 METRIC/KVAERNER FAYETTEVILLE, a joint venture of Metric Constructors, Inc. v. Federal Insurance Company

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 METRIC/KVAERNER FAYETTEVILLE, a
joint venture of Metric Constructors,
Inc. and Kvaerner EnviroPower,
Inc.,
No. 04-1101 Plaintiff-Appellant, 
v.
FEDERAL INSURANCE COMPANY,
Defendant-Appellee. 
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
W. Earl Britt, Senior District Judge.
(CA-99-448-5-BR)
Argued: October 27, 2004
Decided: April 11, 2005
Before LUTTIG, KING, and SHEDD, Circuit Judges.
Vacated and remanded by published opinion. Judge King wrote the
majority opinion. Judge Shedd wrote a concurring opinion. Judge
Luttig wrote a dissenting opinion.
COUNSEL
ARGUED: David Glenn Hymer, BRADLEY, ARANT, ROSE &
WHITE, L.L.P., Birmingham, Alabama, for Appellant. Thomas
McKay, COZEN O’CONNOR, Cherry Hill, New Jersey, for Appel-

-- 1 of 29 --

lee. ON BRIEF: Scott B. Smith, BRADLEY, ARANT, ROSE &
WHITE, L.L.P., Birmingham, Alabama; H. Gerald Beaver, BEA-
VER, HOLT, RICHARDSON, STERNLICHT, BURGE & GLA-
ZIER, Fayetteville, North Carolina, for Appellant. Elizabeth
Chambers Bailey, COZEN O’CONNOR, Cherry Hill, New Jersey;
Anna Daly, COZEN O’CONNOR, Charlotte, North Carolina, for
Appellee.
OPINION
KING, Circuit Judge:
Metric/Kvaerner Fayetteville ("M/K") appeals the district court’s
awards of summary judgment to Federal Insurance Company
("Federal") in this insurance dispute. In June 1999, M/K initiated this
proceeding against Federal in the Superior Court of Cumberland
County, North Carolina, seeking to recover on two claims it had made
under insurance policies issued by Federal. Federal removed the case
to the Eastern District of North Carolina on the basis of diversity of
citizenship, and the district court granted summary judgment in its
favor, ruling that M/K’s claims were barred because it had failed to
comply with policy conditions requiring timely notice of loss. Met-
ric/Kvaerner Fayetteville v. Fed. Ins. Co., No. 5:99-CV-448-BR(3)
(E.D.N.C. Dec. 11, 2003) (the "Opinion"). On appeal, M/K contends
that summary judgment was inappropriate and that genuine issues of
material fact are presented. As explained below, we agree with M/K,
and we vacate and remand.
I.
A.
In April 1992, BCH Energy Limited Partnership ("BCH") entered
into a contract with the contiguous North Carolina counties of Bladen,
Cumberland, and Hoke, for the design, construction, and operation of
a waste-to-energy project that would generate electricity by process-
ing municipal waste into fuel (the "Project").1 M/K, a joint venture
1Because this appeal is from awards of summary judgment to Federal,
we present and assess the relevant facts in the light most favorable to
2 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 2 of 29 --

composed of Metric Constructors, Inc., and Kvaerner Environmental
Technologies, Inc., submitted a proposal to BCH for the design and
construction of the Project.
In April 1993, M/K entered into a "Turnkey Design and Construc-
tion Agreement" with BCH, under which M/K agreed to be the con-
struction contractor on the Project in exchange for a fee of at least $58
million (the "Project Agreement"). The Project Agreement provided,
inter alia, that M/K would design and build two separate facilities for
the Project, pursuant to BCH’s overall design specifications: a munic-
ipal refuse recycling facility near Fayetteville in Cumberland County
(the "Recycling Facility"), and an energy generating facility approxi-
mately eighteen miles away in Bladen County (the "Energy Facility")
(collectively, the "Facilities"). The concept underlying the Project was
that raw municipal waste collected in the three counties would be pro-
cessed at the Recycling Facility and then compacted, baled, and trans-
ferred to the Energy Facility. At the Energy Facility, the baled
municipal waste would be processed further and then used to fuel
boilers that would in turn power turbine generators. The goal of the
Project was to sell electricity generated at the Energy Facility to the
Carolina Power & Light utility company, and to sell steam produced
by that Facility’s boilers to a nearby DuPont chemical plant.
Federal, an affiliate of the Chubb Group of Insurance Companies,
issued the insurance policies underlying this dispute. First, Federal
issued a policy entitled "Energy Industries Project Under Construc-
tion Insurance," providing up to $59 million in coverage to its
insureds against physical "loss or damage," caused by a "Covered
Cause of Loss" during the construction of the Facilities (the "Build-
er’s Risk Policy"). The Builder’s Risk Policy was initially effective
from November 17, 1993, to December 17, 1995, and it was renewed
through at least July 17, 1996.
Second, Federal issued a policy entitled "Energy Industries Prop-
erty Insurance and Property Business Income Insurance," providing
up to $21.3 million in coverage to its insureds for losses suffered to
M/K, the insured and non-moving party. See Seabulk Offshore, Ltd. v.
Am. Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004).
3 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 3 of 29 --

buildings, personal property, and business income during suspensions
of the Recycling Facility’s operations caused by "direct physical loss
or damage" to the facilities by a "Covered Cause of Loss" (the "Oper-
ations Policy").2 The Operations Policy was initially effective from
June 23, 1995, to November 17, 1995, and it was renewed through at
least February 15, 1997.
The Builder’s Risk and Operations Policies (collectively, the "Poli-
cies") both identified BCH as the primary insured and M/K as an
additional named insured.3 Significantly, at the outset of its involve-
ment in the Project, M/K knew only of the Builder’s Risk Policy and
of its status as an additional insured thereunder. M/K did not know
until November 1998 of the existence of the Operations Policy, or that
it was named as an additional insured thereunder.
The relevant terms of the Policies, as focused upon by the parties
and the district court, are substantially the same. They each specify
certain "Conditions" to be complied with by the insureds concerning,
inter alia, notices of loss or damage, proofs of loss for use in the set-
tlement of claims, and legal actions, as follows:
3. In the event of loss or damage under this insurance [pol-
icy], you [insured] must:
. . .
b. As soon as possible, notify us [Federal] of the loss or
damage. Give us a description of the PROPERTY involved
and details as to how, when and where the loss or damage
occurred.
2The Builder’s Risk and Operations Policies both define a "Covered
Cause of Loss" as "physical loss or damage to PROPERTY except as
excluded." In this Opinion, we refer to losses or damages assertedly cov-
ered under the Policies as "Covered Losses."
3M/K possessed an insurable interest in the Project by virtue of its
compensation as the Project’s construction contractor. As part of its com-
pensation package, M/K was to receive approximately 25% of the reve-
nues generated by the Recycling Facility, beginning in October 1995.
4 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 4 of 29 --

