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STONE CONTAINER CORP. v. HARTFORD STEAM BOILER INS

August 15, 1996

STONE CONTAINER CORPORATION, an Illinois Corporation, Plaintiff,
v.
HARTFORD STEAM BOILER INSPECTION COMPANY, a Connecticut corporation, Defendant.



The opinion of the court was delivered by: CASTILLO

 On April 13, 1994, a pulp digester at Stone Container Corporation's Panama City, Florida pulp mill failed catastrophically, resulting in the violent release of its contents and causing significant damage to the facility, as well as a substantial interruption to Stone's business at that facility. (This failure is hereinafter referred to as the "Incident.") Three people were killed in the Incident and seven others were injured. At the time of the Incident, Stone was insured under Boiler and Machinery Coverage Policy No. 7710440 (the "Policy") issued by defendant Hartford Steam Boiler Inspection and Insurance Company ("HSB"). HSB declined coverage for the Incident, invoking the Policy's explosion exclusion. The explosion exclusion provides in pertinent part:

 
We will not pay for . . . loss caused by or resulting from . . . an explosion. However, we will pay for loss caused by or resulting from an explosion of an "object" of a kind described below and only to "objects" covered by this insurance and as described on an Object Definitions endorsement:
 
Explosion of any:
 
(1) Steam boiler;
 
(2) Electric steam generator;
 
(3) Steam piping;
 
(4) Steam turbine;
 
(5) Steam engine;
 
(6) Gas turbine; or
 
(7) Moving or rotating machinery caused by centrifugal force or mechanical breakdown.

 Compl., Ex. A, P B.4.a.

 In this diversity action, plaintiff Stone Container Corporation ("Stone") seeks declaratory judgment against HSB for coverage of losses resulting from the Panama City Incident. The crux of the parties' dispute lies in whether the failure of the digester constitutes an "explosion" and, if so, whether the explosion is excepted from the general explosion exclusion. The parties' cross motions for summary judgment, pursuant to FED. R. CIV. P. 56, are presently before the Court.

 RELEVANT FACTS

 The following recitation of facts is drawn from the parties' Local General Rule 12 statements and exhibits submitted to the Court in connection with the pending motions for summary judgment. *fn1"

 Stone is a Delaware corporation with its principal place of business located in Chicago, Illinois. Pl.'s Facts P 1. A major international pulp and paper company engaged principally in the production and sale of paper, packaging products, and market pulp, Stone owns or has an interest in 135 manufacturing facilities in the United States, including a paperboard, paper, and pulp facility located at Panama City, Florida. Pl.'s Facts PP 1, 2.

 HSB is a Connecticut corporation with its principal place of business located in Hartford, Connecticut. Def.'s Facts P 2. HSB is an insurance company that provides Boiler and Machinery and All-Risk insurance to policyholders. Def.'s Facts P 2.

 Stone's Panama City Facility

 Stone's Panama City facility is divided into two mills: the pulp mill, which produces wood pulp from wood chips, and the paper mill, which converts pulp into paper. Def.'s Facts P 5. The pulp mill at Panama City houses a series of 22 batch digesters installed side by side in the digester room of the plant. Pl.'s Facts, Ex. C at 1. The batch digesters are used to break down wood chips into pulp fibers that are subsequently processed into paper products. Id. The "pulping" process involves filling the digesters with wood chips from an overhead chip bin, then sealing the vessel and adding white and black "liquors" and buffering agents. The mixture is then "cooked" by subjecting it to steam pressure of about 110 to 115 p.s.i. for a period of about two hours, after which a ball valve located at the bottom of the digester is opened, allowing the contents to discharge or "blow" into an unpressurized vessel called a blow tank. Pl.'s Facts P 9; Def.'s Facts P 7.

