# Johns-Manville Corp. v. United States

> United States Court of Claims · August 6, 1987 · 34 Cont. Cas. Fed. 75,361

URL: https://www.frixlaw.com/law-library/cases/6825985

## Case

- **Full name:** JOHNS-MANVILLE CORPORATION v. United States
- **Court:** United States Court of Claims
- **Decided:** August 6, 1987
- **Citations:** 34 Cont. Cas. Fed. 75,361; 13 Cl. Ct. 72; 56 U.S.L.W. 2132; 1987 U.S. Claims LEXIS 150
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Nettesheim
- **Judges:** Nettesheim
- **Cited by:** 22 later opinions in the Frix Law Library

## Citator (automated)

- **Red flag:** Vacated on other grounds by Johns-Manville Corporation and Johns-Manville Sales Corporation v. The United States, 855 F.2d 1571 (1988).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/6825985

## How later opinions describe it (automated extraction)

- recognizing two representations in warranty: “first, that the specifications are accurate, and second, that the production of the item and any method of production specified will be feasible and that the finished product will be suitable if the design specifications are followed”

## Opinion text

OPINION
NETTESHEIM, Judge.
INTRODUCTION
In this omnibus action, plaintiffs Johns-Manville Corporation and Johns-Manville Sales Corporation (collectively referred to as “Johns-Manville”) sued the United States for settlements, judgments, and other damages resulting from 57 personal injury claims or suits (one added in an amended complaint that did not otherwise alter the original) closed prior to commencing suit on July 19, 1983. Damages also were sought resulting from another 327 claims or suits that had not been c’osed. The complaint prays for $768,361.09 1 for settlements and judgments in the closed cases and $185,741.55 for attorneys’ fees, costs, and expenses incurred in defending these claims and lawsuits. The damages for the pending suits are unspecified.
All the underlying claims or suits arose from shipyard workers’ exposures to asbestos during World War II in public or private shipyards either owned or allegedly controlled by the United States Department of the Navy (the “Navy”) or in private shipyards allegedly controlled by the United States Maritime Commission (the “Maritime Commission”). The complaint previously was discussed in detail in Johns-Manville Corp. v. United States, 12 Cl.Ct. 1, 7, *77 11 (1987) (order granting and denying motion for judgment on the pleadings), and in Keene Corp. v. United States, 12 Cl.Ct. 197, 203 (1987) (order granting and denying motion to dismiss pursuant to 28 U.S.C. § 1500 ), appeal docketed, No. 87-1332 (Fed.Cir. May 7, 1987).
This case has been tried on four principal causes of action. Johns-Manville charged the Government, acting through the Navy and the Maritime Commission, with breach of the implied warranty of specifications that the asbestos-containing products— principally thermal insulation — purchased under Johns-Manville’s supply contracts would be free from defects and safe for use. Johns-Manville also contended that the Government had breached its duty to reveal superior knowledge by failing to disclose to Johns-Manville the conditions in which asbestos-containing products were used in the shipyards. Included within the superior knowledge claim are the Navy’s and the Maritime Commission's alleged failures to enforce their own health and safety standards governing the application and removal of asbestos-containing products. Johns-Manville’s claims based on mutual mistake and equitable adjustment also were tried.
The parties agreed to try this case on the basis of test shipyards and test claimants. Most of the other asbestos-manufacturer plaintiffs that have cases pending against the Government based on World War II exposures have agreed to be bound by the decision in this case.
Two of the test shipyards were owned and operated by the Navy, the Boston Navy Yard and the Philadelphia Navy Yard. Two test shipyards were owned privately, the Consolidated Steel Corporation Shipyard (“Consolidated”) in Orange, Texas, and Bethlehem Steel Corporation’s Fore River Shipyard (“Fore River") in Quincy, Massachusetts. Although the complaint is directed exclusively to exposures that occurred during or prior to World War II, it was ordered, over defendant’s objection, that the number of test claimants be expanded to include five shipyard workers who were exposed to asbestos in shipyards after the war. Subject to defendant’s objection, as noted, the parties agreed upon 15 test claimants: seven at the Boston Navy Yard, three at the Philadelphia Navy Yard, three at Consolidated, and two at Fore River. For the most part, private yards constructed new ships and Navy yards engaged in some new construction, as well as conversion, alteration, and repair of Navy vessels. There was no test claimant from a yard allegedly controlled by the Maritime Commission, although Fore River built cargo vessels for the Maritime Commission.
Johns-Manville’s other claims for damages in the case at bar for increased insurance and business costs and for loss of business and business reputation have not been tried. Nor has defendant’s first amended counterclaim been tried. This is an extraordinary pleading claiming over $33 billion, not for the costs of asbestos abatement or removal, which might have been anticipated, but for performing numerous health and hygiene surveys at worksites where Johns-Manville’s products were used, promulgating and attempting to force compliance with health and safety standards with regard to asbestos in shipyards and countless other workplaces throughout the country where Johns-Man-ville’s products have been and are used, conducting public notification and information programs, and so forth. First Amended Counterclaim, filed Nov. 30, 1983, ¶ 148. Thus, the trial that has taken place focused on liability and certain damages with respect to Johns-Manville’s World War II claims, but not on all the damages or defendant’s counterclaim.
Johns-Manville’s case No. 688-83C based on asbestos exposures in shipyards after 1963 and its case No. 1-84C directed to exposures that did not occur solely during World War II or after 1963 are still to be resolved. For purposes of this case, the World War II period was deemed to end on January 1,1946. 2 Two other plaintiff manufacturers are willing to try jointly their *78 cases covering the period between World War II (or 1947) and 1959, with the decision in that case to be binding on Johns-Man-ville, as well as most of the other plaintiffs. It has not been determined how the remaining exposure periods, generating claims by Johns-Manville and other plaintiffs, will proceed.
The philosophical underpinning for this action deserves comment. Johns-Man-ville’s premise is that the Government, as the preeminent beneficiary of highly useful asbestos-containing products during World War II, should contribute to making up Johns-Manville’s losses due to claims by third-party shipyard workers (not employees of Johns-Manville) based in whole or in part on World War II exposures in the same way that the insurers of Johns-Man-ville and other asbestos manufacturers have agreed by settlement or have been held by judicial decision to provide coverage for exposures occurring during World War II. See Asbestos Ins. Coverage Cases, Judicial Council Coordination Proceeding No. 1072 (Cal.Super.Ct. May 29, 1987). Although the insurance litigation is distinguishable because it involved interpreting contracts that specifically intended to cover risks — with a central question of what events triggered coverage — Johns-Man-ville’s objective is understandable.
Upon a jury verdict in a suit filed on October 20, 1969, against eleven manufacturers, including a wholly-owned subsidiary of Johns-Manville, the Fifth Circuit in Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076 (5th Cir.1973), cert. denied, 419 U.S. 869 , 95 S.Ct. 127 , 42 L.Ed.2d 107 (1974), held that asbestos manufacturers had a duty to warn industrial insulation workers of the dangers associated with the use of asbestos. Borel is an icon to hindsight analysis. The doctrine of strict liability came into its own in the 1960’s after the first judicial decision imposing strict liability in 1958. Before strict liability a manufacturer could be held liable in tort generally only if negligence in manufacture was proved, and privity of contract blocked contract actions by users. Strict liability eliminated both obstacles. In extending strict liability on a joint and several basis to asbestos manufacturers in suits by third-party (non-employee) users, Borel reached back over three decades to alter the economic expectations of manufacturers and users of asbestos-containing products. The insulation worker in Borel was exposed to asbestos between 1936 and 1969 during his employment with various employers, usually in Texas. The Borel court held that asbestos-containing products were “ ‘unreasonably dangerous,’ ” because the utility of the products did not outweigh the magnitude of the risk of disease, 493 F.2d at 1087-88 , so that the manufacturers should be held liable under strict liability for failure to place warning labels on their products.
During World War II, there were 4.5 million shipyard workers, and manufacture of asbestos-containing products was dedicated by law to the defense effort and essential civilian uses. Although the insulation worker in Borel may not have been one of them, the decision obviously extended to exposures of shipyard workers during the war years, such as workers in Consolidated, in Orange, Texas, one of the two test private shipyards in this case. In the jurisdictions then comprising the Fifth Circuit, many cases brought by shipyard workers were evolving through the judicial system, as the defendant manufacturers no doubt advised the Fifth Circuit. This makes it all the more remarkable that the appeals court, without acknowledging that it is speculative whether the war on the seas would have been won without the use of asbestos insulation on ships, imposed a new duty to warn insulation workers effective over 30 years earlier.
If the Borel court reasoned that an insulation worker, if warned, would have left his job rather than work with asbestos from 1936 through the end of World War II, the hypothesis is conjecture. For example, the alleviation of Depression unemployment by the pre-war industrial build-up was disregarded. Not only did Borel create a manufacturer’s strict liability to users of its products many years after events giving rise to World War II asbestos exposures, but it did so even though no prac *79 tical and effective respirator was available during the war. Mr. Borel testified, according to the Fifth Circuit, “that no respirator in use during his lifetime could prevent the inhalation of asbestos dust____” Id. at 1082 . Borel also avoided dealing with the fact that, even with a manufacturer’s warning, it is far from certain that the workers would have worn respirators, because they were cumbersome and uncomfortable and blocked vision. Somehow the Borel court reasoned that the duty to warn, primarily about dangers of asbestos and use of respirators, would have enabled an insulation worker to avoid the risk of dangerous exposure. However, the key to a safe environment was low dust levels, and respirators were a second line of defense. It should be noted that, unlike the case at bar in which the record stops at January 1,1946, the Borel court considered evidence developed in the 1960’s that even exposure to asbestos at the levels thought safe from 1938 through the war years caused disease and that medical consensus was lacking whether the recommended limit of exposure represented all dust particles or just asbestos particles. Finally, the deluge of lawsuits against asbestos manufacturers by non-employees stemming from World War II exposures that Borel legitimized owes its origin to a decision ignoring the hard fact that during World War II there was no proved alternative to asbestos (although, as will be discussed, the Government did not inhibit the development of substitutes).
In 1971 Johns-Manville was a named defendant in approximately a dozen pending asbestos cases, according to John A. McKinney, Johns-Manville’s then General Counsel. As of September 30, 1986, the quarterly Form 10Q filed with the Securities and Exchange Commission reported that 12,630 cases 3 had been filed against Manville Corporation (“Manville”), successor in 1981 to Johns-Manville. These suits, the majority of which did not involve Johns-Manville’s employees, were coming in at a rate of 425 per month as of 1982. One half of the cases pending in 1982 involved shipyard workers, and one half of this number resulted from exposures occurring solely or in part during World War II. The rate that shipyard worker cases were being filed had accelerated. Since conceivably 4.5 million World War II shipyard workers could have claims, the tip of the iceberg had been struck. Whatever responsibilities Johns-Manville owed its own employees during the war and whatever a subsequent trial may reveal with respect to Johns-Manville’s conduct after January 1, 1946, it is a fact that the Borel court assigned liability to Johns-Manville for third-party injuries based in whole or in part on World War II exposures that in the circumstances Johns-Manville would wish to share.