. . .
g. File with us, or with our authorized representative,
sworn proof of loss containing the information we request
to settle the claim. You must do this within 60 days after the
date of the loss.
. . .
10. No one may bring a legal action against us under this
policy unless:
a. There has been full compliance with all the terms of this
policy . . . .
J.A. 758-60 (Builder’s Risk Policy) (emphasis added); see also J.A.
1499-1501 (Operations Policy) (same).
B.
1.
M/K commenced construction on the Project in approximately
November 1993. The Recycling Facility was completed in the fall of
1995, and the Energy Facility was finished in February 1996. During
late 1995 and early 1996, problems arose with the equipment at the
Energy Facility because personnel at the Recycling Facility had
improperly operated that Facility’s equipment, including its trommels,
magnet, and eddy current separator. As a result, the Recycling Facil-
ity produced baled municipal waste containing excessive amounts of
unacceptable waste materials, such as metal, aluminum, glass, grit,
and moisture, which was delivered to the Energy Facility
("Unacceptable Waste").4 The Unacceptable Waste caused the forma-
tion of a sticky, abrasive substance that jammed the Energy Facility’s
conveyors, plugged its boiler nozzles, and damaged its fuel-handling
4The Project Agreement defines "Acceptable Municipal Waste" as
solid waste collected by Bladen, Cumberland, and Hoke Counties,
including municipal solid waste. Such waste does not include "Unaccept-
able Waste."
5 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 5 of 29 --

system and its boiler tubes. The damages resulting to the Energy
Facility, in turn, adversely impacted the performance of the Recycling
Facility — in that the Energy Facility was unable to use the baled
municipal waste from the Recycling Facility — resulting in a suspen-
sion of the Recycling Facility’s operations.
These problems caused a substantial loss of revenue and business
income to BCH and M/K between November 1995 and December
1996. During that period, BCH insisted to M/K that the losses and
damages suffered at the Energy Facility had resulted from M/K’s
improper implementation of BCH’s design criteria for the Recycling
Facility. M/K reluctantly concurred in this analysis, under which the
coverage provisions of the Builder’s Risk Policy would not have been
implicated because the Policy excluded from coverage any loss or
damage resulting from a design flaw.
2.
During the period of the Project’s construction and its early opera-
tions, Federal’s representatives were regularly present at the Facili-
ties, and Federal was aware of the problems the Facilities were
experiencing as those problems were occurring. Between May 1995
and November 1996, a Federal Loss Control Consultant, Bret Martin,
inspected the Facilities on at least seven occasions. During those vis-
its, he discussed the Project with the M/K personnel responsible for
overseeing it, as well as with other Federal personnel responsible for
the Project’s insurance coverage. According to Martin, the purpose of
inspecting such a project is to verify that the risks associated with the
project satisfy Federal’s minimum underwriting standards for fire pro-
tection, life safety, and disaster recovery, and to assist the insured in
meeting those standards. On January 26, 1996, during one of his visits
to the Facilities, Martin discussed with Garry Haynes, a senior boiler
machinery inspector with Federal, the problems M/K was experienc-
ing with the Energy Facility’s boilers and its fuel-handling and con-
veyor systems. During another such visit by Martin, Everette
Compton, M/K’s Project Safety Director, advised Martin that portions
of the Energy Facility’s conveyor system were wearing out more rap-
idly than M/K had expected. By late January 1996, Martin concluded
that the problems associated with the Energy Facility’s fuel-handling
and conveyor systems resulted directly from BCH’s improper design
6 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 6 of 29 --

specifications for the conveyor system. Because design flaws were
excluded from coverage under the Policies, Federal did nothing on the
basis of the knowledge acquired by Martin and his colleagues.
In the fall of 1995, under the threat that BCH would seek damages
from M/K because of the problems being encountered at the Facili-
ties, and due to the mounting losses in business income being suffered
from the Recycling Facility’s suspension of operations, M/K decided
that the Project should be redesigned and that the Energy Facility’s
boilers should be rebuilt. On October 17, 1996, M/K provided Federal
with an eight-page report it had prepared for BCH, dated October 8,
1996, detailing the losses and damages suffered by the Facilities, the
steps M/K had taken to repair the Facilities, and the status of those
remedial actions. In that report, M/K advised BCH and Federal of the
following:
• the conveyor system at the Energy Facility was experi-
encing high failure rates, resulting in M/K replacing
worn-out conveyor parts;
• ash was building up in the boilers and in the conveyor
system of the Energy Facility, resulting in their shut-
down and in M/K’s removal of aluminum from the waste
being processed;
• the demineralization system of the Energy Facility was
deficient in providing the desired flow rate, due to inex-
perienced operators, use of the wrong chemicals, and
incorrect testing of the water quality; and
• the air compressors were not large enough to clean the
air at the Energy Facility.
Despite M/K’s efforts to redesign, rebuild, and repair the Facilities,
and notwithstanding the additional expenditures it made in connection
with those efforts, the Facilities continued to experience operational
difficulties. As a result, the Facilities were finally closed down and
7 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 7 of 29 --

"mothballed" by BCH in late 1996, and the Project never operated there-
after.5
3.
In August 1997, M/K sought to ascertain the extent of the losses
and damages it had suffered on the Project, and thus to assess whether
the Builder’s Risk Policy covered those losses and damages. In that
endeavor, it retained Milbourn L. Smith, a waste management consul-
tant, to inspect the Project and to provide his advice on the bases of
its problems. Smith’s inspection efforts included a review and analy-
sis of the equipment remaining at the mothballed Facilities. Smith
also examined and analyzed the records detailing the problems the
Facilities had experienced, including the Project’s fuel-handling defi-
ciency reports, construction meeting minutes, work orders, and photo-
graphic evidence of Unacceptable Waste recovered from the Energy
Facility’s fuel-handling system. Based on his inspections and analy-
sis, Smith advised M/K that the processing of Unacceptable Waste
through the Facilities — rather than a design flaw — had caused the
losses and damages suffered by the Project.
In early September 1997, after assessing Smith’s conclusions and
the related circumstances, M/K decided that the losses and damages
suffered at the Energy Facility had not been caused by improper
design, as had been previously believed, but by the improper opera-
tion of the Recycling Facility. More specifically, M/K concluded that
the Energy Facility’s damages had resulted from the processing of
Unacceptable Waste into baled municipal waste at the Recycling
Facility, which was then supplied to the Energy Facility. As a result,
M/K decided that the losses and damages suffered on the Project con-
stituted Covered Losses under the Builder’s Risk Policy. According
to M/K, the losses it suffered as a result of the problems at the Facili-
ties, including the repairs it made to the Energy Facility between late
1995 and October 1996, totalled over $25.4 million.
5In November 1997, a syndicate of banks — which held a first lien on
the Project’s assets, as well as a security interest on the loan proceeds —
filed an involuntary Chapter 7 bankruptcy petition against BCH seeking,
inter alia, liquidation of the Project.
8 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 8 of 29 --

