Newmont Mines Limited and Esso Resources Canada Limited v. Hanover Insurance Company & Utica Mutual Insurance Company , 784 F.2d 127 ( 1986 )

VAN GRAAFEILAND, Circuit Judge,

dissenting:

My differences with my colleagues are highlighted by the second footnote in the majority opinion, which states that snow “generally will slide down” a thirty degree slope. One of the biggest problems confronting Newmont when its concentrator was built in 1968 was how to get the snow off the concentrator roof. The answer, in the words of the project engineer in charge of the building construction, is undisputed:

There had to be some method of getting the snow off, and the method adopted was heat.

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[H]eat is necessary or some other method is necessary to release snow from a 30 degree roof.

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[T]he design criteria for maintaining the level of snow on the roof was to have a heated roof.

The engineering designs, to which the witness referred, contained the following specifications for the roof:

Roof: much study was given to the type of roof to be selected. The fundamental criteria was that the roof must function as an immense snow slide and avoid any heavy build-up by shedding snow continuously. Torkleson’s concept envisaged an attic type roof in which the attic space would be physically separated from the main volume of the structure and be fed continuously with hot air to maintain an essentially liquid film on the outer roof surface.

A careful analysis showed that the same desirable snow-shedding characteristic could be obtained by using a sandwich panel constructed of fiberglass insulation between corrugated metal sheathing and that this type of installation could be heated by natural convection of warm air in the building without the necessity for a false ceiling or attic arrangement; both heating cost and installed cost were estimated to be much lower.

For nine years, Newmont heated the concentrator building, and, during this time, there never was an occasion when the snow did not slide off the roof. In 1978, against the recommendation of its own engineering staff, Newmont turned off the heat, and the roof collapsed from the weight of the snow. In the light of these undisputed facts, the jury’s finding that the cessation of heat did not constitute a material change in the risk defies all sense and logic, is completely without support in the evidence, and has resulted in a miscarriage of justice. Accordingly, even if there were no error in the court’s charge, the verdict should not be permitted to stand. See Bevevino v. Saydjari, 574 F.2d 676, 684 (2d Cir.1978); Graley v. American Eagle Fire Insurance Co., 235 A.D. 490, 492, 257 N.Y.S. 566 (1932); Tavema v. Palatine Insurance Co., 228 A.D. 33, 35, 238 N.Y.S.2d 389 (1930). However, there was error, error which is echoed in the majority opinion.

The district court instructed the jury that it must decide whether the change of risk was “a risk that was within the contemplation of the parties at the time they entered into the insurance contract” and “whether it was within the fair parameters of what they contemplated when they entered into this insurance agreement that they would insure the property under the circumstances which you have heard described in the evidence.” Defense counsel excepted to this portion of the charge, stating, I believe correctly, that “it is not a necessary element of the case for the insurers to know precisely the nature of the risk at the time it was written, that the issue here is, whatever that risk was as of that time, did it change and did it materially change.”

The critical nature of this charge is emphasized by reference to the arguments of plaintiffs’ counsel which have been adopted by my colleagues; viz., that because the defendants’ policies were blanket policies covering twenty-five different locations, defendants were concerned with an overall assessment of the risk rather than with a particularized assessment of the increased risk at the Granduc site. This reasoning, I suggest, distorts the entire concept of increased risk. “An increase of hazard takes place whenever the insured property is put to some new use, or its physical condition is changed, and the new use or changed condition increases the chance of loss.” Graley v. American Eagle Fire Insurance Co., supra, 235 A.D. at 492, 257 N.Y.S. 566. More simply, it is described as “any new use or physical change which increases the chance of loss.” 45 C.J.S. Insurance § 559(a)(2) at 313. See also Ampersand Hotel Co. v. Home Insurance Co., 198 N.Y. 495, 498-99, 91 N.E. 1099 (1910); Sebring v. Firemen’s Insurance Co., 227 A.D. 103, 104, 237 N.Y.S. 120 (1929); 8 Couch on Insurance 2d (rev. ed. 1985) § 37A:291 at 329.

In my opinion, the fact that defendants wrote blanket policies covering numerous locations emphasizes the need for the correct application of this rule. The carriers had to rely upon the insured’s contractual obligation not to make any changes which materially increased the risk of loss at any of the twenty-five locations without notifying the carriers of what it had done. It is at that point, when the carriers have been notified, that they should be given an opportunity to decide whether they are willing to insure for the increased risk, and, if so, at what rate. Permitting a jury to go beyond the terms of a carrier’s policy and speculate as to the carrier’s “contemplation” when the policy was written leads to just, such a miscarriage of justice as has occurred in this case. This is fully demonstrated by my colleagues’ statement that, inasmuch as the carriers did not ascertain the procedures for removing snow from Newmont’s concentrator building at the time they wrote the policies, the jury was entitled to infer that they “agreed to insure the building without regard to the snow removal procedures being used or whether the building was heated.” I respectfully but strongly disagree. Newmont had been removing up to 100 feet of snow from its concentrator roof during each of the eight winters that preceded the writing of the policies at issue herein. Whatever method Newmont used obviously was successful. If, as the undisputed facts show, the removal could be accomplished only with the use of heat, it simply cannot be contended that the carriers agreed to insure without regard to this means of accomplishment.

Because Newmont was in the process of selling its Granduc holdings to Esso, it told Esso that snow was building up on the roof and that Esso should suggest a course of action. Newmont’s president stated that, if Esso showed no interest, he was “prepared to allow the concentrator roof to collapse.” Under the circumstances, it is simply unconscionable to saddle the carriers with the loss which Newmont willingly permitted.

I find no support in the record for the majority’s footnoted statement that the carriers knowingly waived their right to be notified of any changes in the risk insured. For a waiver to occur, a carrier must act with full knowledge of all the facts and in such a manner as to lead to the conclusion that it is abandoning a particular condition or defense. Kiernan v. Dutchess County Mutual Insurance Co., 150 N.Y. 190, 195, 44 N.E. 698 (1896); 18 Couch on Insurance 2d § 71:22. The carriers in the instant case did not know that Newmont was discontinuing the removal of snow from its concentrator roof. Moreover, Newmont’s president acknowledged the importance of notifying the insurance companies that Newmont was closing its Granduc mining operation. Because the insurance policies, which incorporated the statutes of British Columbia by reference, were prepared by Newmont’s agent, it is far from clear that the agent’s failure to incorporate the statutory provisions in the policies in haec verba precluded the carriers from relying on them. This question was submitted to the jury as an estoppel issue but was not decided.

In sum, because I believe that there was a substantial miscarriage of justice in this case,- a new trial should have been granted.