This is a court of law, and, although judicial inquiry is tempered by notions of equity, it is Johns-Manville’s burden to satisfy the legal elements of the causes of action that it has chosen to pursue. If the imposition of third-party liabilities on Johns-Manville during the World War II years may be viewed as gratuitous, that circumstance provides no legal, equitable, or moral basis for shifting liability to the Government, as the major user of asbestos-containing products during this time frame or for requiring the Government to share in the consequences of Borel . Either result would compound the error of Borel , not confine it. If Johns-Manville is to succeed in this court, it must do so, as its counsel argued, based on “traditional principles of government contract law.”
Viewed against this backdrop, Manville’s decision in August 1982 to seek protection of the bankruptcy laws appears a constructive approach to confining the consequences of Borel . Mr. McKinney, who was Manville’s CEO at the time, testified that absent shipyard worker cases Manville *80 would not have initiated bankruptcy proceedings. As of August 1982, Manville faced thousands of claims incapable of satisfaction without destroying the corporation, given that its insurers had ceased reimbursing Manville by 1981 and that the simple multiplication of the number of suits by average liability yielded a contingent liability eliminating Manville’s net worth, which would have enabled lenders to accelerate substantially all of its medium- and long-term debt. Through bankruptcy proceedings Manville attempted to channel resources into a fund to satisfy pending asbestos claims, while preserving its viability as a business. Manville’s Plan of Reorganization was confirmed in December 1986 and is awaiting consummation after approval by the district court. See In re Johns-Manville Corp., Nos. 86 Civ. 6124, et al. (S.D.N.Y. July 15, 1987).
The plan creates two trusts for the benefit of asbestos claimants — the Manville Personal Injury Settlement Trust (the “Health Trust”) and the Property Damage Settlement Trust. The proceeds from Manville’s settlements with insurance carriers inure to the Health Trust, and 50 percent of the common stock of Manville, preferred stock, a bond and rights to payment under a second bond, and cash also will fund this trust. Twenty percent of any recovery from this litigation, as well as Johns-Man-ville’s other two Claims Court cases, will be paid to the Health Trust. Annual payments are to be made to the trusts, and the trusts have a call on the profits of the corporation. Over time the funding of the Health Trust is expected to exceed $2.5 billion, excluding Manville’s stock, profit-sharing payments, or any recovery from the Claims Court cases. All suits against Johns-Manville or its successor based on asbestos exposure, property damage due to asbestos, and punitive damage claims would be barred. Although Manville’s Plan of Reorganization is not before this court, its motivation is an outgrowth of the events that spawned this lawsuit.
The facts particular to each of the theories of relief in the World War II case, for the most part, are separate. Due to the number of legal issues and the generally separate factual matrix of each, this opinion will discuss the facts and law under the topic of each legal issue.
All the evidence has been considered. However, due to the massive trial record, evidence not discussed is deemed cumulative. This case involves events that transpired four decades past. Memories have dimmed, capacities to articulate have been impaired, time periods have become confused, yet it was startling that some percipient witnesses were able to testify with precision and assurance on many points. Nonetheless, in the circumstances of this case, credibility should, and has, played a key role in shaping the court’s findings. Although disinclined to comment negatively on any witness, the court reluctantly has done so only when a party has taken the position that because a witness made a point its certitude followed as a consequence.
DISCUSSION
I. Overview of asbestos — the mineral; types of products supplied by Johns-Manville to the Navy and the Maritime Commission; application of asbestos-containing products; description of ships on which products used
The ingredient common to all the insulation and fireproofing products involved in this case — asbestos—is a naturally occurring mineral. It is composed of densely packed fibers of various lengths that can be separated into fine strands. Because its fibers are virtually indestructible and incombustible, asbestos provides excellent insulation against high temperatures. Asbestos has been used generally as a thermal, acoustic, and electrical insulator and as a filtration material.
Three types of asbestos, each possessing different chemical, engineering, and physical properties, were used commercially. Chrysotile, which has longer, flexible fibers with high tensile strength and was used to make asbestos textiles and other thermal insulation products, was mined primarily in Canada, Rhodesia, South Africa, and the *81 Soviet Union. Amosite, which was preferred for most thermal insulation products used aboard ships because of its lighter density and compatibility in mixing, came primarily from South Africa. Crocidolite, distinguished by its high tensile strength and acid resistant properties, was mined primarily in South Africa and Australia.
Because the utility and value of asbestos depended on the length of the fibers, as well, each type of asbestos was classified into several grades. Canadian chrysotile was divided into grades “1” through “7”— the grade assigned depended on the composition percentage of different lengths of fiber, grade 1 having the highest percentage of long fibers. South African amosite was classified into grades “Bl”, “B3” or “D3", “3DM-1”, and “M-l”, with the “B3” or “D3” grade containing the longest fibers. The difference in grades was significant because longer fibers increased the strength of thermal insulation products and were more costly.
Prior to and during World War II, Johns-Manville dominantly was a manufacturer of products used in building construction, including asbestos-containing products. Johns-Manville sold a variety of products to the Navy for a number of years. During World War II, Johns-Manville’s production for the Navy and the Maritime Commission consisted primarily of high-temperature in-sulations and fireproofing materials for all types of Naval and Merchant Marine vessels. The products Johns-Manville supplied to the Government included high-temperature and pipe insulation, other types of pipe coverings, asbestos cements, asbestos textiles, asbestos paper and tapes, asbestos felt insulation, and marine bulkhead panels. Johns-Manville was one of the principal suppliers of asbestos products used for ship construction, conversion, and repair. Asbestos products served any of three general purposes in the construction and repair of ships: 1) to enhance engine performance by containing the extreme heat generated by the ship’s engines within the engines and steam pipes; 2) to make the ships more fireproof; and 3) to prevent condensation and frost on the outside of cold water pipes.
Although the specific types of asbestos products used by the Navy and the Maritime Commission varied over time, the following addresses the composition, description, and use of the products during World War II. Machinery and pipes in the engine and boiler rooms on Navy vessels required various kinds of insulation, and Johns-Man-ville sold several varieties of pipe covering to the Navy. It manufactured one type of pipe covering from a material known as “85 percent Magnesia,” which was a mixture of approximately 85 percent magnesium carbonate and 15 percent asbestos fibers. The asbestos portion was composed of 40 to 60 percent each of amosite and chrysotile. Shipyard workers known as pipe coverers placed sections of split, cylindrical, pre-formed pipe covers around all the hot and cold pipes within and between the boiler and engine rooms, sawing the covers to fit curves and bends in the pipes and cutting and scraping out interior surfaces of the covers with knives to fit them around couplings. The workers then pasted down the flaps of the covers’ canvas wrapping to secure the covers around the pipes.
Shipyard workers applied Johns-Man-ville’s asbestos products directly to ship interiors during ship construction and repair, although some preparatory mixing and cutting of various insulation products was performed in pipe covering shops located within the shipyards. The specific methods of application of each product were illustrated both by a 1944 Federal Security Agency film, Covering Hot and Cold Pipes, and by the testimony of several former shipyard workers.
When the workers encountered such features as flanges, elbows, valves, or hangers along the pipes, they employed a combination of other asbestos products to achieve a continuous covering of insulation. For flanges they cut blocks of 85 percent magnesia to fit and filled in the gaps with broken pieces of pipe covering and an asbestos cement or “mud” also made of 85 percent magnesia. For the other irregularities, the workers used broken pieces of pipe covering and cement. Alternatively, *82 these irregularities could be covered by asbestos cloth cut and sewn to fit.
Where pipes or boilers were subject to higher temperatures, the Navy used a different set of Johns-Manville products. In particular, Johns-Manville produced “450 Cement for Navy” and “Superex Cement for Navy” — both high-temperature asbestos cements. The Superex cement contained diatomaceous earth, asbestos fibers, and clay binders, and the 450 cement contained between 10 and 15 percent chrysotile fiber and mineral wool or rock wool in place of diatomaceous earth. Johns-Man-ville also produced a Superex pipe covering and Superex blocks.
Weaving chrysotile fibers (70 to 98 percent) with cotton fibers, Johns-Manville manufactured asbestos cloth products, which the Navy used as “lagging” — an in-sulative outer layer designed either to protect various kinds of pipe covering or to encase other forms of asbestos insulation (such as asbestos felt) to form insulative pads. These asbestos textiles could be cut with shears and sewn with asbestos threads or yam. Thick rolls or sheets of flexible asbestos fiber felt, cut by saws into desired lengths and widths, were used to wrap medium-temperature pipes. Johns-Manville produced two types of asbestos felt: “Fire Felt,” composed of at least 98.5 percent chrysotile fiber, and “Amosite Asbestos Felt,” composed of amosite fiber.
Among the other asbestos products Johns-Manville produced for Navy use were “Asbestos Millboard” (for bulkheads), “Ebony Asbestos” (for switchboard panels), “Marine tape” (for wrapping pipe covering), and assorted corrugated asbestos paper and compressed asbestos sheet packing.
The Maritime Commission made use of a different line of Johns-Manville asbestos products. Johns-Manville produced a fireproof bulkhead material called “Marinite.” It was composed of asbestos fibers, diato-maceous silica, and lime pressed into sheets. These sheets could then be cut to proper sizes with saws.
Although the design and size of Navy vessels constructed during the war varied greatly, all Navy ships used asbestos products in the boiler and engine rooms. These vessels included battleships, aircraft carriers, heavy cruisers, destroyers, destroyer escorts, minelayers, and seaplane tenders. Submarines were the only Navy vessels that did not use asbestos insulation. In general, as the Navy designed ships with greater speed and size, the resulting higher temperatures in the boilers and engines required higher-temperature insulation. Detailed testimony by witnesses concerning ship design and the location of asbestos insulation within a typical destroyer class ship revealed further general distinctions among Navy vessels in the type of asbestos material used. The insulation materials required for each ship were determined by the material specifications for the particular types of machinery found in the ship.
The Maritime Commission had thousands of cargo vessels built during the war. Marinite sheets were added to them to provide fireproofing bulkhead construction. These cargo vessels also contained asbestos pipe insulation.