 Pulp Digester # 15

 Digester # 15 was built in 1948 by the Chicago Bridge and Iron Works. Def.'s Facts P 10. It stood 36 feet, 6 inches tall, had an inner diameter of 10 feet, 6 inches, weighed over 56,000 pounds, and held about 74 tons of wood chips, chemicals, and steam during the cooking process. Def.'s Facts PP 9, 10. During the course of its operating life, Digester # 15 underwent many repairs, including a repair in 1983, when the entire internal surface area of the vessel was overlaid with stainless steel. Def.'s Facts P 10. More recently, a two piece repair plate measuring 16 inches high and eleven feet long was welded in the bottom shell course. See Pl.'s Facts Ex. C at 4; Def.'s Facts Ex. 22.

 Under the terms of Stone's insurance Policy, HSB had the right to perform inspections of Stone's Panama City facility, including the digesters, and did perform inspections of several digesters in the months prior to the Incident. *fn2" Pl.'s Facts PP 31, 32; Pl.'s Add'l Facts P 15. The record does not show that HSB inspected Digester # 15 at that time; however, the vessel had been inspected on an annual basis by the mill. Def.'s Facts Ex. 18 at 1. Repair records indicate that the vessel was hydro-tested at 225 p.s.i. ten months before the Incident when a pinhole was repaired. Def.'s Facts Ex. 22.

 The Incident

 On April 13, 1994, Pulp Digester # 15 suffered a catastrophic failure. Pl.'s Facts P 10. Major structural and equipment damage ensued, and production at Stone's Panama City facility was interrupted for several months. Pl.'s Facts PP 10, 11; see also Nellis Dep. at 76.

  The parties have stipulated to the following facts. See Def.'s Mem. Opp. Pl.'s Motion to Strike, Ex. 1, Stipulation P 8. Digester # 15 failed catastrophically at approximately 3:37 p.m. on April 13, 1994, precipitating the following events: The upper portion of Digester # 15 broke out the concrete floor slab of the fourth level of the pulp mill, struck the metal shell of the catenary-shaped chip bin, flew through the west side of the pulp mill building roof, struck the brick masonry of the parapet/west wall of the pulp mill building, struck a cable tray installed just west of the paper mill building roof ridge, flew over to the west edge of the paper mill building roof, fell through the paper mill building roof, broke out a portion of the overhead bridge crane rail along the paper mill building west wall, and came to rest inside the paper mill building, against the west wall, nozzle (upper) end pointed east, lying on top of piping above five pulp refiners installed north of the Number 1 paper machine. Stipulation P 8; see also Pl.'s Facts Ex. C at 3-4. When the upper portion of Digester # 15 struck the chip bin, the bin shell was split open and a large quantity of chips was dumped into the building interior. Stip. P 8. When the floor slab of the fourth level of the pulp mill broke out, the entire north central room fell to the first level. Id. Five pulp screens in a row of the screen-level floor (west of the row of the digesters) were destroyed. Id. Various debris fell on the pulp washers, breaking the fiberglass hoods and vent pipes. Id. Debris fell through the roof of the paper mill building on its east side. Id. The failure of Digester # 15 caused many of the building's primary structural elements around the Number 15 digester location to be damaged and caused other major damage inside the pulp mill building. *fn3" Id. As a result of the failure of digester # 15, steam pipes were ruptured and electrical power and control cabling was torn loose in and around the location of Digester # 15. Id. The steam plant and electrical generating station underwent a very rapid shutdown, bringing down the entire paper mill plant. Id.

 There were no reports of any unusual events prior to the Incident. *fn4" See Pl.'s Facts Ex. C at. 11; see also Def.'s Facts Ex. 4 at 5-8. The failure of Digester # 15 was not caused by any event or occurrence external to the vessel or its contents at that time, nor was the failure caused by any form of ignition or combustion. Pl.'s Facts PP 41-43.

