 1974, which was directly caused by the July 17, 1974 train collision?

YES///--- NO////--


3. Did CBG experience a loss in shipments as a direct result of the lost production due to the July 17, 1974 train collision, after taking into account CBG's inventory available for shipment?

YES///--- NO////--


The jury answered special interrogatory 2 affirmatively and special interrogatory 3 negatively. Following the court's instructions, it proceeded to answer interrogatory 5:

5. Enter the actual loss sustained, which is Line 4D, above. Enter the amount set forth in the answer to Interrogatory 1. Add these amounts and enter the total on Line C.




Thus the jury found that some loss of production had occurred between July 17 and mid-November as a result of the destruction of the locomotives, ore cars and track, but that no loss in shipments was suffered, because CBG's inventory sufficed to meet its contracts for shipments. Judgment was entered on the verdict for $72,273. No post-trial motions were made.*fn1 On September 20, 1982 CBG filed a timely notice of appeal.


In this court CBG urges that the court erred in its instructions respecting the causal connection between the train collision and the business interruption, in its rulings and instructions on use of inventory, and in admitting and excluding certain evidence. Thus, CBG urges, it is entitled to a new trial.


The Instructions on Causal Connection

The court's charge on causation is quoted in the margin.*fn2 CBG contends that it is incorrect in several respects. It contends that the court should have given its requested instruction on concurring causes, that the court erred in instructing that the business interruption must have resulted directly from damage or destruction of real or personal property; that the court erred in placing the burden of proof on the policyholder; and that the court erred in charging that CBG cannot recover for business interruption losses caused by a lack of locomotive operators.

CBG's theory of the case was that the train collision resulted in loss of production, which in turn resulted in reduced shipments. The charge on causation was relevant only to the question whether a loss in production occurred. The jury's verdict on that issue is in CBG's favor. Thus we are at a loss to comprehend why any of the claimed errors could be other than harmless. See Fed. R. Civ. P. 61. Obviously the jury found a causal relationship between the train collision and the production losses. Thus it must have disregarded other causes urged by INA; must have found that the lost production resulted directly from the destruction of the locomotives, ore cars and track; must have been satisfied that if the burden was on CBG it was met; and must have disregarded INA's contention that any production losses were the result of a lack of locomotive operators.

Although its position is not entirely clear, CBG seems to be urging that despite the fact that it prevailed on the loss of production issue, it should nevertheless be free to urge errors in the charge respecting that issue, because those errors might have had some sort of spillover effect on the inventory issue which was decided against it. Its theory is that the jury could answer the special verdict interrogatory affirmatively, while assuming that only part of the lost production was caused by the physical destruction resulting from the train wreck. CBG did not, however, request a special verdict on the amount of lost production. The court instructed the jury to consider the lost production and lost shipment questions separately, deciding first whether a loss in production resulted from the train collision, and only then proceeding to the inventory issue. The special verdict interrogatories and the jury's answers establish that the court's instructions were followed. It would be entirely speculative to conclude that the court's instructions on the cause of lost production had any effect on the jury's conclusion about the amount of inventory available for shipment, in the absence of a verdict answer specifying the amount of lost production.

In any event, we have examined the charge, and find it to be entirely consistent with the language of the insurance policy.*fn3 The company agreed to pay loss sustained "resulting directly from such interruption of business," not loss sustained from other causes. Such interruption is interruption "caused by damage to or destruction of real and personal property," not interruption caused by the unavailability of locomotive engineers. And since the policy required that the insured submit a proof of loss, and CBG was the plaintiff in a contract action, placing on it the burden of establishing its loss was not error.


The Instruction on Use of Inventory

CBG makes two objections to the court's charge on the use of inventory issue.

The first is that fairly construed it amounted to an instruction that CBG must exhaust its inventory unconditionally and almost completely before it can recover on the policy. A proper instruction, CBG contends, would require good faith use of inventory in a commercially reasonable manner. The second is that the burden of persuasion should have been placed on INA on the inventory issue.

The court's initial charge on use of inventory is quoted in the margin.*fn4 After considering CBG's objections the court gave a clarifying instruction.*fn5 Following the clarifying instruction the court inquired of counsel "Is that about it, gentlemen? Is everybody satisfied?" Counsel for CBG responded "I have nothing further other than what I previously stated." 3191a. In light of this colloquy it is not at all clear that the objection to the charge relied on here was actually preserved. Nevertheless we have considered CBG's contention that the charge amounted to an instruction that CBG must exhaust inventory unconditionally before it can recover on the policy. No fair examination of the original and supplemental instructions in their entirety can lead to such a conclusion. Plainly the court charged that the insurance policy imposed on the insured the obligation to reduce business interruption losses by using inventory in a commercially reasonable manner, and left it to the jury to determine both what was commercially reasonable in light of the evidence and whether CBG had so acted. CBG would have us focus on the 500 ton illustration, as if it were a direction that inventory must be reduced to that level. When that strained interpretation of the illustration was called to the court's attention, however, the court made it perfectly clear that the example was strictly illustrative, and should be interpreted in that light. The objection to the charge is without merit.*fn6