II. Asbestos-related diseases
Inhalation of asbestos fibers is associated with three major diseases: asbestosis, pulmonary and bronchogenic carcinoma (lung cancer), and mesothelioma. Asbestosis, caused only by the inhalation of asbestos fibers, is characterized by the permanent disposition of asbestos fibers in the lungs and the resultant scarring, or fibrosis, of the supporting structures of the lungs — the lungs’ air sacs and the membrane through which a gas exchange occurs between the air sacs and blood. See generally Asbestos Ins. Coverage Cases, Judicial Council Coordination Proceeding No. 1072, slip op. at 27-29. Asbestosis is a latent disease and is the most common asbestos-related disease. The indestructability of asbestos fibers is central to the progressive nature of the disease. Once inhaled and deposited in the lungs, the fibers tend to remain, and the lungs’ normal clearance mechanisms are ineffective. As the clearance mechanisms respond to the foreign matter, inflammation is caused by *83 their inability to destroy it. The inflamation produces fibrosis. Over time the fibrosis affects enough of the lungs to cause clinical symptoms of asbestosis to become apparent.
Dr. Edward A. Gaensler, Johns-Man-ville’s expert in asbestos-related diseases, testified that once asbestosis is detected clinically, it tends to worsen at varying rates. It can cause total and permanent disability. This disease was known before World War II.
The pulmonary or bronchogenic lung cancer traceable to asbestos inhalation refers to a malignant condition of cells arising from tissue scarring caused by asbestos. As with asbestosis the likelihood of lung cancer varies with the magnitude and duration of exposure to asbestos fibers. Mesothelioma, another cancerous condition, arises at the site of asbestos-caused scarring within the lining that covers the outer aspect of the lung or the lining of the abdominal cavity. It is invariably a fatal cancer, a latent disease which has developed in individuals with exposure to small amounts of asbestos. The relationship between lung cancer and asbestos exposure, according to Dr. Gaensler, was not known during World War II, nor was the incidence of mesothelioma.
III. The effect of World War II statutes and regulations on Johns-Manville’s supply contracts with the Navy and the Maritime Commission
A. Background
Johns-Manville’s complaint paints a picture of overarching governmental control to the end that Johns-Manville was compelled or forced to perform its supply contracts with the Navy and the Maritime Commission. These allegations have been described in Johns-Manville Corp., 12 Cl.Ct. at 8, 28 . Johns-Manville’s proof on point, however, described a lesser order of compulsion or control. As its counsel stated in his opening statement and closing argument, consistent with the testimony of Lincoln Gordon, former top official of the War Production Board, the evidence shows “voluntary compliance in a compulsory system.” Johns-Manville devoted considerable effort to prove that the statutory and regulatory framework for allocating strategic or critical materials, such as asbestos, and for implementing the priority system for fulfilling orders requiring asbestos was compulsory. Defendant expended equal effort to show that Johns-Manville took advantage of the business opportunities to supply asbestos-containing products directly to the Navy, to the Maritime Commission, and to other customers with priority orders for these products and that the regulatory system did not encroach on the ability of a supplier contracting with the Navy or the Maritime Commission to propose price and delivery terms in submitting its bid.
What has been referred to as the issue of compulsion and control is not a theory of relief. First, the issue is not the predicate for a finding of contractual duty. JohnsManville’s counsel said at the outset that the issue is “not an issue which we believe is determinative of the case” and that “the case can be decided on traditional principles of government contract law ...,” as has been noted previously. In contradistinction is Johns-Manville’s pending case in federal district court seeking relief in tort against the United States based on an underlying shipyard worker claimant who was exposed to asbestos after World War II. JohnsManville contends that the duty owed to the supplier by the Government arose, inter alia, from its being forced to supply asbestos during the war years. See Johns-Manville Sales Corp. v. United States, 622 F.Supp. 443, 447-49 (N.D.Cal.1985) (order granting and denying motion to dismiss). The issue in that case, unlike the case at bar, is precisely whether compulsion and control created a duty — there, a tort duty.
Second, the compulsion and control issue is relevant to whether privity of contract existed between Johns-Manville and the Navy or the Maritime Commission in respect of sales to suppliers working at pri *84 vate shipyards or to the shipyards themselves. As Johns-Manville’s counsel argued, it is relevant also to the issue wheth-. er Johns-Manville had access to the Navy and private shipyards and was in a position to know about shipyard working conditions. However, it is not relevant, contrary to Johns-Manville’s assertion, to the interpretation of wartime contracts, warranties, or price terms.
The precious few wartime contracts in evidence (none of which is a contract for the supply of thermal insulating products by Johns-Manville to the Navy or the Maritime Commission) can be interpreted as a matter of law. Whether an implied warranty of specifications runs to Johns-Man-ville depends on whether the Navy or the Maritime Commission drafted design specifications mandating the provision of asbestos, not whether Johns-Manville was required to contract with the Government. Regarding price terms, a supplier’s ability to set prices was inhibited ultimately by laws capping prices, subjecting contracts to renegotiation, and imposing excess profits taxes in order to disallow excess profits. These types of controls do not amount to government dictation of prices. Several of Johns-Manville’s witnesses testified that the wartime economy skewed the supply-demand mechanism for setting prices, as the Government had unlimited demand for defense production. Therefore, the market could not be permitted to set the upper limit on prices, which would have been without ceiling. Dr. Gordon’s testimony is illustrative. In 1939, according to Dr. Gordon, national defense took 1.2 percent of the gross national product. In 1943 and 1944 it took 42% percent. Because the base increased, as well, Dr. Gordon opined that defense production actually increased 50 or 60 times. As will be shown, suppliers could set their prices consistent with the upper limits established by the Government.
B. Wartime controls
September 1, 1939, marked the date the war began in Europe. On September 8, 1939, President Roosevelt proclaimed a state of “limited” national emergency, and on May 27, 1941, the President declared a state of “unlimited national emergency.” Japan attacked Pearl Harbor on December 7, 1941, and the United States entered the war. Because this case is attuned to the rapid buildup of shipbuilding efforts in aid of the war effort, it is appropriate to date the beginning of the war in 1940, the earliest date shipyard expansion began. 4 The war ended, for purposes of limiting evidence, no later than on January 1, 1946.
In 1940 the Navy had less than 1.3 million tons of major combat vessels in service, which was considered to be adequate for a one-ocean Navy. The isolation of Great Britain in 1940, coupled with the Japanese aggression in the Pacific, made clear the need for simultaneous Navy action in two or more oceans. In 1940 Congress approved additions to the Navy— 2.172 million tons of major combat vessels in order to triple the size of the fleet. After the attack on Pearl Harbor, a five-ocean Navy was planned, resulting in total combat Navy tonnage of approximately 8 million tons. From 1939 through 1945, the nation’s shipyards built over 1,580 Naval vessels. Over 1,300 ships were added to the fleet between the attack on Pearl Harbor and October 1, 1945. During the peak wartime shipbuilding years of 1942-1944, the shipyards delivered 3,848 merchant and 1,143 major combat vessels. Dr. Gordon recalled that shortly after Pearl Harbor, President Roosevelt called for building 8 million deadweight tons of merchant vessels in 1942 and 10 million tons in 1943. Although both goals were considered unat *85 tainable, he said that 9 million tons were built in 1942 and 19 million tons in 1943. 5
The expansion of facilities has been described by a group of authorities:
Shipbuilding facilities in the United States were increased enormously to carry on World War II shipbuilding. The total money value of these facilities in 1946 was several times as great as the total value at the outbreak of the war. At the time of the attack on Pearl Harbor, there were 24 privately owned shipyards and 8 navy yards that had facilities to build ships of 2,000 gross tons or over. At the end of the war, there were 99 additional yards of this capacity, all of them financed by the Government____
I The Shipbuilding Business in the United States of America 161 (F.G. Fassett, Jr., ed. 1948). Between June 1940 and December 1944, the Government spent over $2 billion for shipyard expansion. The number of shipyard workers increased correspondingly with expansion of facilities. In 1939 there were 120,000 workers; the number in December 1943 peaked at over 1 million. Overall there were 4.5 million shipyard workers, and by mid-1942, shipyards employed more workers than any other war industry.
Although the President was given authority to requisition personal property for national defense, statutes and regulations for requisitioning material played a peripheral role in the system of priorities and allocation for materials such as asbestos. It was not impossible, however, that refusal to honor a defense order could result in requisition of a factory.
The Act of June 28, 1940, Pub.L. No. 671, ch. 440, 54 Stat. 676 , 677 (the “Priorities Statute”), was intended “[t]o expedite national defense.” Section 2(a) provided:
That whenever deemed by the President of the United States to be in the best interests of the national defense during the national emergency declared by the President on September 8, 1939, to exist, the Secretary of the Navy is hereby authorized to negotiate contracts for the acquisition, construction, repair, or alteration of complete naval vessels or aircraft, or any portion thereof, including plans, spare parts, and equipment therefor, that have been or may be authorized, and also for machine tools and other similar equipment, with or without advertising or competitive bidding upon determination that the price is fair and reasonable, and deliveries of material under all orders placed pursuant to the authority of this section and all other naval contracts or orders and all Army contracts and orders shall, in the discretion of the President, take priority over all deliveries for private account or for export: ____
(Emphasis added.) While authorizing the Navy to enter into contracts with or without competitive bidding and giving precedence to defense orders over private, the Priorities Statute only referred to private contracts and did not relieve a supplier of its legal liability to other customers that could be incurred by complying with a priority order.
Congress next enacted the Selective Training and Service Act of 1940, ch. 720, § 9, 54 Stat. 885 , 892, section 9 of which provided in pertinent part:
The President is empowered, through the head of the War Department or the Navy Department of the Government, in addition to the present authorized methods of purchase or procurement, to place an order with any individual, firm, association, company, corporation, or organized manufacturing industry for such product or material as may be required, and which is of the nature and kind usually produced or capable of being produced by such individual, firm, company, association, corporation, or organized manufacturing industry.
Compliance with all such orders for products or material shall be obligatory ... and shall take precedence over all other orders and contracts thereto *86 fore placed ... and any individual, firm, association, company, corporation, or organized manufacturing industry or the responsible head or heads thereof owning or operating any manufacturing plant, which, in the opinion of the Secretary of War or the Secretary of the Navy shall be capable of being readily transformed into a plant for the manufacture of arms or ammunition, or parts thereof, or other necessary supplies or equipment, who shall refuse to give to the United States such preference in the matter of the execution of orders, or who shall refuse to manufacture the kind, quantity, or quality o/arms or ammunition, or the parts thereof, or any necessary supplies or equipment, as ordered by the Secretary of War or the Secretary of the Navy, or who shall refuse to furnish such arms, ammunition, or parts of ammunition, or other supplies or equipment, at a reasonable price as determined by the Secretary of War or the Secretary of the Navy, ... then, ... the President, through the head of the War or Navy Departments of the Government, in addition to the present authorized methods of purchase or procurement, is hereby authorized to take immediate possession of any such plant or plants, and ... to manufacture therein such product or material as may be required, and any individual, firm, company, association, or corporation, or organized manufacturing industry, or the responsible head or heads thereof, failing to comply with the provisions of this section shall be deemed guilty of a felony, and upon conviction shall be punished by imprisonment for not more than three years and a fine not exceeding $50,000.