C.
1.
On September 11, 1997, M/K submitted to Federal its claim under
the Builder’s Risk Policy, seeking coverage for the losses and dam-
ages it had suffered on the Project (the "Builder’s Claim"). In its
Claim, M/K asserted that the damages resulted from the "introduction
of unforeseen types of garbage . . . into the [Facilities], the inadequate
handling of that garbage by the operators of the [Facilities], and . . .
the misapplication or malfunction of components of the [Facilities]."
The damages included "metal fatigue, metal warping and bending,
sand and grit damage, boiler damage caused by oversized sand," and
boiler damage caused by aluminum oxides.
On October 28, 1997, Federal acknowledged receipt of the Build-
er’s Claim, by letter directed to M/K’s in-house counsel. By letter of
December 10, 1997, Federal requested that M/K supply further infor-
mation on the Claim, to assist Federal’s assessment of "whether or not
a loss covered by this policy occurred and the correct application of
coverage, if any, for this loss." On April 2, 1998, Federal sent M/K
a blank "Sworn Statement in Proof of Loss," with instructions that it
be completed and returned to Federal with documentation of the
Builder’s Claim. M/K failed to respond to these requests because they
were not sent to the M/K official handling the Builder’s Claim. Mean-
while, according to Federal’s Claim Supervisor, Federal did not visit
or inspect the Facilities after its receipt of the Builder’s Claim, and
it neither sought nor conducted any investigative interviews related to
the Claim.6
On May 18, 1998, Federal denied the Builder’s Claim, directing its
6Federal’s Regional Property Claim Supervisor, Walter Nichols, who
was responsible for investigating the Builder’s Claim, testified by dis-
covery deposition that, in conducting his investigation, he never spoke
(1) with any of Federal’s loss control representatives, or (2) with anyone
from M/K or BCH. By its responses to Federal’s interrogatories in June
2001, M/K identified more than forty persons who had been associated
with the Project and thus were potential witnesses to the damages suf-
fered by it.
9 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 9 of 29 --

denial letter to M/K’s in-house counsel. In that letter, Federal con-
tended, inter alia, that M/K had "failed to notify [Federal] as soon as
possible of the loss or damage or to provide inventories as required,
failed to provide proof of loss within the appropriate time limit and
failed to cooperate with us in the investigation or settlement of the
claim."
In August 1998, the mothballed components of the Facilities were
sold at auction by order of the bankruptcy court. The auction netted
about $2.1 million, which was paid to the bank syndicate in October
1998.
2.
In August 1998, during discovery proceedings in a separate lawsuit
involving M/K and the bank syndicate, Federal produced business
records which were made available to M/K. In November 1998, M/K
ascertained that those records included the Operations Policy, which
named M/K as an additional insured. At this point, over a year after
the Builder’s Claim had been submitted to Federal and six months
after it had been denied, M/K was first made aware of the Operations
Policy’s existence and the fact that it was a named insured thereunder.
Six months later, in May 1999, M/K concluded that the Operations
Policy provided coverage for the losses in business income it had suf-
fered at the Facilities. By letter of May 11, 1999, M/K submitted to
Federal its claim under the Operations Policy for Covered Losses in
the sum of $10 million to $20 million, resulting from the suspension
of operations at the Facilities between November 1995 and December
1996 (the "Operations Claim").
D.
1.
On June 14, 1999, M/K filed this proceeding against Federal in
North Carolina state court, seeking damages for Federal’s breach of
the Policies, specifically, its failure to recognize and pay the Builder’s
and Operations Claims (collectively, the "Claims"). In its Complaint,
M/K asserted that the Project had "suffered unexpected damage
10 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 10 of 29 --

resulting in losses" to M/K and that the "property damage also caused
delays in [M/K’s] completion" of its work on the Project, "resulting
in additional losses" to M/K.
In July 1999, after this lawsuit was removed to the Eastern District
of North Carolina, Federal denied liability for the Claims asserted by
M/K. In August 1999, the suit was stayed by the district court pending
related arbitration proceedings.7 After the stay was lifted in November
2000, the parties conducted extensive discovery, through July 2002,
on the factual underpinnings of this dispute. Those discovery proceed-
ings included numerous depositions and interrogatories, as well as the
extensive production of documents. The documents produced
included M/K’s business records relating to the problems at the Facil-
ities and the efforts undertaken to resolve them.8
7In addition to this civil action against Federal, M/K has initiated two
other proceedings relating to the Project. First, in October 1996, M/K
pursued an arbitration proceeding against BCH for breach of the Project
Agreement. After BCH counterclaimed, the arbitration proceeding was
stayed by the arbitration panel in November 1997, when the bank syndi-
cate initiated the bankruptcy proceeding against BCH. On this record, it
is unclear how or whether the arbitration proceeding was concluded. Sec-
ond, in November 1997, M/K filed a civil action against the bank syndi-
cate in North Carolina state court for fraud and related contract claims.
That lawsuit later became part of an arbitration proceeding involving
M/K and the bank syndicate.
8The M/K business records included the following: (1) minutes on a
September 1995 meeting among representatives of M/K and two of its
subcontractors on the Project, Rader Companies ("Rader") and Keith
Manufacturing; (2) a letter of September 11, 1995, from M/K to a sub-
contractor, VEDCO Energy Corporation ("VEDCO"), describing the
Unacceptable Waste that M/K believed must be removed from the waste
stream at the Recycling Facility; (3) lists, produced on December 4, 1995
to Rader, describing the fuel-handling system’s problems and "action"
steps being taken to correct them; (4) a report of December 28, 1995, on
"sand quality" at the Project; (5) a letter of January 11, 1996, from M/K’s
Project manager to its construction manager, describing the impact of
"bed sand deliveries" on the Energy Facility; (6) an internal M/K memo-
randum of January 23, 1996, describing operations at the Recycling
Facility; (7) a report of February 26, 1996, from M/K to VEDCO,
describing a "completion plan" for the Project; and (8) work orders and
payment logs detailing costs incurred by M/K in repairing and modifying
the fuel-handling system.
11 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 11 of 29 --