We also find meritless CBG's contention that the burden of persuasion should have been allocated to INA on the inventory issue. Its argument is that mitigation of loss is an affirmative defense. The policy, however, states that if the insured can reduce the loss which might result from a business interruption "such reduction shall be taken into account in arriving at the amount of the loss hereunder." The burden was on the policyholder to establish the amount of the loss. The inventory clause is not a mitigation of damage clause. It goes to computation of loss resulting from business interruption caused by destruction of real or personal property. Loss is defined as "ACTUAL LOSS SUSTAINED by the insured resulting directly from such interruption of business, but not exceeding the reduction in Gross Earnings . . . ." Thus if there was no interruption of sales -- if earnings continued -- there was no loss within the terms of the policy. See Berkeley Inn, Inc. v. Centennial Ins. Co., 282 Pa. Super. 207, 422 A.2d 1078 (1980) (business interruption insurance generally intended to return to insured amount of profit it would otherwise have earned). INA did not rely on any exclusion of coverage. It admitted coverage, but insisted that the insured prove the amount of its loss. There was no basis on which the court could shift to the insurer the obligation to disprove the amount of the loss. Indeed, allocating the burden of persuasion to the insured is consistent with the well established rule that where the facts lie peculiarly within the knowledge of one party, that party should bear the risk of non-persuasion. Any other rule would be particularly onerous to a party lacking information but required to prove a negative. What was a commercially reasonable use of CBG's bauxite inventory was a matter peculiarly within its knowledge. CBG simply failed to persuade the jury on that hotly contested issue. There is no basis for granting a new trial in which the burden is placed on INA to disprove what in the first trial CBG failed to prove to the satisfaction of the factfinder.


The Evidence Rulings

1. Evidence Admitted.

CBG contends that the trial court committed reversible error in admitting the testimony of two expert witnesses, Edmund Burke, a civil engineer, and Gerald Driscoll, a certified public accountant.

Mr. Burke testified on that aspect of the case dealing with loss of production. A partner in an engineering firm and the holder of an undergraduate and graduate degree in civil engineering, Burke had broad civil engineering experience prior to his visit to CBG's facilities in Guinea. His opinion as to the cause of loss of production was admissible under Fed. R. Evid. 702 if he was "qualified as an expert by knowledge, skill, experience, training, or education." The trial court found that he was so qualified. This question is relegated, under Fed. R. Evid. 104(a) to the trial court, whose findings on Burke's qualifications are not clearly errneous. But more fundamentally, even if they were, that would be no ground for reversal in this instance, because CBG prevailed on the issue of the cause of loss of production. Thus even if Burke's testimony had been erroneously admitted the error would be harmless.

Mr. Driscoll, a certified public accountant, testified on the use of inventory issue. He did not, however, opine that all the inventory on hand in the relevant time period should have been shipped. Instead, from CBG's own records, Driscoll compared lost production with available inventory. The contention that a certified public accountant was not qualified to make these simple mathematical comparisons borders on the frivolous.

2. Evidence Excluded

CBG contends that the trial court erred in excluding evidence of its business performance during the period from 1976 through 1981. By that time the damaged facilities resulting from the other accidents at Kamsar had been redesigned and rebuilt. INA objected to the relevancy of the proffered evidence, pointing to the policy language:

In determining Gross 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.

The evidence establishes that the production facility underwent substantial rebuilding to a new design. That made the tendered evidence of questionable relevance, and suggested the possibility of undue prejudice with respect to the period when the loss allegedly occurred. The court's ruling was well within the discretion accorded to the trial court by Fed. R. Evid. 403. Moreover the trial court conditioned its ruling by giving CBG an opportunity to use the evidence in rebuttal. No rebuttal offer was made.

CBG also contends that the trial court erred in excluding deposition testimony of A.O. White, an insurance adjuster, including references to a report by White to Ralph Carson of American International Group, Inc. about White's investigation of a casualty covered by a Contractor's All Risk policy. The deposition was tendered as relevant to the issue of lost production as a result of the train collision. On that issue White's deposition was of marginal relevance, and plainly cumulative. Thus the court did not abuse its discretion under Rule 403 in excluding it. Moreover, had any abuse of discretion occurred the error would be harmless since CBG prevailed on the lost production issue.


None of the grounds relied upon by CBG for setting aside the jury verdict would justify doing so. That being so, CBG's final contention that as a matter of law it was entitled to an award of delay damages, adjustment for inflation or prejudgment interest, is for the most part moot. An insurer cannot be charged with any of those items of damage for withholding payments found by the jury not to be due. Nor would delay in payment of the $72,273 for which the trial court directed a verdict justify the award of such items of damage in this instance. INA's contractual obligation to pay arose only upon presentation of a proper proof of loss. The verdict establishes that the proof of loss seeking $2,654,682.81 was anything but proper. It establishes, as well, that INA was justified in resisting a lawsuit in which CBG attempted to recover $5,732,402.


The judgment appealed from will, therefore, be affirmed.

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