The compensation to be paid to any individual, firm, company, association, corporation, or organized manufacturing industry for its products or material, or as rental for use of any manufacturing plant while used by the United States, shall be fair and just: ...
(Emphasis added.)
The President by Exec. Order No. 8629, 3 C.F.R. 852 (1938-1943 Compl.), established the Office of Production Management (the “OPM”) on January 7,1941, to regulate the production and supply of critical defense materials and to coordinate government activities with regard to these materials. The OPM was charged with determining when, to what extent, and in what manner priorities should be afforded under section 2(a) of the Priorities Statute. The OPM and its successor, the War Production Board, were structured in the Office for Emergency Management of the Executive Office of the President.
The Priorities Statute was amended by the Act of May 31,1941, Pub.L. No. 77-89, ch. 157, 55 Stat. 236 , to expand section 2(a) to reach, inter alia, subcontracts; materials could be allocated when a shortage was apparent, not merely when a material was inadequate to meet defense needs; and a supplier was immune from liability for default resulting from compliance with priority orders.
After declaring war, Congress enacted the First War Powers Act, Pub.L. No. 354, ch. 593, 55 Stat. 838 , 839 (1941). Section 201 of that act provided:
The President may authorize any department or agency of the Government exercising functions in connection with the prosecution of the war effort, in accordance with regulations prescribed by the President for the protection of the interests of the Government, to enter into contracts and into amendments or modifications of contracts heretofore or hereafter made and to make advance, progress and other payments thereon, without regard to the provisions of law relating to the making, performance, amendment, or modification of contracts whenever he deems such action would facilitate the prosecution of the war: Provided, That nothing herein shall be construed to authorize the use of the cost-plus-a-percentage-of-eost system of contracting: Provided further, That nothing herein shall be construed to authorize any contracts in violation of existing ’aw relating to limitation of profits: Provided further, That all acts under the authority of this section shall be made a *87 matter of public record under regulations prescribed by the President and when deemed by him not to be incompatible with the public interest.
(Emphasis added.)
The Maritime Commission’s procurement authority for merchant vessels suitable for national defense needs derived from the Merchant Marine Act of 1936, § 207, Pub.L. No. 835, ch. 858, 49 Stat. 1985 , 1986, as amended, Act of June 23, 1938, § 2, Pub.L. No. 705, ch. 600, 52 Stat. 953 , 954 (1938), which conferred on the Commission authority to enter into contracts “in the same manner that a private corporation may contract within the scope of the authority conferred by its charter.” The Maritime Commission’s authority to contract was expanded in May 1941 and given priority over private contracts. Act of May 2, 1941, Pub.L. No. 46, ch. 84, 55 Stat. 148 , 149.
Executive Order No. 9,001, 6 Fed. Reg. 6,787 (1941), authorized the Secretary of the Navy and the Maritime Commission to exercise the power of the President under the First War Powers Act within the limits of appropriations. The Navy and the Maritime Commission were given virtually unbridled authority to contract “for all types and kinds of things and services necessary, appropriate or convenient for the prosecution of war, ... including but not limited to, ... supplies of any kind ... without any restriction of any kind, either as to type, character, location or form.”
Section 2(a)(2) of the Priorities Statute was amended again on March 7, 1942, and incorporated into the Second War Powers Act, Pub.L. No. 507, ch. 199, 56 Stat. 176 , 178-79 (1942). That act further provided in pertinent part:
Deliveries under any contract or order specified in this subsection (a) may be assigned priority over deliveries under any other contract or order; and the President may require acceptance of and performance under such contracts or orders in preference to other contracts or orders for the purpose of assuring such priority----
(3) The President shall be entitled to obtain such information from, require such reports and the keeping of such records by, make such inspection of the books, records, and other writings, premises or property of, any person (which, for the purpose of this subsection (a), shall include any individual, partnership, association, business trust, corporation, or any organized group of persons, whether incorporated or not), and make such investigations, as may be necessary or appropriate, in his discretion, to the enforcement or administration of the provisions of this subsection (a).
(5) Any person who willfully performs any act prohibited, or willfully fails to perform any act required by, any provision of this subsection (a) or any rule, regulation, or order thereunder, whether heretofore or hereafter issued, shall be guilty of a misdemeanor, and shall, upon conviction, be fined not more than $10,-000 or imprisoned for not more than one year, or both.
(Emphasis added.)
On December 8,1941, the President abolished the OPM and established the War Production Board (the “WPB”). The WPB exercised its authority pursuant to the Second War Powers Act. The OPM and later the WPB operated under Priorities Regulation No. 1, 6 Fed. Reg. 4,489 (Aug. 30, 1941), which mandated that defense orders for any material “must be accepted and fulfilled in preference to any other contracts or purchase orders for such material,” but “need not be accepted” if the persons placing such orders are “unwilling or unable to meet regularly established prices and terms of sale.” A supplier, however, was not allowed to discriminate against defense orders in establishing such prices or terms. Priorities Regulation No. 1 was the “backbone of the priorities system,” according to the WPB. War Production Board, Division of Information, Priorities and Industry 5 (Aug. 1942). A system of alpha-numeric preference was prescribed by Priorities Regulation No. 1, with each contract assigned a rating that governed the place it took in the war economy. The *88 priorities assigned to the orders processed by Johns-Manville carried ratings from A-l through the highest rating of AAA, according to Clyde Barnett of Johns-Manville’s Government Department and Norman J. Adams, a former Johns-Manville senior sales engineer, who also recalled ratings as low as A-10.
Dr. Gordon, who had impressive recall of its operations, began working for the WPB in January 1942. The WPB was not a procurement agency, but was responsible for procurement policy, and its Chairman and the Chairman of the Office of Price Administration served on the Procurement Policy Board, along with representatives of the procurement agencies that awarded the contracts. Under the Chairman of the WPB, who reported to the President, was the Program Vice Chairman, who was responsible for the priority system for allocating scarce materials.
During his tenure at the WPB from 1942 to November 1945, Dr. Gordon worked in the Program Bureau, advancing in April 1945 to Program Vice Chairman and Chairman of the Requirements Committee. Frank V. Connolly, who testified by deposition, served during the war as Director of the Special Ratings Division of the WPB. Dr. Gordon’s and Mr. Connolly’s testimony, along with histories of the WPB, described the overall operations of the WPB’s priority and allocation system. Both the Requirements Committee and the Special Ratings Division were under the Program Vice Chairman. The former represented claimant agencies, such as the Navy and the Maritime Commission, as well as the Office of Civilian Requirements, in order to allocate materials among the claimant agencies to best serve the war effort. The Special Ratings Division stood as watchdog over the assignment of priority ratings. The Operations Vice Chairman, reporting to the Program Vice Chairman, was responsible for the Industry Division. Each of the 12 Divisions represented individual or groups of scarce materials. Pertinent to this case was the Cork, Asbestos & Fibrous Glass Division. Division personnel came from the business world. The Industry Division input industry’s needs. The Program Vice Chairman oversaw the adjustment of needs of claimant agencies and industry and informed industry of the WPB’s allocation and priority rating guidelines through the Industry Division. For the most part, the procuring defense agencies, not the WPB, issued ratings pursuant to WPB guidelines. A private contractor typically would receive a rating certificate from the procuring agency and, in turn, obtain supplies from subcontractors on the basis of the rating.
The Operations Division also approved orders and contracts involving strategic or critical materials and received reports, when required, of available stocks and usage of scarce materials. The Compliance Division, reporting to the Program Vice Chairman, enforced the WPB’s guidelines by investigating producers and manufacturers, conducting hearings after notification of violations, authorizing subpoenas, issuing suspension orders that suspended allotments, and adjudicating appeals of suspension orders.
Dr. Gordon described the WPB’s control over industry during the war: “The control was comprehensive. It was by far the most comprehensive control system ever experienced in the United States. It was all-embracing.” The WPB controlled what could and could not be produced, the sequence of production, the securing of scarce materials from abroad, and allocation of all scarce materials. The WPB issued limitation and conservation orders. “L orders,” or limitation orders, eliminated civilian use of many materials. Scarce materials were allocated among users by “M orders.” In Dr. Gordon’s opinion, a manufacturer was compelled to accept orders from the Navy or the Maritime Commission because there was no other authorized use for its products and legal compulsions were in place. Dr. Gordon made the point that contractual relationships were taking place in an environment wherein unnecessary civilian production had been eliminated and the economy was mobilized for war. He characterized the latitude for negotiations during the war as “voluntary contracts within a mandatory system____ The com *89 pulsory framework was there all of the time, and it was the maximum.” However, he agreed that the businesses existed to make profits during the war, although limited by price controls, contract renegotiation, and excess profits taxes.
Although Johns-Manville is correct that the WPB vigorously enforced its guidelines and orders, the Chairman of the WPB said in a 1944 report that the WPB used its powers “as sparingly as was consistent with the job of getting war goods produc-ed____” WPB Chairman, War Production in 19Jt4- 4 (1945). The WPB provided for appeals when its orders caused hardship by restricting a supplier to a quantity of a material, for example. An elaborate appeals process was in place as of July 1942. Within two years 42,559 appeals were acted on, of which 38,065 were granted in whole or part. Only in a few instances were plants seized. The Navy’s policy, spelled out in its Procurement Directives, was that “[cjompulsory orders ... being extraordinary remedies, shall be resorted to only when efforts to reach a voluntary agreement on reasonable terms have been unavailing.” Navy Procurement Directives (CCH) ¶ 10,914, at 5401 (1943) (as updated through July 1946).
Dr. Gordon’s testimony illustrated the paradox of the compulsory framework. He wrote in 1948 that, while compulsory controls overlap the system, “the mainspring of a war economy in a free society remains voluntary.” Government and the American Economy 801 (M. Fainsod & L. Gordon rev. ed. 1948). He also wrote: “The system of controls must be publicly accepted as a means for ensuring the best use of these voluntary efforts.” Id. Dr. Gordon explained that these statements, in context, meant that the producers wanted the controls to work; they wanted the United States to win the war:
They were freed ... from the fear that if they lost some of their civilian business that some competitor might take it over. Once they were freed from that fear by the control system, they were, for that reason and also for all of the reasons of patriotic impulse and the situation the country was in, anxious to produce for war purposes. That’s the context. This is what I would call voluntary compliance within a system, a compulsory framework of action.
