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Nitrin, Inc. v. Bethlehem Steel Corp.

OPINION FILED JANUARY 23, 1976.

NITRIN, INC., PLAINTIFF-APPELLANT,

v.

BETHLEHEM STEEL CORPORATION, DEFENDANT. — (FOSTER WHEELER CORPORATION, DEFENDANT-APPELLEE.)



APPEAL from the Circuit Court of Cook County; the Hon. GEORGE FIEDLER, Judge, presiding.

MR. JUSTICE DRUCKER DELIVERED THE OPINION OF THE COURT:

Defendant, Foster Wheeler Corporation, a general contractor, entered into a contract with plaintiff for the construction of an anhydrous ammonia plant in Cordova, Illinois. Defendant retained Bethlehem Steel Corporation to fabricate the key component of the plant, a large pressure vessel known as a converter. The converter built by Bethlehem failed on two occasions and was replaced by plaintiff. This action was brought by plaintiff against defendant and Bethlehem to recover its damages. At the close of plaintiff's case the trial court granted defendant's motion for a directed verdict. The action against Bethlehem was submitted to the jury which returned a verdict in the amount of $4,769,907.50 in plaintiff's behalf. *fn1 This appeal is taken from the order granting defendant's motion for directed verdict.

Plaintiff contends that (1) the trial court erred in granting defendant's motion for a directed verdict since sufficient evidence, as measured by the standard enunciated in Pedrick v. Peoria & Eastern R.R. Co., 37 Ill.2d 494, 229 N.E.2d 504, was introduced to establish a breach of contractual guarantees by defendant, (2) the trial court erred in denying its motion in limine to exclude all mention of its insurance coverage, and (3) the trial court erred in striking a count of plaintiff's amended complaint which was predicated on an alleged breach of the implied warranties imposed by the Uniform Commercial Code.

Plaintiff is a joint venture of International Minerals and Chemical Corporation and Northern Natural Gas Company. In August 1962 it contracted for the design and construction of an anhydrous ammonia plant which was to be part of an integrated chemical facility being developed in Cordova, Illinois. The contract price for the ammonia plant was $5,304,000. The anhydrous ammonia (anhydrous means without water) would be used in a variety of products, most importantly fertilizer.

Ammonia is a chemical compound consisting of hydrogen and nitrogen. In the Cordova plant the Casale process was the method used to synthesize this compound. Defendant was the exclusive licensee of the Casale process in the United States. The process is initiated by feeding hydrogen, derived from natural gas, and nitrogen, derived from compressed air, into compressors where the gases are subjected to pressures of up to 9,000 to 10,000 pounds per square inch. The compressors are located adjacent to the converter. The gases are then piped under this high pressure to the converter. They enter the vessel through a horizontal inlet bore in the bottom closure. The horizontal bore joins a vertical "uptake" bore which directs the gases to the "internals" of the converter. It is here, in the presence of a catalyst, that the gases react to produce ammonia. A catalyst is a substance which facilitates a chemical reaction but which does not enter into that reaction. In the next stage of the process, the ammonia gas is piped to a unit designed to condense it into anhydrous ammonia liquid, the final product. The production of ammonia is a continuous process. The plant, while in production, was in operation 24 hours a day.

Defendant retained Bethlehem Steel Company (hereinafter Bethlehem) to fabricate the converter used in plaintiff's plant. The vessel built by Bethlehem was six feet in diameter, 70 feet in height and 270 tons in weight. It was delivered to the plant site in August 1963. On October 1, 1963, plaintiff took over care, custody and control of the plant. The next several months were a shakedown period for the facility. Production tests were conducted and completed in July 1964 following which plaintiff formally accepted the plant. At the conclusion of these production tests the facility was producing 415 to 420 tons of ammonia per day; the contract guaranteed a production rate of 400 tons per day.

On October 3, 1964, a crack developed in the inlet bore in the bottom of the converter, and the plant was shut down. An inspection of the bottom closure revealed that the junction of the horizontal and vertical portions of the inlet bore formed a "sharp corner." Substantial "rough machining" was found in the immediate vicinity of the sharp corner in the bore. Representatives of plaintiff, plaintiff's insurer, defendant and Bethlehem met at the Cordova plant to discuss means of putting the facility back in operation. At the conclusion of these meetings, at the urging of, among others, its insurer, plaintiff decided to repair the vessel by "field welding." The portion of the vessel containing the crack was cut away, and the void was filled by welding. The plant was placed back in operation on January 16, 1965. Contemporaneously with the completion of repairs, a replacement converter was ordered from the Chicago Bridge & Iron Company (hereinafter Chicago Bridge & Iron). The original vessel failed a second time in October 1966 and was scrapped. The replacement converter was placed in operation in December 1966.

