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Lexicon, Inc v. Ace American Insurance Company

December 28, 2010

LEXICON, INC., APPELLANT,
v.
ACE AMERICAN INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, APPELLEES.



Appeal from the United States District Court for the Eastern District of Arkansas.

The opinion of the court was delivered by: Riley, Chief Judge.

Submitted: September 20, 2010

Amended Opinion Filed: February 14, 2011

Before RILEY, Chief Judge, MELLOY and COLLOTON, Circuit Judges.

Lexicon, Inc. built a battery of silos for Nu-Iron Unlimited in the West Indies. Months after completion, one of the silos collapsed because of faulty welding by Lexicon's subcontractor, Damus Limited. The collapse caused millions of dollars in property damage. Lexicon sued ACE American Insurance Co. and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (collectively, the Insurers), alleging the Insurers are obligated under commercial general liability (CGL) policies to cover the property damage. On cross-motions for summary judgment, the district court dismissed Lexicon's lawsuit. Lexicon appeals. We affirm in part, reverse in part, and remand for further proceedings.

I. BACKGROUND*fn1

Nu-Iron wanted to relocate its direct reduced iron (DRI) plant in Convent, Louisiana, to Point Lisas, Trinidad, West Indies. Pursuant to a written contract, Lexicon agreed to dismantle, ship, and re-erect the DRI plant. In a separate purchase order, Lexicon promised to fabricate and erect six new silo storage bins at Nu-Iron's Trinidad facility. Lexicon warranted "all goods delivered hereunder will . . . be free from defects in . . . workmanship, including latent defects." Lexicon agreed its warranty "survive[d] inspection, delivery and payment" and promised to reimburse Nu-Iron for "all incidental and consequential damages incurred as a result of . . . defective . . . goods."

Lexicon subcontracted the fabrication and erection of the new silos to Damus. Each silo was 60 feet in diameter, approximately 92 feet tall, and affixed to a concrete pad with 2 foot anchor bolts. Damus completed the project, and Nu-Iron loaded the silos with DRI pellets a/k/a "sponge iron."

After months of use, one of the silos collapsed due to Damus's faulty welds. The failure imploded the silo and damaged nearby equipment, including conveyors Nu-Iron used to load and unload DRI. Despite salvage efforts, thousands of tons of DRI were also damaged because, when exposed to the atmosphere, DRI oxidizes and becomes less useful in steelmaking.

Lexicon reimbursed Nu-Iron for its damages caused by Damus's faulty work. Lexicon spent millions of dollars to clean up the site, re-erect the silo, and replace damaged DRI.

At all relevant times, the Insurers provided CGL insurance to Lexicon. Lexicon notified the Insurers of its losses arising out of the silo collapse, but the Insurers refused to reimburse Lexicon. The Insurers asserted many alternate grounds for denying coverage.

Lexicon sued the Insurers for breach of contract and sought a declaration that the Insurers were "obligated to indemnify Lexicon for their respective insured portions of its damages . . . arising out of the property damage at the Nu-Iron facility." The parties filed cross-motions for summary judgment. The district court granted the Insurers' motions, denied Lexicon's motion, and dismissed the lawsuit. Lexicon appeals.

II. DISCUSSION

A. Standard of ...


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