C. Effect of wartime controls on Johns-Manville’s manufacture and sale of asbestos-containing products
During the war the Navy and the Maritime Commission were the primary users of asbestos for pipe and boiler insulation. Indirect military and essential civilian industries, such as steel plants, petroleum refineries, munitions plants, and artificial rubber manufacturing facilities, were also significant users of high-temperature insulation. During the latter half of 1942, the WPB allocated to shipyards nearly 40 percent of the estimated 36.8 million pounds of asbestos-containing high-temperature insulating pipe covering produced domestically. For 1943 roughly 46 percent of the shipyard allocations of pipe covering went to the construction or conversion of Navy combat and auxiliary vessels, with the remainder to construction of merchant vessels ordered by the Maritime Commission. In 1944, 55 percent of 85 percent magnesia and other high-temperature insulation was required for Navy and Maritime use.
As early as June 1939, Congress turned its attention to stockpiling strategic and critical materials 6 for defense needs. The Army and Navy Munitions Board, charged with implementing the Act of June 1,1939, Pub.L. No. 117, ch. 190, 53 Stat. 811 -12, included asbestos on its list of critical materials because a considerable quantity was imported from Africa. Asbestos remained a critical material throughout World War II, signifying that it was deemed essential to the national defense. Conservation Order No. M-63, 6 Fed. Reg. 6,796 (1941), regulated the importation of scarce materials. It was the first “M” order to affect asbestos. In January 1942 certain grades of asbestos originating in Rhodesia or the Union of South Africa were added to M-63. *90 7 Fed. Reg. 223 (1942). The allocation of certain grades of African asbestos was restricted to named government corporations or agencies absent permission from the WPB’s Division of Operations. 7 Fed. Reg. 2,094 (1942).
Due to the interruption of shipping to the United States in 1940-1941, the Government began taking over the supply of asbestos fibers through the Metals Reserve Company, which was established in 1940 to purchase and import strategic and critical raw materials, including asbestos. Conservation Order No. M-63 also prohibited any person other than the Government from importing certain raw materials, including asbestos, as of January 1942 without government authorization. The Cork, Asbestos & Fibrous Glass Division of the WPB worked with the Canadian Department of Munitions and Supply to control the importation of Canadian chrysotile asbestos fibers. From 1941 through 1944, the United States imported over 191 million pounds of African asbestos fiber. Johns-Manville obtained allocations of asbestos fiber from government stockpiles under the written allocation and authorization of the WPB. Johns-Manville also obtained asbestos from the Metals Reserve Company by contracts that were deemed allocations by the WPB. The Metals Reserve Company sold and delivered at least 6 million pounds of African asbestos fiber to Johns-Manville alone. Although the Metals Reserve Company had control of the importation and, pursuant to WPB guidelines, the disposition of asbestos fiber, it must be remembered that the Metals Reserve Company was established when raw materials imported by ship were being lost at sea. The Metals Reserve Company facilitated shipment and relieved users of the high insurance and difficulty in making transportation arrangements that they otherwise would have encountered.
Conservation Order No. M-79, 7 Fed. Reg. 436 (1942), restricted use of asbestos fiber imported from South Africa to defense orders. The use of chrysotile and amosite was limited exclusively to listed products. Violation of the order was subject to prohibition from further delivery and criminal penalties. M-79 provided for appeal to the WPB in the case of “exceptional and unreasonable hardship,” or a “degree of unemployment which would be unreasonably disproportionate compared with the amounts of asbestos fiber conserved,” or if compliance “would disrupt or impair a program of conversion from non-defense work to defense work.” Id. M-79 was amended effective February 28, 1942, 7 Fed. Reg. 436 (1942), to restrict the installation of high-temperature pipe covering to installations wherein temperatures exceeded 300°F or on ships.
Conservation Order No. M-123, 7 Fed. Reg. 2,472 (1942), limited the use of asbestos textiles to manufacturers of industrial packings or orders bearing a given priority rating. This order had a right of appeal, confined to hardship, however, and the same provisions on violations as M-79. Conservation Order No. M-283, 8 Fed. Reg. 1,790 (1943), putting asbestos textiles under monthly WPB allocation, required both suppliers and consumers to obtain authorization to deliver, in the case of suppliers, and to accept delivery, in the case of consumers. Dr. Gordon described M-283 as effecting “100 percent allocation.” The order required applications and monthly reports to be forwarded to the WPB. M-283 had no appeal procedure, but included the same type of provision for violations as M-79.
Unquestionably, during the war Johns-Manville received fiber needed for thermal insulation products for sale to the Navy and the Maritime Commission and essential civilian users. Conversion of Johns-Man-ville’s production facilities was not required to accommodate wartime production, however. Johns-Manville’s President, Lewis H. Brown, testified before Congress in 1943 that the wartime character of Johns-Man-ville’s business was “[v]ery much the same,” as its peacetime business, which he described as “the manufacture of about 1,200 different products, asbestos materials, friction materials, building materials, and so on.” Investigation of the Progress of the War Effort: Hearings Before the House Comm, on Naval Affairs, 78th *91 Cong., 1st Sess. 536 (1943) [hereinafter War Effort Hearings ].
Before the war Johns-Manville had a sales policy to do business with both government and civilian customers, and the Johns-Manville salesmen who testified did not indicate that the policy waned during World War II, although there was a conflict about how actively field sales were sought. Salesmen and District Sales Managers in the field were paid an incentive after a base volume of sales had been achieved. Direct sales to Navy yards counted towards this base volume and were subject to incentive pay, according to the deposition of Charles 0. Garcelon, a longtime Johns-Manville salesman from the Boston Office, who sold to the Boston Navy Yard.
Johns-Manville created a Government Department in 1908. Clyde Barnett was the Chief Clerk from 1941-1950 for Johns-Manville’s Government Department, located in New York City. Mr. Barnett was not subject to incentive pay. He dealt with the centralized procurement components of several government agencies, including the Navy and the Maritime Commission. Mr. Barnett described his function as receiving invitations for bids or requests for tender from purchasing agencies and executing them. He explained that the Navy generally required at least three bids on a fixed-price supply contract. When Johns-Man-ville’s bids were successful, he signed the contracts on behalf of Johns-Manville and routed them for factory production. The bids Mr. Barnett responded to had been assigned priority ratings by the Navy. When he received a bid, Mr. Barnett would contact the Sales Department to see if adequate material had been allocated. He would then inform the factory of the delivery date, and, if it could be met, price the order. Mr. Garcelon, who went to the Boston Navy Yard to attend as many bid openings as possible, described the process by which the Boston Navy Yard orders were placed with the Boston Office, similarly referring to them as bids.
The purchasing agencies within the Navy were the Bureau of Supplies and Accounts and the Bureau of Ships. The Bureau of Supplies and Accounts was the Navy’s centralized procurement agency and bought for the Bureau of Ships, the Bureau of Yards and Docks, and the Bureau of Ordnance, routing the carload orders to warehouses for distribution or direct delivery of smaller lots to Navy yards. He did not testify that orders made by the Navy were shipped to private shipyards. When Johns-Manville was a successful bidder on Maritime Commission contracts, the procedure was the same as for responding to Navy bids, although Johns-Manville shipped the orders directly to the private shipyards.
Of the approximately 30 bids per week Mr. Barnett received, “a good 85 percent” of bids were from the Navy, with the Maritime Commission accounting for “[rjoughly 10 percent.” He termed these direct sales. The Navy also purchased to a minor extent through Johns-Manville’s district offices, as Mr. Garcelon testified. Mr. Barnett said that 85 to 90 percent of Johns-Manville’s sales to the Government were direct sales. Mr. Barnett, who originally compiled the figures, confirmed reports of Johns-Man-ville’s Federal Government sales for 1941 as $20,525,048; for 1942, $54,320,525; $36,-393,903 for 1943; $25,793,231 for 1944; and $16,760,250, for 1945. This is consistent with other testimony that the height of defense production was in 1942. Defendant emphasized that Johns-Manville’s Government Department sales for each year were much less than its total sales, in that between 1941 and 1945 the Government Department sales varied from under 20 percent to 50 percent of all sales. Such a comparison tends to minimize the impact of the war economy on Johns-Manville, because many sales were to Johns-Manville’s Technical Service Units, approved independent contractors that distributed and installed Johns-Manville’s products in shipyards throughout the country, and to essential civilian users that contributed indirectly to the war effort.
Dr. Gordon was skeptical that any meaningful price negotiation occurred between government agencies and suppliers. However, both Messrs. Barnett and Garcelon testified that there was competition for the *92 contracts on price items. None of Johns-Manville’s former salesmen (or sales engineers) who testified in person or by deposition knew how Johns-Manville developed its prices. Mr. Barnett took the price from a price book which was used companywide. Replacement sheets were issued periodically, but not at regular intervals. Senior sales engineer Norman J. Adams said that price changes to the Federal Government were communicated through advance bulletins after a contract had been negotiated. 7 The price book listed prices for each product under a code for the type of customer. “U” designated government customers for which the price generally was lower than for Johns-Manville’s preferred Technical Service Units or large industry users. Both Messrs. Barnett and Garcelon testified that the variables in the invitations to bid submitted by the Navy were price and delivery. Delivery definitely was negotiable after Johns-Manville had submitted its bid, but Johns-Manville secured and lost awards based on the firm fixed prices it submitted in its bids.
Peter H. Soroka served as Johns-Man-ville’s Priorities Manager in the Manville, New Jersey plant from 1940-1945 and oversaw a staff of ten. Johns-Manville set up a Priorities Department in its plants as early as 1940 when the OPM, predecessor to the WPB, required reports on the quantities of critical materials used, such as asbestos. Because the WPB required records of use and inventory of priority materials, Mr. Soroka monitored department quotas to determine what material could be used, how much, and for what purpose. Department records were correlated with those of other Johns-Manville plants. Mr. Soroka’s department worked from shipping orders. Each order indicated the customer’s priority for the material. Johns-Manville’s priority in obtaining scarce materials was based on its accumulated customer priorities. Its overall rating was an average of the ratings of all shipped orders. Mr. Soroka held the view, similar to Mr. Barnett’s, that 80 percent of Johns-Manville’s overall rating during the war was the top rating of AA or better. According to Messrs. Soroka and Adams and Edward D. Flavin, who was an Assistant District Sales Manager during the war, President’s Bulletin No. 19-858 of January 6, 1942, issued by Johns-Manville, accurately set forth its policy on the priority and allocation system:
It is the policy of Johns-Manville to cooperate 100 percent with our Government’s program on Priorities and Allocations. I have seen fit to address these remarks to our entire organization, since all of us, directly or indirectly, in our day to day work contribute to the operation of Johns-Manville under the Priorities and Allocations Program of the Office of Production Management.
Mr. Soroka communicated with the WPB regional representative at least once a week and understood, based on his conversations, that non-compliance with the priorities system would subject Johns-Manville to penalties and loss of its priority ratings. However, Mr. Soroka’s contacts at the WPB did not involve the acquisition of asbestos. He asked the WPB representative for, and obtained, priority assistance for special needs. Mr. Soroka also testified that the WPB never questioned Johns-Man-ville’s fulfillment of priority orders or compliance with priority regulations and never threatened Johns-Manville.
