Insurers Need to Beware in the Construction Zone: A Contra Proferentem Case
This is a case about a dramatic commercial mishap that did $35 million in damage to an aluminum processing facility operated by JW Aluminum Company (JW). During a routine maintenance, some molten aluminum shot up thirty-five feet in the air, igniting combustible aluminum dust when it landed on a roof beam, all of which must have been pretty gnarly to behold. In order to prevent an explosion, which would have been even gnarlier, JW turned off power in the facility, which caused some molten aluminum to harden, damaging equipment. The fire department caused more damage when it doused the flames with water.
JW had substantially similar “All Risks” policies with four insurance providers. The providers claimed that their liability for harms caused by “Molten Material” was capped at $10 million per occurrence. The trial court sided with the insurers. Although not all the damage to JW’s facilities was caused by molten material, the trial court reasoned that all of the harms arose out of the same event. It all started with that thirty-five foot jet of molten aluminum.
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In an unpublished unanimous opinion in JW Aluminum Co. v. Ace American Ins. Co., the Fourth Circuit reversed and remanded. Applying South Carolina law, the Court concluded that the District Court erred in deciding that the insurance policy contained an unambiguous cap on the insurers’ liability. As insurance contracts are strictly construed against the drafter, that error required reversal of the District Court’s ruling. On the Court’s reading, the District Court treated the insurance contracts as treating as “occurrences” all harms “stemming from” Molten Material, but the contractual language says “caused by” Molten Material, and the phrases do not unambiguously mean the same thing. In other places, the contract limits damages that are either “direct or indirect” and “proximate or remote.” The fact that there is no analogous language in the Molten Material provision suggests that the cap is not be be so broadly construed.
“Occurrence” is defined in the policy to mean “any loss or series of losses arising out of one event,” However, the policy provides that defined terms are capitalized. The word “occurrence” appears in the Molten Material provision, but it is not capitalized and so cannot be given the broad meaning that the insurers seek. In any case, the Molten Material provision caps the insurers’ liability for “direct physical loss or damage cause [sic] by heat from Molten Material.” In these circumstances, not all of the losses were caused by heat and some may not have been direct.
The case is remanded for further proceedings. It’s a nifty little bit of interpretation, referencing both contra proferentem and reading clauses in context and in light of the document as a whole. Although unpublished, it could make a nice teaching case.