In March 2002, during the discovery proceedings, Mr. Smith, as an
M/K expert, submitted a report on the relevant factual issues. As
spelled out therein, Smith had reviewed and analyzed the evidence
available to M/K regarding the Project and these two Claims. In his
report, Smith described the operations at the Facilities and concluded,
inter alia, that: (1) the operators of the Facilities "did not have the
experience to recognize and exercise the proper operating practices";
(2) changes "made to the front end of the process" at both the Facili-
ties "exacerbated the combining and introduction of abrasives" into
the recycling process; and (3) it was "reasonable that [M/K] would
have initially concluded that the damage [to the Facilities] and delays
were caused by design . . . rather than operational issues."
On November 26, 2002, Federal filed a motion seeking summary
judgment against M/K on both of the Claims. With respect to the
Builder’s Claim, Federal asserted, inter alia, that M/K had breached
the conditions of the Builder’s Risk Policy by failing to provide
timely notice or to submit a sworn statement in proof of loss. See
Builder’s Risk Policy, Conditions 3.b., 3.g. With respect to the Opera-
tions Claim, Federal contended, inter alia, that M/K had breached the
conditions of the Operations Policy by failing to provide timely notice
and by prematurely filing this lawsuit. See Operations Policy, Condi-
tions 3.b., 10.a.9 M/K opposed Federal’s summary judgment requests,
supported in large part by deposition testimony and the related materi-
als produced during discovery proceedings. M/K maintained that,
viewing the evidence in the summary judgment record in the light
most favorable to it, genuine issues of material fact were presented on
whether it had complied with the pertinent conditions of the Policies.
2.
On December 11, 2003, the district court filed its Opinion, award-
ing summary judgment to Federal on both Claims. On the Builder’s
9In support of its summary judgment requests, Federal also asserted (1)
that the Claims were not for Covered Losses; (2) that the Claims were
time barred under the applicable statute of limitations; (3) that M/K had
no insurable interest in the Recycling Facility under the Operations Pol-
icy; and (4) that the Operations Claim failed on its merits. The district
court’s Opinion did not address those contentions.
12 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 12 of 29 --

Claim, the court concluded that the cause of the losses and damages
suffered at the Project "was vital to the determination of [M/K’s] cov-
erage." Opinion at 7. The court also concluded that any investigation
by Federal of the Facilities, after submission of the Builder’s Claim
in September 1997, would have been futile, because the "alleged
damage no longer existed." Id. The court found summary judgment
to be appropriate on the Builder’s Claim because, under North Caro-
lina law, "the almost two-year delay between the occurrence of the
damage at issue and the reporting of the [Builder’s Claim] to Federal
in conjunction with the repair of the damage in the interim, materially
prejudiced [Federal’s] ability to investigate the claim." Id. at 8.
On the Operations Claim, the district court accepted the proposition
that M/K had no knowledge of the Operations Policy, or that it was
an insured thereunder, until it obtained the Policy in the related law-
suit in November 1998. See id. at 9. The court found, however, that
M/K had without good reason waited six more months — until May
1999 — to give notice to Federal of the Operations Claim, and that
this six-month delay was fatal to that Claim. See id. at 10-11. More
specifically, the court stated that it was unable to "conclude that
M/K’s filing of the claim against Federal under the operations policy
in May 1999, over six months after learning of the policy’s existence
and approximately three years after the alleged business loss, was
made in good faith." Id. at 11. As a result, the court concluded that
summary judgment was also appropriate on the Operations Claim.
M/K has appealed these summary judgment awards, and we pos-
sess jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s award of summary judgment,
viewing the facts and inferences drawn therefrom in the light most
favorable to the non-moving party. Seabulk Offshore, Ltd. v. Am.
Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004). An award
of summary judgment is appropriate only "if the pleadings, deposi-
tions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c). A genuine issue of material fact
13 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 13 of 29 --

is one "that might affect the outcome of the suit under the governing
law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Indeed, a dispute presents a genuine issue of material fact "if the evi-
dence is such that a reasonable jury could return a verdict for the non-
moving party." Id. In opposing a summary judgment motion, the non-
moving party is entitled to have the "credibility of his evidence as
forecast assumed, his version of all that is in dispute accepted, [and]
all internal conflicts in it resolved favorably to him." Charbonnages
de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979). Additionally,
an award of summary judgment is seldom appropriate in disputes in
which "particular states of mind are decisive as elements" of the claim
or defense. Id.
III.
We now turn to an assessment of the propriety of the district
court’s awards of summary judgment to Federal on the two Claims.
In so doing, we first ascertain the relevant principles of North Caro-
lina law governing an insurer’s contention that its insured failed to
give notice of loss "as soon as possible," and we review pertinent pro-
visions of the Policies. After conducting this analysis, we conclude,
as explained below, that the district court erred.
A.
In resolving this diversity action, we are obliged to apply the sub-
stantive law of North Carolina, where the two insurance policies were
made. See Seabulk Offshore, 377 F.3d at 418. In assessing whether an
insurer may be relieved of its obligation to indemnify due to its
insured’s asserted failure to comply with a policy requirement that
notice of loss be given to the insurer "as soon as practicable," North
Carolina utilizes the test enunciated in its Supreme Court’s Great
American decisions. See Great Am. Ins. Co. v. C.G. Tate Constr. Co.,
279 S.E.2d 769 (N.C. 1981) ("Great American I"); Great Am. Ins. Co.
v. C.G. Tate Constr. Co., 340 S.E.2d 743 (N.C. 1986) ("Great Ameri-
can II").10 Put succinctly, the "Great American test" is as follows: (1)
10The policy provision underlying the Great American decisions
required the insured to give its notice of loss to the insurer "as soon as
14 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 14 of 29 --

whether there was a delay in notifying the insurer of a covered loss
(the "Notice Element"); (2) if such notice was delayed, whether the
insured acted in good faith with respect to the delay (the "Good Faith
Element"); and (3) if the insured acted in good faith, whether the
insurer was nevertheless materially prejudiced by the delay (the "Prej-
udice Element"). See Great American II, 340 S.E.2d at 746-47.
In this dispute, Federal contends that the Notice Element is satis-
fied because it was not given any notice of loss or damage concerning
the Project until the Claims were submitted by M/K.11 M/K, on the
other hand, contends that Federal has failed to satisfy the Notice Ele-
ment because it was aware of the losses and damages suffered at the
Facilities while they were occurring. Thus, according to M/K, an
assessment of the other Great American elements is unnecessary.
In its Opinion, the district court held the Notice Element to be sat-
isfied by Federal and relied on the Prejudice and Good Faith Elements
to dispose of the Claims. However, the resolution of the Notice Ele-
ment in favor of Federal — a threshold step in assessing the Claims
— is far from clear. It turns on whether, under the Policies, the sub-
mission of a "claim" and the giving of a "notice" of loss to Federal
by M/K are necessarily the same event, or whether they are separate
and distinct occurrences. If these events are deemed to be equivalent,
then M/K’s submission of the Builder’s Claim in September 1997,
practicable." In Great American II, the court observed that "practicable"
is defined as "‘that which is . . . possible.’" 340 S.E.2d at 746 (quoting
Black’s Law Dictionary 1055 (5th ed. 1979)). Consequently, the policy
provision in Great American (requiring notice "as soon as practicable")
and the relevant provision here (requiring notice "[a]s soon as possible")
are substantially the same.
11M/K’s asserted delay in submitting the Builder’s Claim was due to
its determination — shared by Federal and held by M/K until Mr.
Smith’s assessment of the matter in August 1997 — that the damages
suffered by M/K and the Project resulted from design flaws in the Recy-
cling Facility and thus were not Covered Losses. M/K’s delay in submit-
ting the Operations Claim was due to its lack of knowledge, until
November 1998, of the Operations Policy, and the additional fact that it
did not realize, until May 1999, that the losses in revenue suffered at the
Recycling Facility were Covered Losses.
15 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 15 of 29 --