Within days after Priorities Regulation No. 1 was issued, Johns-Manville directed on September 1, 1941, that
[i]t is not necessary under Regulation No. 1 for J-M to bid on all Government openings of which it has notice. However, if at any time a Government representative approaches J-M and requests it to bid on a material normally sold by it, J-M must either submit a bid or have good and sufficient reason for refusing to bid, such as, for example, inability to meet the delivery date because of the requirements of orders bearing higher preference ratings.
*93 Mr. Barnett said that it was understood that Johns-Manville was required to bid on rated Navy orders. In fact, he would return an invitation to bid only if Johns-Man-ville could not meet the specifications or the delivery date, and the Navy might come back to discuss adjusting the latter. Mr. Adams was a Johns-Manville sales engineer in the Boston Office beginning in 1937 and in 1940 was promoted to his own territories in Vermont and New Hampshire, where he worked as a senior sales engineer until 1944, taking over western Massachusetts in 1942, as well. While in the Boston Office before January 1940, Mr. Adams received requests for tender from the Navy, which he viewed as obligatory. Failure to honor a request could result in suspension from the bid list or a Navy takeover, according to Mr. Adams. Although between 1940-1944, he never directly received a request for tender or invitation to bid from the Navy and never attempted to sell Johns-Manville’s products to the shipyards, Mr. Adams’ testimony was consistent with Mr. Barnett’s that during the war Johns-Man-ville was required to bid on Navy contracts. Mr. Flavin, at 89 the oldest witness who testified at trial, served as a Johns-Manville salesman in the Boston Office from 1929-1940, when he was promoted to Assistant District Manager of the New York District for the Industrial Products Division and supervised salesmen through 1946 when he became District Manager. It was his understanding, consistent with Sales Bulletin No. 69-566 of November 10, 1941, that there were defense orders Johns-Manville had to accept.
Messrs. Flavin and Adams believed that this Sales Bulletin also set forth Johns-Manville’s policy that a defense order was required for an order to be accepted:
V. What are the responsibilities of the salesmen regarding priorities?
3. By becoming familiar with the priorities regulations affecting his major customers, [the salesman] ... should be in a position to educate other customers in furnishing Johns-Manville with priority ratings which will assist the customer in getting the proper preferred place in our production schedules and will assist our factory in obtaining the scarce materials which may be necessary to fill his order.
VI. Is the salesman’s responsibility on priorities important?
As the defense program accelerates it is becoming increasingly difficult for all industry to secure raw materials and supplies necessary to produce orders. Johns-Manville must know how much of its production is going into defense and other uses. This can only be done through accurate coding of orders which depends entirely upon how good a job the salesman does in handling the customer’s order as it is affected by the priority system. This is a selling job.
Mr. Adams’ recollection as to whether Johns-Manville aggressively pursued sales during World War II differs from Mr. Gar-celon’s, in that the former saw himself during the war years as doing less “missionary” selling, as opposed to processing priorities. Mr. Flavin also regarded sales work during the war years as a desk job, not field work. Indeed, salesmen were not being promoted to territories. The salesmen worked in the office by telephone obtaining such information as delivery dates, ascertaining whether priorities had been received, and answering inquiries about the processing of orders. He would not agree with Mr. Garcelon that during the war there was aggressive solicitation of customers.
Although the New York District Office did not make sales to the Navy, Mr. Fla-vin’s testimony represents a more broad based and reliable view than Mr. Garcelon’s on the issue of whether Johns-Manville aggressively was seeking sales in the field. Mr. Flavin supervised salesmen and did not operate on his own, unlike Mr. Garcelon; moreover, the court was able to observe Messrs. Flavin and Adams. In essence, Mr. Flavin was able to reconcile the testimony of the field salesmen. He agreed that Johns-Manville wanted all the business it could fill, but to do so it was necessary to secure priority business. As Johns-Man- *94 ville’s President’s Bulletin No. 19-358 of January 6, 1942, explained:
Our Sales Management will instruct the sales force on the specific steps to be taken in connection with securement [sic] of Priority business. We must bear in mind that Priorities are the tangible evidence of our contribution to the war effort which will justify our continued existence. From now on in a constantly increasing degree, goods cannot be considered sold until the salesman has secured from, by or through his customers a priority rating that will enable Johns-Manville to manufacture the product.
Following the January 6, 1942 President’s Bulletin, Sales Bulletin No. 65-154 of January 13, 1942, instructed:
[W]e need all the priority certificates that it is possible for you to get. We are certain that in many instances in the past, in our desire to get an order, we have not been insistent on getting a priority rating along with the order. A promise of a priority certificate at a later date won’t help. It should accompany the order at the time that it is placed. To help our country’s war program, to keep our factories adequately supplied, to enable us to give you finished goods to sell, start today to secure priority certificates on every order possible.
Johns-Manville had a close relationship with the Technical Service Units that distributed and applied its products, as explained, frequently on an exclusive basis. Sales Bulletin No. 61.3-347 of January 29, 1942, advised that technical service units should be “notified immediately that they must obtain preference ratings.”
On October 25,1943, Johns-Manville published an internal document entitled The Marine Industry, compiled by the Power Products and Industrial Department. The purpose of this internal publication, and that of its predecessor on August 17, 1942, was “to organize available information on the U.S. Shipbuilding Program which we felt would be of help to our Districts in their Marine operations.” The report begins:
A world war has brought us a long way from the Maritime conditions of eight years ago when our Marine Department was organized, to the tremendous shipbuilding activity in which our company is participating today. Little did anyone realize then, that in 1943 we would be selling eight million dollars worth of J-M materials for ships alone, and that we would be restricted to that figure solely by production limitations.
A fair reading of this lengthy in-house document reveals that the government marine sales were viewed as a business opportunity. In fact, Johns-Manville was looking towards continuing the business after the war. In discussing pipe coverings sold to the Maritime Commission, the report states:
[I]t appears that we have done a pretty good job on the whole, and we should be in a fair position with long pull, after-the-war connections. Our prediction is that we will stay in the yards where we are working now and our competitors will remain in theirs — but we must not lose any yards.
Under the heading “The Maritime Shipbuilding Market,” the document notes that out of a 4,903-ship total ordered for the Maritime Commission’s Victory Program, 176 still remain to be ordered. “Now, what we are really interested in is what types of ships are these 4727, and what have we done towards supplying their requirements of materials that we manufacture.”
The Marine Industry surveyed the number of ships on which Johns-Manville products had been ordered, indicating that the Maritime Commission work depended, to some extent, on whether it could receive an increase in production from its factories. This document highlights strikingly that Johns-Manville lost orders based on price.
Johns-Manville primarily sold thermal insulation products to the Navy. A December 21, 1942 Officers’ Board Meeting Report titled “Insulation” is a history of Johns-Manville’s insulation business written during the height of the defense acquisition. It states: “We will secure our share of this business by leading the way *95 with improved products, lower costs and better selling methods.” The report predicted that by 1943:
In spite of the cancellation of some large ordnance projects, there is little doubt that the demand for insulating materials during the first six months of 1943 will be even greater than in 1942 and there is a good possibility that our factories will be kept running at full capacity for the entire year. This is due not only to the various projects now under construction but further construction in the following divisions of the national program:
Merchant Vessels
Naval Vessels
Artificial Rubber Industry
Petroleum Industry
Steel Industry
Munitions Plants
Transportation
Public Utilities
Miscellaneous War Industry
In 1943 Johns-Manville issued a Progress Report for 1942:
As a result of war-time construction, many new opportunities were presented for the use of our commodities either in standard or special form.
The chemical, synthetic rubber, aviation, and marine industries, along with new methods of producing high octane gas, etc., have opened up new fields for many of our products.
The aviation industry indicates a very definite trend from normal type pack-ings and insulations. It is anticipated that this trend will lead into further new fields.
Asbestos cement products, such as corrugated and flat transite, flexboard, wallboard, rigid shingles, etc., were used extensively on temporary housing, in ordnance plants, and as interior fireproof linings for army camps and air and naval bases.
Most of the insulating board production was consumed in all classes of army and navy construction.
The report continued: “Federal Government sales for 1942 amounted directly and indirectly to nearly half of our whole sales.” The 1944 Progress Report, covering 1943, stated: “War construction continued to account for the majority of new outlets for both standard and special products.” Both the Progress Reports of the Government Department for 1942 and 1943 related that “[many] new opportunities were presented for the use of our standard materials and [sic] various types of wartime construction.”
The foregoing evidence demonstrates that Johns-Manville discharged its patriotic duty. Its contributions to the war effort were recognized officially, such as award of the Army-Navy “E” Pennant for excellence in war contract performance and permission to fly the Maritime Commission’s “V” flag in 1942 because it was engaged in work vital to the Maritime fleet. Johns-Manville at the same time utilized the opportunities afforded by the war to expand its sales. Scrupulously adhering to the priority system, Johns-Manville also adapted to it by assuring that its customers had the requisite ratings so that sales could be made.
The trial record stands inconclusive as to how Johns-Manville determined the prices that went into its price book. Documents discussing sales of products other than asbestos to government agencies demonstrate that price competition was a factor. If anyone should know how items were priced during the war years, it was Johns-Manville’s President, Lewis H. Brown. He testified on June 15, 1943, before the House Committee on Naval Affairs that there “wasn’t any change in price from peacetime to wartime.” War Effort Hearings, supra, at 550. As discussed more fully in part IV of this opinion, the evidence does not support a finding that any negotiation or other interface occurred between Johns-Manville and the Navy or the Maritime Commission in establishing Johns-Manville’s prices. What has been shown, however, most forcefully through the testimony of Mr. Barnett of the Government Department and also Mr. Adams, is that Johns-Manville submitted bids or tenders, *96 that it was Mr. Barnett’s understanding that the Navy generally was required to obtain three bids, and that contracts were awarded on the basis of the price and delivery terms offered by the bidders.
The live and deposition testimony and abundant documentary evidence support both Johns-Manville’s and defendant’s positions on this issue. Thus, it cannot be said that the World War II regulatory controls rendered Johns-Manville’s supply contracts with the Navy or the Maritime Commission contracts of adhesion. It also cannot be said that Johns-Manville was forced to enter into supply contracts with the Navy or the Maritime Commission or customers supplying these agencies, although Johns-Manville was required to respond to invitations for bid or requests for tender when delivery was feasible. Further, it cannot be said that Johns-Manville was required to supply more asbestos-containing products due to wartime exigencies, since Johns-Manville took advantage of the business afforded by the war to increase its production of these products. However, due to the acute need for asbestos thermal insulation and other products, a statutory and regulatory framework was in place to prohibit Johns-Manville from ceasing production or going out of business. The inference that Johns-Manville asked the court to draw — that the threat of government takeover was central to its fulfilling supply contracts and increasing its production— cannot be drawn fairly, but certainly was part of the atmosphere of the total industrial mobilization for the war effort.
