Schnackenberg, Castle, and Swygert, Circuit Judges.
This action concerns the construction of an industrial sewer at the United States Steel Corporation steel plant in Gary, Indiana. Corbetta Construction Co., Inc., a New York corporation with its principal offices in New York City, was the general contractor for the project. The subcontractor was North Shore Sewer and Water, Inc., an Illinois corporation with its principal place of business in Lake Forest, Illinois. Transamerica Insurance Company (formerly Pacific National Insurance Company), in the business of providing performance bonds to contractors, paid certain sums on behalf of North Shore to enable that company to complete its contract. Thereafter North Shore assigned its claim asserted in this action to Transamerica as security for such payments.
On April 25, 1962 Corbetta and U.S. Steel executed a contract whereby Corbetta was to build an industrial relief sewer at the Gary Steel Works for a lump sum of $445,000. Thereafter on May 25, 1962, Corbetta and North Shore entered into a subcontract whereby North Shore agreed to perform the bulk of the sewer installation for the sum of $212,000.*fn1 North Shore completed the sewer about December 1, 1962, and U.S. Steel finally accepted the project on March 27, 1963.
The sewer constructed by North Shore was seventy-eight inches in diameter, 1600 feet in length, and placed approximately twenty feet below ground. Interspersed along the route were seven manholes. Each manhole was dug to the depth of the sewer and was approximately twenty feet square. The new sewer was a relief sewer, designed to divert water, discharged from the steel mill, from two industrial sewers lying generally parallel with and on either side of the one installed by North Shore. All the sewers, including the new one, emptied into the Grand Calumet River at a point parallel to Lake Michigan. The United States Steel's Gary Works is located between the lake and the river. The following diagram shows the plan and the course of the sewer installation.
The manholes are designated by letters A, B, B foot, C, D, E, and J. The letter H designates a headwall built in the river at that point. The new sewer ran generally south to the river but at manhole E jogged east at an angle to hook up with an existing five-foot sewer at manhole J. Water was diverted at manhole J into the new sewer.
The sewer was installed in open-cut excavations between points H and A and between points D and J. Tunneling was performed generally between points A and D. The construction difficulties which constitute the basis of this controversy were encountered in the area between points B and C.
At a meeting on December 6, 1961, U.S. Steel distributed a soil investigation report prepared by Dames & Moore, consultants in applied earth sciences. Each prospective bidder, including Corbetta and North Shore, received a copy to be used in preparing their bids. According to the report, the water level in the sewer area was between eight and ten feet above the Chicago datum. Consequently, the sewer's location necessitated dewatering to lower the natural ground water level to a point below the bottom of the sewer, thus enabling the installation to be accomplished in dry ground.
The report stated that certain areas along the sewer were inaccessible to drilling equipment, that the subsurface conditions in these areas were not explored, and that the overall condition of the soil, therefore, had to be interpolated between the test borings. Subsurface soil, fill, and water conditions along the balance (85 per cent) of the proposed route were reported. In this respect, a diverted river bed of clay stratum covered by sand fill was charted from manhole A to a point north of manhole B. Included in the report was a recitation of its purposes:
1. To determine the subsurface fill, soil, and ground water conditions at the site to the depths which will be influenced by the proposed construction.
3. To provide recommendations relating to special precautions or construction techniques necessitated by the subsurface conditions.
Finally, the report outlined its dewatering recommendations, "It is considered that well points or a similar dewatering system will be required to lower the water table to the desired level." No special precautions or other construction techniques were noted. The report was incorporated in the minutes of the December 6, 1961 meeting, and those minutes were incorporated in the contract thereafter entered into by U.S. Steel and Corbetta.
The installation procedure followed by North Shore in the tunneled area, in accordance with the plans and specifications, was to dig a manhole and then start tunneling in two directions. The dewatering equipment, consisting of well points installed below the water level, pumped the water up and into pipes which eventually discharged the water into U.S. Steel's existing parallel sewers to the east and west.
At the start of the construction, North Shore employed a well point dewatering system to dry out a portion of the river preparatory to the installation of the headwall. North Shore then dug an open cut trench from the headwall to manhole A. Next, manhole B was dug so tunneling could start back toward manhole A and forward toward manhole B foot. At this point, hot and excessive water was encountered which seriously hampered the work.
U.S. Steel after being informed of this problem, advised Corbetta which in turn advised North Shore that the hot and excessive water was caused by perched water above the old river bed. U.S. Steel told North Shore to drain away the perched water. In order to do so, North Shore installed additional well points below the old river bed and punched special weep holes through the clay strata. Despite these ...