and its subsequent submission of the Operations Claim in May 1999,
constituted the first notices of loss given to Federal by M/K under the
Policies. Under that scenario, Federal would satisfy the Notice Ele-
ment and we would, as did the district court, assess the submission
of the Claims under the Good Faith and Prejudice Elements of the
Great American test. On the other hand, if the submission of a
"claim" and the giving of "notice" are not the same event, we must
assess whether, under the Notice Element, Federal received actual or
constructive notice of the losses and damages suffered at the Facilities
prior to the Claims being submitted. Under that scenario, if Federal
had notice of M/K’s losses and damages while they were occurring,
it is untenable for Federal now to contend that it is entitled to be
relieved of its contractual obligations to indemnify M/K.
B.
In assessing the meaning of the terms "claim" and "notice," we
conclude that the submission of a "claim" and the giving of a "notice"
of loss or damage are separate and distinct occurrences. In arriving at
this conclusion, we are guided by familiar principles of construction.
First, an insurance policy should be construed to give different mean-
ings to different terms utilized therein. See Lineberry v. Sec. Life &
Trust Co., 77 S.E.2d 652, 654 (N.C. 1953) ("An insurance contract
must be construed without disregarding words or clauses used . . . .").
Second, if the meaning of a policy term is "uncertain or capable of
several reasonable interpretations, the doubts will be resolved against"
the insurer and in favor of the insured. Register v. White, 599 S.E.2d
549, 553 (N.C. 2004) (internal quotation marks omitted). In applying
these principles, we observe that the Policies utilize, inter alia, two
separate and distinct terms to describe the procedures that an insured
is obliged to follow to be entitled to indemnification: first, "notify
[Federal] of the loss or damage," see Condition 3.b. (concerning giv-
ing of "notice"), and, second, "file with [Federal] sworn proof of loss"
to assist in "settl[ing] the claim," see Condition 3.g. (concerning sub-
mission of "claim").12 Significantly, neither of these two events, giv-
12The term "claim" is used six times in the Conditions of the Policies.
In each usage, the term is used in reference to the assertion of a right to
payment, and it is never used in a manner synonymous with the term
"notice."
16 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 16 of 29 --

ing "notice" of loss or damage, on the one hand, or submitting a
"claim," on the other, is defined in the Policies. In order to give effect
to each of these policy terms, we are thus obliged to construe them
as having different meanings. See Lineberry, 77 S.E.2d at 654. And
we are mindful that, in construing undefined policy terms, we are to
resolve any ambiguities against Federal. See Register, 599 S.E.2d at
553.
The word "claim," when used as a noun, has been defined as the
"assertion of an existing right: any right to payment." Black’s Law
Dictionary 264 (8th ed. 2004). See also, e.g., Webster’s Third New
Int’l Dictionary 414 (1976) (defining "claim" as "a demand for com-
pensation, benefits, or payment (as . . . one made under an insurance
policy upon the happening of the contingency against which it is
issued)"). Other insurance policies that have defined the term "claim"
have emphasized the term’s connection to a demand for a remedy. See
Gaston Mem’l Hosp., Inc. v. Va. Ins. Reciprocal, 80 F.Supp. 2d 549,
554 (W.D.N.C. 1999) (assessing term "claim," as defined in policy as
"a demand," inter alia, for money); Am. Cont’l Ins. Co. v. PHICO Ins.
Co., 512 S.E.2d 490, 492 (N.C. Ct. App. 1999) (assessing term
"claim," as defined in policy as "an express demand for damages to
which this insurance applies"). Accordingly, the ordinary meaning of
the term "claim" suggests that a remedy is being sought by the entity
submitting it.
The term "notice," on the other hand, in the context of providing
notice of loss or damage, has been defined as "[l]egal notification
required by law or agreement . . . ; definite legal cognizance, actual
or constructive, of an existing right or title." Black’s Law Dictionary
1090 (8th ed. 2004); see also, e.g., Webster’s II New Riverside Univ.
Dictionary 805 (1988) (defining "notice" as "[a]n indication or warn-
ing of something"). In contrast to the term "claim," the ordinary
meaning of the term "notice" fails to suggest that some remedy is
being sought; instead it suggests that knowledge is being actually or
constructively secured by the entity to which such notice is given.
Indeed, under North Carolina law, a notification of loss has been rec-
ognized in situations in which an "insurer became aware" of loss or
damage "through some means other than notice by the insured." Great
American II, 340 S.E.2d at 746 n.1;13 cf. Aetna Cas. & Sur. Co. v.
13In the Great American cases, the insurer received notice of the loss
— an automobile accident involving its insured, a fuel truck driver —
17 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 17 of 29 --

Dow Chem. Co., 10 F.Supp. 2d 800, 813 (E.D. Mich. 1998) (observ-
ing that untimely notice of loss cannot establish prejudice if insurer
"received adequate and timely information" regarding loss) (internal
quotation marks omitted); Md. Cas. Co. v. Wausau Chem. Corp., 809
F.Supp. 680, 694 (W.D. Wisc. 1992) (concluding that insurer cannot
establish prejudice if it was aware of potential claim at time of loss);
Merchs. Mut. Ins. Co. v. Anziano, 300 N.Y.S.2d 187, 191 (N.Y. Sup.
Ct. 1969) (recognizing that "proof that . . . the insurer had notice of
the [loss] tends to negate prejudice to the insurer" even if insured did
not provide written notice of loss to insurer until later).
The foregoing discussion leads inexorably to the conclusion that,
in the context of insurance coverage issues and their governing princi-
ples, the terms "claim" and "notice" of loss are not, as they are used
in the Policies, the equivalent of one another. With this conclusion in
mind, we turn to the district court’s summary judgment awards.
C.
1.
M/K first contends that the district court erred in awarding sum-
mary judgment to Federal on the Builder’s Claim. The court resolved
that Claim on the basis of the Prejudice Element of the Great Ameri-
can test. See Great American I, 279 S.E.2d at 776 (outlining six fac-
tors establishing prejudice). In its assessment of the Prejudice
Element, the district court agreed with Federal that its ability to inves-
tigate the Claim was materially prejudiced by the fact that M/K had
delayed its notice of loss. Opinion at 8. In evaluating whether Federal
was materially prejudiced, the court focused on the physical changes
which had been made at the Energy Facility during the period of
through its capacity as workers’ compensation carrier for the employer
of the driver. The court observed that a policy condition requiring an
insured to notify its insurer of a loss "as soon as possible" exists to
enable the insurer to conduct a timely investigation of an asserted loss
or damage. It then concluded that the insurer had in fact received notice
of loss, even though such notice was not given by its insured. Great
American II, 340 S.E.2d at 746.
18 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 18 of 29 --