What has been described can be characterized as voluntary compliance — in fact, exploitation of business opportunities— within a compulsory system or system of mandatory controls. Johns-Manville was not free to ignore an invitation to bid or request for tender by the Navy or the Maritime Commission when the government order could be supplied, but it expanded that restriction into even more government business, and “the volume [of its sales] doubled or more than doubled, and ... just the change in volume made a difference in more profits before taxes.” War Effort Hearings, supra, at 550 (statement of Lewis H. Brown, President of Johns-Manville).
IV. The Navy’s policy of self-insurance during World War II, including its policy of assumption of risk
A. Background
Among the claims that were challenged by defendant’s motion for judgment on the pleadings were breaches of alleged express or implied-in-fact contracts to indemnify Johns-Manville against risks of performing its fixed-price contracts to supply the Navy with asbestos-containing products. See Johns-Manville Corp., 12 Cl.Ct. at 17-21 . These claims were dismissed based on the Anti-Deficiency Act of Feb. 27, 1906, ch. 510, Pub.L. No. 59-28, 34 Stat. 27, 49 (codified as amended 31 U.S.C. § 1341 (a)(1) (1982)). 12 Cl.Ct. at 21-25. Even though the counts based on indemnity contracts were no longer in the case, the issue whether the Navy had a policy to assume the risk of performance of supply contracts like Johns-Manville’s 8 was tried fully because it related to two issues that remained. The first is whether damages, measured by settlements, judgments, and expenses of defending against claims, actually had been contemplated by the parties as being cost items that the Navy had agreed to sustain. This issue was formulated in the decision on the motion for judgment on the pleadings, as follows: “On a motion for judgment on the pleadings, it cannot be said that a shared understanding of the consequences of performing these government contracts without adequate reserves or insurance did not exist____” Id. at 28. The sobriquet for this issue is “shared understanding.”
The second issue, relating to Johns-Man-ville’s theory of mutual mistake, is whether the Navy would have agreed to take on the *97 costs of insuring against or setting up adequate reserves for Johns-Manville’s third-party liabilities in order to assure the supply of asbestos-containing products and reduce the costs of these products.
Foreseeability of damages was one of the major issues tried. It secured preeminence because it was unclear before trial whether Johns-Manville would be required to prove that the parties contemplated the specific type of damages it sustained through third-party settlements, judgments, and legal expenses. The question may be approached in three ways. The first approach was espoused by the trial court in Lopez v. Johns Manville, 649 F.Supp. 149 (W.D.Wash.1986), appeal docketed, sub nom. Lopez v. Raymark Indus., Inc., Nos. 87-1543, 1544 (Fed.Cir. Aug. 21, 1987). On a motion for summary judgment in an action for breach of the warranty of specifications, Lopez held that the Government intends and commits by the warranty of specifications to pay for performance to complete the contract; that the cases recognizing the cause of action “did not involve indemnification for tort judgments of settlements incurred by the contractors;” and that “[s]uch liability is manifestly collateral to contractual perform-ance____” 649 F.Supp. at 160 . This approach thus excludes as a matter of law third-party liabilities from recoverable damages in an action maintained against the Government for breach of the implied warranty of specification. Part X of this opinion discusses the first approach in more detail.
The second approach was adopted by this court in Johns-Manville Corp., 12 Cl.Ct. at 28 (discussing Lopez v. Johns Manville). Given Lopez , this court stated that Johns-Manville’s complaint, proposed findings, and other submissions defending against the motion for judgment on the pleadings circumvented Lopez by asserting that as a matter of fact the Navy agreed to self-insure against claims for third-party liabilities arising out of its purchase of asbestos-containing products. Id. However, this court (and Lopez) neglected to address the third approach, which is also a subject of part X. This approach assumes that third-party liabilities cannot be considered costs of performance of a contract as a matter of law and cannot be proved to have been within the parties’ contemplation of costs of performance as a matter of fact. Nonetheless, this approach would allow recovery of third-party liabilities as damages resulting foreseeably or proximately from a breach of the implied warranty of specifications or the duty to reveal superior knowledge. The third approach is unhampered by the definition of “cost of performance” and looks squarely to the breach and its consequences and the context in which the contract was made. The issue, obviously important to both parties, is central to defendant’s case, because if defendant prevails on this third approach, it will be in a position to block the other actions maintained by asbestos manufacturers in the Claims Court, at least covering exposures occurring prior to the early 1960’s and the advent of strict liability, on the ground that third-party liabilities and the other damages (increased insurance and business costs, lost business, and lost business reputation) are not recoverable damages.
The focus of this section is to examine whether Johns-Manville proved as a matter of fact that the Government agreed to indemnify it for third-party liabilities, or, framed another way, whether the parties had a shared understanding.
During trial and after Johns-Manville rested its case, defendant moved pursuant to RUSCC 41(b) for involuntary dismissal on the ground that Johns-Manville had failed to prove that the Navy had a policy to assume the risks of performance of fixed-price supply contracts and that, based on the Lopez rationale, indemnification for third-party liabilities could not be considered a cost of performance. Defendant’s motion did not address what is referred to as the third approach, because Lopez would subsume and disallow any further examination into damages once it was determined that indemnification for third-party liabilities is not a cost of contract performance. In deciding a motion for involuntary dismissal, the court can weigh evidence and resolve conflicts, *98 Stearns v. Beckman Instruments, Inc., 737 F.2d 1565, 1568 (Fed.Cir.1984), and enter judgment for defendant if the court is convinced that the evidence preponderates against plaintiff. See Lemelson v. United States, 3 Cl.Ct. 161, 164-65 (1983), aff'd in part, vacated in part, and remanded on other grounds, 752 F.2d 1538 (Fed.Cir. 1985). Although defendant’s motion was not granted, its thesis sets forth the fundamental principle for analyzing the evidence on this issue: It is Johns-Manville’s burden to prove by a preponderance of evidence that the policy of assumption of risk applicable to fixed-price supply contracts did exist, not defendant’s burden to prove its nonexistence. Johns-Manville’s emphasis that defendant offered no witnesses on the subject must be viewed in this context.
With the benefit of over 45 years’ perspective that a trial of such remote events offers, it is remarkable that during the war procurement procedures were standardized and documented. See Navy Procurement Directives (CCH 1943) (as updated through July 1946) [hereinafter Navy Procurement Directives]. The Navy’s Insurance Division assembled a contemporaneous history of the insurance program developed during World War II. See Navy Dept., Office of Procurement and Material, Ins. Div., History of the Purchase and Administration of Insurance on Navy Department Contracts During World War II (1945) [hereinafter Navy Insurance History ]. The Navy also issued an insurance manual, Navy Dept., Office of Procurement and Material, Ins. Div., Ins. Circular Letter 330-13, Manual of Instructions for Purchase and Administration of Insurance on Navy Department Contracts, (Oct. 13, 1943) [hereinafter Navy Insurance Man ual]. Moreover, Navy officials periodically testified before Congress concerning the cost savings achieved by self-insurance. The Procurement Directives, Navy Insurance History, Navy Insurance Manual, and the congressional testimony do not describe a policy whereby the Navy undertook to assume the risk of third-party liabilities for personal injury claims for contractors that supplied products directly to the Navy or to Navy contractors under fixed-price contracts. Johns-Manville was not troubled by the paucity of documentary evidence because its proof was witness testimony, coupled with documentation that it reads as consistent with the existence of such a policy, assuming the testimony is deemed credible.
Three of the percipient witnesses, all former government officials, who testified at trial on this subject were approached by the Government with a view to ascertaining whether their testimony would be helpful. These individuals chose to testify for Johns-Manville. Although the willingness of witnesses to step forward in support of Johns-Manville’s assumption of risk policy does not enhance the probativeness of their testimony, no adverse inference is drawn from the fact that Johns-Manville will pay handsomely for the services of these witnesses and other witnesses who testified on point. They are honorable men who served their country with distinction; several were architects of the Navy’s procurement policies during World War II; and all of them have continued a lifetime of achievement after the war. However, Johns-Manville’s witnesses, individually and as a phalanx, do not overcome what is not shown by the documents. The transcript of trial cannot fully reflect the uncertainty, hesitancy, and confusion that the witnesses exhibited to the trier of fact in testifying about the assumption of risk policy. To credit the witness testimony beyond what is supported by documentary evidence, in these circumstances, would require a suspension of belief that is unwarranted on the record.
B. Whether a Navy policy to assume the risk of liabilities for third-party injuries was communicated to or relied upon by Johns-Manville in pricing its supply contracts
As will be discussed in section C. of part IV, the Navy had a policy of self-insurance whereby it directly assumed the risk for some losses and for others reimbursed contractors for reduced costs of insurance. During World War II, the Navy did not eliminate insurance, contrary to the testimony of two of Johns-Manville’s witnesses. *99 Even if the evidence had shown otherwise, the court was impressed with the lack of evidence that Johns-Manville acted on the policy of self-insurance that it urges. The resolution of this issue displaces consideration of whether any such policy existed with the Navy, although the court makes findings on that issue in section C.
During World War II, the Navy primarily used two forms of contracts for the purchase of supplies: Firm fixed-price and cost-plus-a-fixed-fee (“CPFF”). Under the former the contractor agreed to furnish designated supplies or services at a specified firm price. Under the latter the Navy agreed to reimburse the contractor for allowable costs in performing the contract, with some allowance for profit. Johns-Manville contracted in fixed-price contracts to supply the Navy with asbestos-containing products. Dr. Howard W. Wright, Johns-Manville’s expert in government cost accounting principles, defined a firm fixed-price contract in his text Accounting for Defense Contracts 3 (1962): “The firm fixed price contract provides for a price which is not subject to any adjustment by reason of the cost experience of the contractor in the performance of the con-tract____” See also 3 J.C. McBride, Government Contracts 1124.240[5], at 24-144 (1987) (Absent specific language in a fixed-price contract that the Government assumed the risk, “the presumption is that the events giving rise to ... [a] tort claim are not part of the contract work, and that costs expended in defense ... are not reimbursable.”).