Plaintiff brought suit in contract and tort against defendant and Bethlehem to recover damages caused by the failure of the pressure vessel. The suit was originally filed in 1967 as cause No. 67 L 12356. It was refiled in 1972 as cause No. 72 L 8456. In cause No. 72 L 8456 three amended complaints were filed. Count V of the first amended complaint alleged that defendant impliedly warranted, pursuant to the Uniform Commercial Code, that the pressure vessel would be fit for the purpose intended and would meet an implied warranty of merchantability. Defendant moved that this count be stricken, arguing that its contract with plaintiff was not a contract for the sale of goods and therefore was not within the purview of the Uniform Commercial Code. The court granted defendant's motion.

Plaintiff's third amended complaint directed three counts against defendant. All three counts prayed that a judgment in the amount of $1,640,351 be entered against defendant for direct damages incurred by plaintiff. Counts IV and VI alleged negligence and willful and wanton misconduct, respectively, by defendant in the design of the converter. Plaintiff dropped these two counts prior to trial following the denial of its motion in limine to prohibit the introduction of evidence regarding its insurance coverage.

Count V contained the allegation that defendant had breached its guarantees in section 5.3 of the contract, which provides:

"Contractor guarantees that the field construction workmanship shall be free from defects and that all design work done on said plant shall likewise be free from defects. In the event there is any defect in workmanship or design and the same is reported to Contractor by Owner in writing at any time within 12 months after Owner has accepted the plant, Contractor shall, as soon as reasonably possible and, in any event, within five days of receipt of said written notice, commence to remedy such defect and proceed diligently thereafter to complete such remedy. If Contractor fails to commence to remedy the defect within such period of time or to proceed diligently to complete such remedy, Owner may itself or by a third party undertake to remedy the defect, and if the cost of remedying same exceeds the amount that would have been chargeable by Contractor under Section 5.4 for such work, Owner, without foregoing any other rights it may have against Contractor in respect of such defect, shall be entitled to reimbursement from Contractor for the amount of such excess. In the absence of any defect in workmanship or design, Contractor shall have no obligation to repair the normal effect of corrosion, erosion, normal wear and tear and abnormal operating conditions." *fn2

Defendant asserted two affirmative defenses, (1) that after the crack in the converter was first discovered, plaintiff had the option of having it repaired in the field or having it shipped to Bethlehem's mill in Bethlehem, Pennsylvania, for replacement of its "bottom head"; that defendant advised plaintiff that the success of field repair was doubtful; that notwithstanding this advice, at the urging of its insurance carrier, plaintiff elected to proceed with field repairs, and that in so doing plaintiff waived any claim to recover for damages caused by the failure of the repaired converter, and (2) that plaintiff had obtained insurance to cover the losses which were the subject of the complaint; that the suit was in reality a subrogation action; that under section 8.9 of the contract plaintiff agreed to waive subrogation and that, therefore, the contract barred plaintiff's claim. Section 8.9 provides:

"When the plant is `ready for operation' as defined in Section 8.8, Contractor shall so advise Owner in writing. Unless Owner shall advise Contractor within ten days thereafter why the plant is not ready to operate, the care, custody, and control of the plant shall pass to Owner. In any event, care, custody and control of the plant shall pass to Owner no later than the time when Owner takes physical possession thereof. From and after the date of the transfer of care, custody and control of the plant, Owner shall assume all risk of physical loss and damage thereto and shall waive subrogation against Contractor for loss or damage which may thereafter be covered under Owner's insurance." (Emphasis supplied.)

In response, plaintiff denied all allegations made by defendant. Plaintiff also moved to strike the affirmative defenses, asserting that they were raised "solely to improperly insert insurance as an issue in this law suit." The motion was denied.

Prior to trial, plaintiff moved for an order prohibiting both defendant and Bethlehem from "introducing, before the jury, any evidence of or making any reference to any facts or circumstances which would indicate, suggest, or imply that [plaintiff] carried insurance." Plaintiff further moved that the court prohibit defendant and Bethlehem from referring before the jury to any pleading which raised the subject of its insurance coverage. In memoranda filed in support of the motion plaintiff stated that as a matter of law section 8.9 of the contract did not bar its action against defendant and again raised its argument that defendant asserted its affirmative defenses solely as a ploy to enable it to reveal to the jury the fact of plaintiff's insurance coverage. The motion was denied. The parties then entered into the following "Stipulation Concerning Insurance:"

"It is hereby stipulated and agreed by and between the attorneys for Nitrin, Inc. (`Nitrin'), Bethlehem Steel Corporation (`Bethlehem'), and Foster Wheeler Corporation (`Foster Wheeler') as follows:

1. The parties may not prove directly or indirectly with respect to the policies of insurance in force for Nitrin's benefit at the time of the occurrences (on October 3, 1964 and October 26, 1966), either the named insureds, other than Nitrin, or the policy limits.

2. The parties may not prove directly or indirectly what amounts were paid by Nitrin's insurer to Nitrin, except that the Plaintiff stipulates that all direct damages arising from these two occurrences, including the cost of the welding, repair, the replacement converter, and the installation thereof, were paid to Nitrin by Nitrin's insurer.

3. The parties may not prove directly or indirectly the content of the proofs of loss, or any negotiation in connection ...


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