delay, observing that the damaged property was not available for
examination when the Claim was submitted on September 11, 1997.
Id. at 7. As the court noted, by June 1996, the damaged boilers at the
Energy Facility had already been rebuilt and the Facility’s damaged
fuel-handling system had been repaired. Id.
In conducting its analysis, the district court cursorily examined the
Notice Element of the Great American test, erroneously assuming that
M/K’s submission of the Builder’s Claim in September 1997 consti-
tuted notice of loss under the Builder’s Risk Policy. In so doing, it
overlooked the fact that Federal was aware of the damages and exten-
sive repairs at the Facilities as they occurred, and well before the
Claim was filed. During his seven visits to the Facilities between May
1995 and November 1996, Mr. Martin of Federal discussed with rep-
resentatives of both M/K and Federal the problems M/K was experi-
encing with the Energy Facility’s boilers, its fuel-handling system,
and its conveyor system. Federal contends, of course, that the visits
made by Martin and other Federal representatives to the Facilities
were for "underwriting reasons, not claims purposes." Martin’s depo-
sition testimony concerning his job duties (to assess the risks associ-
ated with the Project) and the frequency of his visits, however, show
otherwise — i.e., that Federal knew or should have known that the
losses and damages suffered at the Facilities might be covered by the
Policies and that M/K, as an insured, would be likely to submit a
claim for Covered Losses.14
Indeed, M/K’s October 8, 1996 report to BCH was provided to
Federal that very month. That report spelled out with some specificity
the damages suffered at the Facilities and the steps M/K was taking
to remediate those damages, and it advised BCH and Federal of the
status of those remedial steps.15 Even though M/K did not submit its
14Whether the visits to the Facilities made by Federal’s representatives
served to give notice of the Project’s losses and damages is an issue for
a jury to decide. Viewing the evidence in the proper light, Federal’s con-
tention that the visits were not for claims purposes does not exculpate it
from its obligations under the Policies.
15The October 8, 1996 report, which Federal obtained on October 17,
1996, might well constitute the "smoking gun" evidence on the notice of
19 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 19 of 29 --

Builder’s Claim until September 1997, it is hardly speculative to con-
clude that, with the knowledge acquired by way of Martin and his col-
leagues in 1995 and 1996, and with M/K’s October 8, 1996 report,
Federal should have perceived the potential for a claim being made
by M/K under the Builder’s Risk Policy. As a result, Federal could
have conducted relevant investigative activity at the time the Facili-
ties were being damaged and repaired. Put simply, Federal’s failure
to satisfy the Notice Element undermines the district court’s summary
judgment award on the Builder’s Claim.16
loss issue. M/K described therein the following: (1) the conveyor system
of the Energy Facility was experiencing high failure rates, resulting in
M/K’s replacing worn-out conveyor parts; (2) ash was building up in the
boilers and in the conveyor system, resulting in their shutdown and in
M/K’s removal of aluminum from the waste being processed; (3) the
demineralization system was deficient in providing the desired flow rate,
due to inexperienced operators, use of the wrong chemicals, and incor-
rect testing of the water quality; and (4) the air compressors were not
large enough to clean the air at the Energy Facility.
16Assuming, however, that the Builder’s Claim constituted the notice
of loss mandated by the Builder’s Risk Policy, the summary judgment
award on that Claim would yet be flawed, for two reasons. First, the
court failed to assess the evidence of Mr. Smith in the light most favor-
able to M/K. See DeWitt v. Eveready Battery Co., 565 S.E.2d 140, 151
(N.C. 2002) (holding expert testimony to be sufficient to raise genuine
issue of material fact). Instead, it credited the view of Federal’s Regional
Property Claim Supervisor, Mr. Nichols, that "‘there was no reason’ [for
Federal] to make a site visit in September 1997, when the Builder’s
Claim was submitted." Second, the court, relying primarily on Charter
Oak Fire Insurance Co. v. Carteret County Board, 91 F.3d 129, 1996
WL 389480 (4th Cir. July 12, 1996) (unpublished table decision),
focused its assessment on only one of the six factors under the Prejudice
Element spelled out in Great American I — that physical changes had
occurred in the location of the damages during the period prior to the
Builder’s Claim. It thus failed to consider properly the available evidence
concerning the other five prejudice factors. In Charter Oak, an award of
summary judgment to an insurer was upheld because the notice of loss
was not given until more than five months after the damages occurred
and after repairs to those damages had been completed. While it is an
unpublished decision and thus not precedent, see Local Rule 36(c), Char-
20 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 20 of 29 --

2.
M/K also contests the district court’s summary judgment award on
the Operations Claim. The court decided that Claim on the basis of
the Good Faith Element of the Great American test. See Great Ameri-
can II, 340 S.E.2d at 747 (assessing, under Good Faith Element,
whether insured was aware that it possessed claim against insurer, and
whether insured purposefully and knowingly failed to notify insurer
of its claim). In its assessment of that element, the district court
focused on two aspects of the dispute: (1) the six-month period
between November 1998 and May 1999, and (2) M/K’s failure to
comply with the policy Conditions concerning the filing of a sworn
proof of loss, as well as its initiation of legal proceedings against Fed-
eral. Opinion at 9-10.
As with the Builder’s Claim, the court failed to consider, under the
Notice Element, the fact that Federal knew of the damages and repairs
at the Facilities while they were occurring. Federal thus fails to satisfy
the Notice Element, and this fact renders unpersuasive the district
court’s use of this "delay" to support its conclusion, under the Good
Faith Element, that M/K had failed to act in good faith. Mr. Martin’s
seven visits to the Facilities in 1995 and 1996, along with M/K’s
October 8, 1996 report, gave Federal every reason to perceive the
potential for a claim being made.17 In these circumstances, viewed in
the proper light, Federal was provided with timely notice that a claim
might be forthcoming for Covered Losses under the Operations Policy.18
ter Oak is also readily distinguishable, because there was no evidence
there of the "condition of the building at the time of the loss or immedi-
ately prior to the loss." 1996 WL 389480, at *3. In this proceeding, on
the other hand, M/K presented substantial evidence on the condition of
the Facilities at the time of the Covered Losses.
17As the insurer, Federal was familiar with the provisions of its insur-
ance policies, and it thus should have perceived the potential for a claim
being made under the Operations Policy.
18Even assuming the Operations Claim submitted in May 1999 was
Federal’s initial notice of loss under the Operations Policy (which,
viewed in the proper light, it was not), the district court’s assessment of
the Claim was erroneous for two reasons. First, the district court inappro-
21 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 21 of 29 --

