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Hawkeye Chemical Co. v. St. Paul Fire & Marine Insurance Co.

decided: January 20, 1975.

HAWKEYE CHEMICAL COMPANY, AND MUTUAL BOILER & MACHINERY INSURANCE COMPANY, PLAINTIFFS-APPELLEES,
v.
ST. PAUL FIRE & MARINE INSURANCE COMPANY, DEFENDANT-APPELLANT, AND OIL INSURANCE ASSOCIATION, DEFENDANT



Appeal from the United States District Court for the Southern District of Illinois, Northern Division - No. 342-R1 Robert D. Morgan, Judge.

Fairchild and Pell, Circuit Judges, and Wyzanski, Senior District Judge.*fn*

Author: Wyzanski

WYZANSKI, Senior District Judge.

This diversity jurisdiction case comes before us on an appeal and a cross-appeal from a judgment, following a jury verdict on special questions, which allows plaintiffs a recovery on a fire insurance policy, but denies plaintiffs claimed interest. The central question, involving interpretation of Iowa statutes, is whether two fire insurance policies issued by St. Paul Fire and Marine Insurance Company to Hawkeye Chemical Company, and providing that the issuing "company shall not be liable for loss occurring. . . . while the hazard is increased by any means within the control or knowledge of the insured," were, at the time of Hawkeye's loss, suspended by its violation of a policy condition which did not contribute to that loss.

Hawkeye operates at Clinton, Iowa a nitrogen fertilizer plant. It effectuated with St. Paul two fire insurance policies with the suspension provision just quoted, and with Mutual Boiler and Machinery Insurance Company a policy insuring a boiler and machinery. The St. Paul policies had an extended coverage endorsement for an explosion loss; the Mutual policy also covered explosion damage.

While the policies were in effect, Hawkeye's personnel detected, in its ammonia plant, gas leaks from weep holes in a cold exchanger, a multi-layered pressure vessel where gas was being expelled from the interior. Those leaks increased the fire hazard.

March 30, 1970, during the period named in the three insurance policies, the cold exchanger in Hawkeye's plant exploded causing extensive damages to the exchanger and the plant. After investigation, St. Paul declined coverage. In its pleading in this case, St. Paul gave as its ground that there was a causal connection between leakage which had occurred through weep holes in the cold exchanger before March 31, 1970 and the explosion.

Hawkeye and Mutual (the latter because of its status as a co-insurer) brought, in the United States District Court for the Southern District of Illinois, suit seeking recovery for Hawkeye on the St. Paul policies. Oil Insurance Association, which had acted on behalf of St. Paul, was also named as a defendant. In its defense, St. Paul relied principally upon Section 515.102(8) which, so far as pertinent, provides:

" 515.102 Conditions invalidating policy Any condition or stipulation referring:

8. To a change in the occupancy or use of the property insured, if such change or use makes the risk more hazardous, . . .

"shall not be changed or affected by the provision of section 515.101."

The citation in the just-quoted statute to section 515.101 is a reference to the following Iowa code provision:

"Any condition or stipulation in an application, policy, or contract of insurance, making the policy void before the loss occurs, shall not prevent recovery thereon by the insured, if it shall be shown by the plaintiff that the failure to observe such provision or the violation thereof did not contribute to the loss."

In the District Court no one suggested that the crucial aspect of the questions of Iowa state law made it desirable for the federal court to abstain from deciding the case, or to withhold decision until, by declaratory judgment or otherwise, the opinion of the Iowa state courts might be elicited.

At trial, the District Judge separated the issues and put special questions, relevant to some issues of liability, to the jury. The court's interrogatories and the jury's answers were as follows:

"No. 1. Was the hazard increased with respect to the Hawkeye pressure vessel known as the Cold Exchanger and Secondary Separator prior to its failure of March 30, 1970?

Answer: Yes.

No. 2. Did the plaintiff, Hawkeye Chemical Company, have knowledge of the increase in hazard found in ...


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