 Stone retained Packer Engineering ("Packer") to perform an independent investigation and analysis of the cause of the Incident in cooperation with the Occupational Safety and Health Administration (OSHA) and OSHA's representative, Law Engineering Industrial Services. Pl.'s Facts P 19; Pl.'s Ex. C at 1. Packer concluded that the rupture of the digester originated at an axial (longitudinal) fracture in the lower shell plate. Pl.'s Facts P 25. Axial fractures are propagated by hoop stresses brought about by internal pressurization of the vessel. Id. There were significant reductions in the shell plate thickness identified at various areas, and the thinning of the shell plate occurred prior to the application of the weld overlay. Packer did not, however, investigate the exact cause and mechanism of the shell plate thinning. Id. The digester shell plate thickness was significantly reduced at the fracture area where the rupture initiated. Id. In addition, a considerable amount of pre-existing cracking had breached the overlay thickness in the initiating area of the vessel rupture. Id. The digester shell plate at the fracture initiation site was well below the minimum wall thickness as determined by ASME, Section VIII, Division 1 of the Boiler and Pressure Vessel Code. Id. Additionally, Packer concluded that the weld overlay, if intact, would reinforce the strength of the shell plate, however, with the presence of the pre-existing cracks in the welds, reinforcement would be seriously impaired. Id. Packer Engineering's investigation did not indicate a situation which would have caused the digester to be pressurized above normal operating levels of approximately 150 p.s.i., and measurements of the vessel did not indicate any overall bulging or barreling of the vessel prior to rupture. Pl.'s Facts Ex. C at 11.

 Stone, Law Engineering, and Packer agreed that the failure of Digester # 15 originated in an area in the vessel wall that was 20 inches high by 9 inches wide. Def.'s Facts P 21. At the fracture plane, the thickness of the carbon steel averaged about 0.18 inches with one area down to 0.11 inches. Id. The overall wall thickness of the combined carbon and stainless steel overlay averaged 0.42 inches with 35% of the stainless steel overlay containing preexisting cracks. Id. In some areas, the cracking extended through the stainless steel to the underlying carbon steel. Id. The minimum wall thickness required by the ASME Boiler and Pressure Vessel code for this particular vessel is 0.585 inches. Def.'s Facts P 22. See also Def.'s Facts Ex. 24, 18.

 At the time of the Incident, Digester # 15 was being operated in the normal course of business to break down wood chips into pulp fibers. Pl.'s Facts PP 28, 29. The vessel was fully loaded, containing approximately 74 tons of material with a total volume of approximately 2,590 cubic feet. Def.'s Facts P 23. The total volume occupied by the contents when released from the pressurized vessel expands to approximately 426,300 cubic feet. Def.'s Facts P 24. The total energy released by the failure of Digester # 15 was at least 14,300,000 BTUs. Def.'s Facts P 25. If released over a period of ten seconds, this is the equivalent of 2.0 million mechanical horsepower. Id.

 The Insurance Policy

 Effective January 1, 1994, HSB issued Boiler and Machinery Coverage Policy No. 7710440 ("Policy") which covered, inter alia, Stone's Panama City facility. Pl.'s Facts P 5. Prior to issuing the Policy, an HSB employee surveyed Stone's facility to assess the risk involved in insuring the mill. Pl.'s Add'l Facts PP 9-12; Pl.'s Facts Ex. F. HSB knew that Stone's operations at Panama City involved the use of batch digesters and that HSB would be providing insurance for some accidents to those vessels. Pl.'s Add'l Facts PP 7, 9-12; Def.'s Resp. Add'l Facts PP 7-12; Pl's Facts Ex. F.

 The HSB Policy provides: "we will pay for direct damage to Covered Property caused by a Covered Cause of Loss." Complaint Ex. A at 1. The Policy defines "Covered Property" as any property that the insured owns or that is in its care, custody or control and for which it is legally liable. Id. Under the Policy's definitions, Pulp Digester # 15, along with other machinery and equipment located at Stone's Panama City facility constitute "Covered Property." Pl.'s Facts P 16. HSB defines a "Covered Cause of Loss" as an "'accident' to an 'object' shown in the Declarations." Complaint Ex. A at 1. Object Definition No. 6, an endorsement to the HSB policy, provides that "object" means any: boiler, fired vessel, and unfired vessel normally subject to vacuum or internal pressure other than weight of its contents. Def.'s Resp. Ex. 35. Digester # 15 was an "object" in use at the time of the Incident as defined by the Policy. Pl.'s Facts P 17. The term "accident" is ...


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