The evidence thus supports the proposition that M/K received timely
notice with respect to the Operations Policy, and the summary judg-
ment award on the Operations Claim must therefore be vacated.
IV.
Pursuant to the foregoing, we vacate the awards of summary judg-
ment to Federal on the Builder’s Claim and on the Operations Claim,
without prejudice to Federal’s right to pursue alternative bases for
relief, and we remand for such further proceedings as may be appro-
priate.
VACATED AND REMANDED
SHEDD, Circuit Judge, concurring:
I agree with Judge King that the summary judgment must be set
aside. The Great American test is comprised of three parts: the notice
element, the good faith element, and the material prejudice element.
See Great Am. Ins. Co. v. C.G. Tate Constr. Co., 279 S.E.2d 769
(N.C. 1981) ("Great American I"); Great Am. Ins. Co. v. C.G. Tate
Constr. Co., 340 S.E.2d 743 (N.C. 1986) ("Great American II").
Although Judge King primarily bases his decision on the notice ele-
ment, I would vacate the summary judgment on alternate grounds
priately made a finding of fact against M/K when it determined that, after
M/K became aware that it was an additional insured under the Opera-
tions Policy in November 1998, it simply waited until May 1999, without
good reason, to notify Federal of its loss. See Fortress Re, Inc. v. Cent.
Nat’l Ins. Co., 766 F.2d 163, 166 (4th Cir. 1985) (observing that Great
American’s "subjective standard for determining whether an insured
acted in good faith makes it unlikely that the issue can be resolved by
summary judgment"). Second, the district court, in ruling in favor of
Federal, improperly relied on policy Conditions unrelated to the timely
notice issue. See, e.g., Am. Cont’l Ins. Co. v. PHICO Ins. Co., 512 S.E.2d
490 (N.C. App. Ct. 1999) (assessing timely notice contention separately
from contention that claim filed is not "claim" as defined by policy lan-
guage); Duke Univ. v. St. Paul Mercury Ins. Co., 384 S.E.2d 36 (N.C.
App. Ct. 1989) (assessing timely notice contention separately from stat-
ute of limitations contention).
22 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 22 of 29 --

identified briefly in notes 16 and 18 of Judge King’s opinion: that is,
the district court’s erroneous conclusions that Federal is entitled to
judgment as a matter of law on the Builder’s Risk policy claim based
on the material prejudice element and on the Operations policy claim
based on the good faith element.1
I
Concerning the Builder’s Risk policy claim, the district court con-
cluded that "[e]ven assuming that M/K could demonstrate that it acted
in good faith when it failed to report the damage to Federal at the time
the damage occurred, . . . material prejudice to [Federal] arising from
the two-year delay necessitates an award of summary judgment. . . ."
J.A. 2659. The district court erred in reaching this conclusion.
Federal, as the insurer, bears the burden of proving material preju-
dice, Great American I, 279 S.E.2d at 776, and its burden at the sum-
mary judgment stage is to establish material prejudice as a matter of
law, see Fortress Re, Inc. v. Central Nat’l Ins. Co. of Omaha, 766
F.2d 163, 166-67 (4th Cir. 1985) (reversing summary judgment on
Great American issue of material prejudice where genuine issues of
material fact existed). Among the relevant factors to be considered in
deciding the issue of material prejudice are: the availability of wit-
nesses to the pertinent events; the ability to discover other information
regarding the conditions of the locale where the events occurred; any
physical changes in the location of the events during the period of the
delay; the existence of official reports concerning the events; the
preparation and preservation of demonstrative and illustrative evi-
dence (such as photographs); and the ability of experts to reconstruct
the events. Great American I, 279 S.E.2d at 776. "Proof of the exis-
tence of any of the above factors is not determinative; the insurer
must also show that the changed circumstance materially impairs its
1In Great American II, the Supreme Court of North Carolina stated
with respect to the notice element: "In most instances, unless the insur-
er’s allegations that notice was not timely are patently groundless, this
first part of the test is met by the fact that the insurer has introduced the
issue to the court." 340 S.E.2d at 747. The district court applied this prin-
ciple in its analysis of both the Builder’s Risk and Operations policy
claims. See J.A. 2658, 2662.
23 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 23 of 29 --

ability to investigate the claim or defend and, thus, to prepare a viable
defense." Id.
The district court did not examine the evidence in the record in
accordance with the foregoing standard. Instead, relying on our
unpublished opinion in Charter Oak Fire Insurance Company v. Car-
teret County Board of Commissioners, 1996 Westlaw 389480 (4th
Cir. 1996)2 — the district court based its decision on one fact favor-
able to Federal:
Federal did not have the opportunity to observe the damage
or to observe the equipment in operation to assist in deter-
mining the cause of the damage because the damage was
repaired by mid-1996 and the BCH project was "moth-
balled" later that year.
. . .
Here, as in Charter Oak, it is clear from the record that,
regardless of the dispute about the cause of the damage at
issue, the damage was indisputably repaired long before
M/K notified Federal of the potential claim. The court must
conclude, therefore, that the almost two-year delay between
the occurrence of the damage at issue and the reporting of
the claim to Federal in conjunction with the repair of the
damage in the interim, materially prejudiced defendant’s
ability to investigate the claim.
J.A. 2661.
In reaching its conclusion, the district court did not explain how
Federal’s "ability to investigate the claim or defend and, thus, to pre-
pare a viable defense" was materially impaired. Great American I,
279 S.E.2d at 776. Moreover, the district court did not account for the
evidence presented by M/K — including eyewitness, documentary,
2Regardless of the factual distinctions between this case and Charter
Oak, that case is not binding precedent, and citation to it is disfavored.
See Local Rule 36(c); Hogan v. Carter, 85 F.3d 1113, 1118 (4th Cir.
1996) (en banc).
24 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 24 of 29 --

and photographic evidence — which creates a genuine issue of mate-
rial fact as to material prejudice.3 See Fortress Re, 766 F.2d at 166
(reversing summary judgment where issues of fact involve "questions
of what [the insurer] would have done had it received timely notice
and whether its intervention would have produced a more favorable
result"). Accordingly, summary judgment on this claim cannot stand.
II
As to the Operations Policy, the district court held: "Given the
long, involved and complex history of this case, the court cannot con-
clude that M/K’s filing of the claim against Federal under the opera-
tions policy in May 1999, over six months after learning of the
policy’s existence and approximately three years after the alleged
business loss, was made in good faith." J.A. 2663-64. The district
court also erred in reaching this conclusion.
The good faith element involves a two-part subjective inquiry: 1)
was the insured aware of a possible claim, and 2) did the insured
"purposefully and knowingly fail" to notify the insurer. Great Ameri-
can II, 340 S.E.2d at 747. This inquiry "is phrased in the conjunctive:
both knowledge and the deliberate decision not to notify must be met
for lack of good faith to be shown. If the insured can show that either
does not apply, then the trial court must find that the insured acted in
good faith." Id. (emphasis in original).
The district court acknowledged that the good faith inquiry is sub-
jective. J.A. 2663. However, the district court neither identified the
second part of the inquiry — i.e., purposeful and knowing failure to
give notice — nor explained how M/K’s conduct can be deemed pur-
poseful and knowing as a matter of law. Under these circumstances,
the summary judgment on this claim must also be set aside.4
3See ante at 21 n.16 ("M/K presented substantial evidence on the con-
dition of the Facilities at the time of the Covered Losses").
4I recognize that M/K, as the insured, ultimately bears the burden of
establishing good faith. However, a fair reading of the record shows that
Federal does not appear to have made this argument in its initial sum-
mary judgment motion or memorandum. See J.A. 82-84 (summary judg-
25 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 25 of 29 --

LUTTIG, Circuit Judge, dissenting:
I would affirm the grant of summary judgment on the reasoning of
the district court.
The majority’s conclusion that notice was provided to Federal
while the damage was occurring is untenable. The majority appears
not to dispute that notification only could occur when Federal had
notice that losses had occurred and that those losses were at least
potentially covered by the policy. Ante at 20 ("[I]t is hardly specula-
tive to conclude that . . . Federal should have perceived the potential
for a claim being made by M/K under the Builder’s Risk Policy.").
That notification that a loss is arguably covered is required, rather
than simply notification that an insured has suffered a loss, is con-
firmed by the command of the North Carolina courts that we construe
timely notice requirements in accord with their purpose of "enabl[ing]
the insurer to prepare a defense by preserving its ability to investigate
an accident." Great American Ins. Co. v. C.G. Tate Construction Co.,
340 S.E.2d 743, 746 (N.C. 1986) (Great American II). If Federal did
not receive notice that would persuade a reasonable insurer to investi-
gate the loss, the notification requirement is thus unsatisfied.
M/K provides no evidence to support the conclusion that Federal
had knowledge of damages possibly covered under the Builder’s Risk
Policy. Instead, M/K argues only that Federal had knowledge that
M/K had suffered damages and was performing repairs. Given that
M/K admits that it did not believe the problem was anything other
than a design flaw until August 1997, no reasonable jury could possi-
bly conclude that Federal’s employees knew or should have known
that M/K might ultimately file a claim for the damage under the pol-
icy, and the majority’s contrary conclusion is simply unsupported by
ment memorandum, Great American and Charter Oak discussion
focused on material prejudice). Instead, as the district court implicitly
recognized in its summary judgment order, see J.A. 2663, Federal
appears to have first raised this issue in its summary judgment reply
memorandum. Consequently, the record appears to be devoid of evi-
dence that directly bears on M/K’s subjective intent. Under these circum-
stances, the summary judgment cannot stand.
26 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 26 of 29 --

the record.1 Not only were Federal’s employees explicitly assured by
M/K’s employees that the damage was caused by a non-covered harm,
Federal’s employees did not even have responsibility for investigating
insurance losses. See J.A. 2369, 2399-2400, 2416-19, 2426-27. Like-
wise, Federal cannot be said to have had notice of the covered loss
or damage under the operations policy until M/K actually provided an
indication that such a covered loss had occurred. The district court
thus correctly concluded that notice was first provided of a possible
covered loss under the Builder’s Risk Policy no sooner than Septem-
ber 1997, and of a possible covered loss under the Operations Policy
in May 1998.
With a proper recognition of the time at which notice was given,
it is clear that Judge King and Judge Shedd err by rejecting the district
court’s conclusions that Federal was prejudiced in its investigation of
the claim under the builder’s risk policy and that M/K failed to act in
good faith in giving notice under the operations policy.
Substantial changes, including the rebuilding of the boilers, repairs
to the fuel handling system, and the apparent shutdown of the facility,
had occurred before Federal was given any detail on the facts of the
supposed "claim" under the builder’s risk policy. J.A. 2693-94.
Although North Carolina law requires that "the insurer must also
show that the changed circumstance materially impairs its ability to
investigate the claim or defend," the North Carolina Supreme Court
has also noted that "[o]ften, proof of the changed circumstance itself
will give rise to an inference of prejudice."2 Id. Whatever Federal may
1The majority’s description of the October 8, 1996 letter as the "smok-
ing gun" is unpersuasive. Ante at 19 n.15. That letter was a response to
a notice of default issued by BCH to M/K. It addressed problems high-
lighted by BCH, but gave no indication that Federal was at all involved
in the dispute. J.A. 1818-26.
2Although Judge Shedd gives great weight to the full list of factors the
Great American I court lists as relevant to prejudice, ante at 23-24 (opin-
ion of Shedd, J.), Federal’s showing that circumstances have changed
and that the change impairs its investigative ability is sufficient to affirm
summary judgment notwithstanding the presence or absence of other fac-
tors. See Great American Ins. Co. v. C.G. Tate Construction Co., 279
S.E.2d 769, 776 (N.C. 1981) (Great American I).
27 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 27 of 29 --

have been able to piece together from fading memories and inopera-
ble equipment, the complete shutdown of the facility undoubtedly is
a sufficiently substantial "changed circumstance" to render an infer-
ence of prejudice appropriate.
M/K’s attempts to demonstrate that available evidence would pre-
vent prejudice do not suffice to overcome this inference. M/K first
argues that the non-claims representatives, by their mere presence at
the facility and conversations with M/K’s employees, acquired suffi-
cient information for a jury to conclude that the inability of claims
representatives to investigate the damage was not prejudicial. How-
ever, M/K does not present evidence that these Federal employees
performed any firsthand investigation of the boilers to make an inde-
pendent determination of the cause of the damage. Accordingly, there
are no grounds to believe that they acquired the knowledge necessary
to make that determination now. M/K also argues that Federal could
have examined the facility after it was no longer in operation, and
consulted documents, records, photographs, and witnesses. But none
of these sources would provide Federal with the opportunity to make
the same firsthand investigation that the policy entitles it to make.
Federal, thus, has clearly met its burden of proving that M/K’s delay
in notifying it of the damage was prejudicial.
As to the operations policy, the district court concluded that M/K
did not act in good faith, because "in late 1998 [six months before a
claim was made], M/K was aware of the operations policy, aware of
the damage at the energy facility, aware of the suspension of opera-
tions at the recycling facility allegedly occasioned by that property
damage, and aware of the lost revenue." J.A. 2696. Neither M/K nor
the majority disputes this statement. M/K’s only argument for reversal
of summary judgment is that Federal did not prove that M/K actually
knew that the claim was covered by the operations policy. However,
M/K bears the burden of proof on this question, and, with respect to
this burden, M/K neither proves that it lacked such knowledge nor
even explains how it could possibly have lacked such knowledge. See
Great American I, 279 S.E.2d at 776 ("[W]e also now impose the
requirement that any period of delay beyond the limits of timeliness
be shown by the insured to have been in good faith." (emphasis in
original)). And it could not. After all, it had a copy of the policy and
knew the cause of the damage. Given M/K’s knowledge, I fail to see
28 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 28 of 29 --

how one could describe M/K’s failure to give notice of loss under the
insurance for six more months as anything other than a "purposeful
and knowing failure to give notice." See ante at 25 (opinion of Shedd,
J.) (arguing that the district court did not sufficiently address whether
M/K’s failure to give notice was purposeful and knowing).
The district court’s grant of summary judgment was thus com-
pelled under North Carolina law as to both of the insurance policies
at issue. I dissent from the majority’s reversal of that judgment.
29 METRIC/KVAERNER v. FEDERAL INSURANCE CO.

-- 29 of 29 --