On March 20, 1943, Under Secretary of the Navy James V. Forrestal issued a directive to all procurement officers of the Navy setting forth the Navy’s policy that over a relatively short term fixed-price contracts are more satisfactory than a cost method of compensation. Among the problems with cost and CPFF contracts were that the Navy’s control of contract costs was difficult; the contractor lacked incentive to reduce costs; the uncertainties of cost determinations gave rise to time-consuming controversies, which may have delayed production; and the supply of competent accountants was inadequate. Navy Procurement Directives, supra, 1110,551, at 5321. Appearing before Congress on March 7-8, 1944, then-Secretary Forrestal testified that the Navy’s policy was to avoid CPFF contracts. As of December 31, 1943, the Navy had $5 billion in outstanding CPFF contracts and $24.9 billion in outstanding fixed-price contracts, or a 5 to 1 ratio. Problems of Contract Termination: Hearings Before a Subcomm. of the Senate Comm, on Military Affairs, 78th Cong., 2d Sess. 701, 706 (1944) (statement of James V. Forrestal, Secretary of the Navy).
Amended Directive No. 2 of the WPB issued on October 10, 1942, set forth a policy of contract by negotiation. However, “negotiation” was defined as “not only face-to-face dealings, but also purchasing by securing informal written bids or telephone quotations.” The directive continues: “Where consistent with the required speed of war procurement, notification of the proposed procurement shall be given to a reasonable number of qualified contractors and quotations secured from them.” A draft by the Historical Section, Bureau of Supplies and Accounts, A History of Purchasing Within the Supply Group, World War II 88 (circa 1945), describes the function of the Commodities Purchase Branch, including the “[cjonduct of direct negotiations where this method of purchase is deemed most advantageous,” as well as “[rjeview of tenders.” A 1942 protocol for preparing Navy contracts coauthored by H. Struve Hensel, who designed the Navy’s wartime procurement system, states that “negotiation has largely supplanted the peace-time method of Government procurement____” H.S. Hen-sel & C.B. McDougal, Preparation and Signing of Navy Department Contracts 9 (May 18, 1942) [hereinafter the 1942 Contracts Protocol ]. The protocol also recognizes that contracts still were let pursuant to competitive bids or tenders. Id. at 13.
Johns-Manville contends that an annual negotiation took place between Johns-Man-ville (perhaps through its Sales Department) and representatives of the Navy. In this negotiation, according to Johns-Man- *100 ville, the policy of assumption of risk for third-party personal injuries caused by products purchased by the Navy was communicated to and acted upon by Johns-Man-ville, in that the unit price offered by Johns-Manville excluded pro rata costs of insurance or set asides for contingency reserves that would have been added to the price absent the Navy’s policy to assume the risk. Johns-Manville argues that pursuant to these annually negotiated contracts for its products sold to the Navy, Johns-Manville would submit bids or tenders reflecting the negotiated prices or the Navy would order its requirements under these annual contracts.
The witnesses who testified for Johns-Manville that a policy existed for assuming the risk of third-party liabilities for fixed-price contracts took the position that in order to be implemented it had to have been communicated to the individual contractors. However, none of these witnesses was competent to testify that such a policy was communicated to Johns-Manville or any other supplier, although they testified that it was their understanding, based on reports from subordinates, that the policy of assumption of risk was being implemented through contract negotiatiohs.
The witnesses who had first-hand knowledge of Johns-Manville’s sales, Messrs. Barnett, Garcelon, and Adams, did not speak to annual negotiations, rather a process of competitive bidding. Mr. Adams came closest to substantiating the notion that Johns-Manville’s prices to the Government were based on negotiations. Although he did not know what factors went into setting the price to be charged the Government for a product, he said that headquarters would issue bulletins informing sales personnel that
the following are the new prices for the ... [negotiated] [ 9 ] contract with the U.S. Government, and you are to honor them at every district office. And we in the district offices had to be advised of this, or we may even double-cross unknowingly what was going on ... between Washington and our headquarters.
Even giving this testimony the most favorable gloss, it is insufficient. Mr. Adams made no sales to the Navy after 1940 and never sold asbestos-containing products to the Navy. The assumption of risk policy was traced to shortly after the United States declared war, at any rate. Mr. Adams’ testimony is inconsistent with that of Mr. Barnett, who was the most knowledgeable witness about Johns-Manville’s direct sales to the Navy and the Maritime Commission during the war and who took the position that bids succeeded and failed based on price. Mr. Barnett’s testimony that the Government Department received and acted on 30 bids a week is inconsistent with the likelihood that so many contracts were negotiated. Moreover, Dr. Wright testified that the process described by Mr. Barnett — submission by a few contractors of bids reflecting firm fixed prices derived from standard commercial price lists, with delivery subject to negotiation — was a limited form of advertised competitive bidding.
Johns-Manville management, which also would have had first-hand knowledge, did not demonstrate awareness of a Navy policy to assume the risk. Johns-Manville’s President, Lewis H. Brown, it will be recalled, testified before Congress that the prices Johns-Manville charged for its products' at the height of World War II ‘were based upon the prices we charged in peacetime:”
We have items that we continue to sell for shipbuilding and other purposes in industry in peacetime, and then it took virtually the same products and we sold them in wartime, and the volume doubled or more than doubled, and there wasn’t any change in price from peacetime to wartime, and just the change in volume made a difference in more profits before taxes____
War Effort Hearings, supra, at 550. In President’s Bulletin No. 19-362 of January 30, 1942, Mr. Brown set forth the guide *101 lines for Johns-Manville’s Sales Division to integrate the risk of product hazard into the price of new or revised products:
The Sales Division representative, in approving the proposal, assumes the responsibility for customer acceptance, based on the assumption that the product has the properties indicated in the proposal. He also takes the responsibility for estimating the profit potential involved in the sale of the new or revised product and in deciding that this profit potential is satisfactory and sufficient to counterbalance any hazard involved in the sale of the product due to factors which are not fully known at the time the decision must be made. The approval of the Sales Division should be accompanied by a revised estimate of sales and potential profit.
Roger Hackney, a Johns-Manville employee in 1941 and Treasurer for 17 years beginning in September 1942, was responsible for insurance and was the “final authority” on what should be covered. He testified by deposition over defendant’s objection. Mr. Hackney said that Johns-Man-ville carried products liability insurance before and during the war. Although he did not recall whether insurance was carried for asbestos-containing products during the war, he took no action to reduce or eliminate insurance coverage. His knowledge that the Government told Johns-Manville not to carry or charge for certain insurance was traced to recent discussions with Johns-Manville’s counsel. He recalled no order to cancel insurance during the war years. Manville Corporation’s present General Counsel, Richard Von Wald, agreed that in the California insurance litigation Johns-Manville had taken the position that its insurance coverage was substantially unchanged since 1934. However, Johns-Manville apparently did not carry insurance for its thermal insulation and fireproofing products. Mr. Hackney did not recall whether Johns-Manville’s contingency reserves during the war years included provision for the risk of third-party product liabilities. Thus, the testimony of Johns-Manville’s salesmen and management does not construct an annual negotiation that resulted in reduced prices based on the Navy’s policy of assumption of risk.
Testimony of Naval personnel who worked on procurement fails to support a finding of annual price negotiation excluding insurance costs or reserves pursuant to an assumption of risk policy. George D. Lockhart was a contract procurement employee for the head of the Requisition and Contract Section of the Navy’s Bureau of Ordnance from January 1942 to March 1943 and thereafter joined the Navy serving in the same capacity in the Procurement Legal Division, which is discussed in detail in section C. He functioned as a scrivener, putting together a contract by using boilerplate and attaching a schedule with the specifications, price, and delivery date. Until the end of 1942, he sat in on fixed-price contract negotiations, but none involving manufacturers of asbestos-containing products. He recalled Captain H.L. Merring, his superior, making sure overhead did not contain the cost of insurance liability to others, “because the Navy acts as its own insurer.” Even though Mr. Lockhart could not testify to the content of the policy of insurance other than to state that the Navy acted as its own insurer, of interest to this discussion is Mr. Lockhart’s testimony that the Bureau of Ordnance entered into approximately 8,000 contracts monthly based on the 30 or 40 contracts that crossed his desk daily from one division out of nine technical divisions of that Bureau. The majority were fixed-price contracts. He testified that there were only six negotiators; that he would have no idea whether as a part of negotiation of a contract there was any discussion of insurance or self-insurance, unless he was directed to put something in a contract about self-insurance; that he did not recall any such directions; and that as a scrivener he put together the entire agreement between the parties.
Harris L. Kempner was a contract negotiator with the Navy’s Bureau of Aeronautics during the war. He testified that he negotiated both fixed-price and CPFE contracts. He had no recollection of whether the Navy assumed a contractor’s risk of *102 loss, or whether the Navy excluded from the contract price the cost of insurance against risks of loss, or whether he dealt with insurance of any kind during his work as a negotiator. He had no recollection of annually negotiated supply contracts.
The evidence of actual contracts does not support Johns-Manville’s characterization of annual price negotiations. For example, a contract for cloth, combination glass, and asbestos between the Asbestos Manufacturing Company and the Navy’s Bureau of Supplies and Accounts dated April 18,1945, states that it is a “Negotiated Contract.” Given the 1942 WPB directive, that label is not conclusive, as it could have been awarded under the relaxed form of competitive bidding permitted by the directive. Two purchase orders, respectively issued on March 23 and July 10, 1945, by the Navy’s Bureau of Supplies and Accounts to the Ruberoid Company for pipe covering and thermal insulation refer to “Your quotation on Negotiation No____to Bu S and A [Bureau of Supplies and Accounts] dated____” These purchase orders are also consistent with receipt of a bid under the relaxed form of competitive bidding. Moreover, like the contract with the Asbestos Manufacturing Company, the Ruberoid purchase orders list all terms and conditions of the negotiated purchase, none of which reflects mention of insurance.
The Navy Procurement Directives contain a “Price Analysis for Navy Contract Negotiations.” Id., supra, 1111,183, at 5557. It requires the listing for each unit price of the amounts attributable to “[o]ther cost factors” and “Contingencies.” This is consistent with a formal negotiation. A 1944 uniform contract form from the Navy Department prescribed by the Navy Procurement Directives, supra, If 11,217 at 5593, refers to “Negotiated Contract No ...” and states, “This negotiated contract is made pursuant to the provisions of the First War Powers Act, 1941.” Id. 1111,247 at 5597. The WPB directive providing for relaxed competitive bidding recites that it was passed pursuant to the First War Powers Act. This form also goes on to include the standard provisions seen in the Asbestos Manufacturing Company contract, with no reference to insurance.
The 19Jf2 Contracts Protocol states that “[a]nnual requisitions” are permitted as to many items, such as food or fuel, when annual requirements can be anticipated. Id., supra, at 14. There is evidence of supply contracts with Johns-Manville consistent with requirements contracts. From this Johns-Manville argues that the contracts themselves were entered into annually after negotiation. However, the contracts, or documents referring to the contracts, indicate that if there were requirements contracts between the parties they were competitively bid and not negotiated. For example, a June 11,1940 Contract Bulletin published by the Bureau of Supplies and Accounts covers packing for the Naval Service for the period July 1, 1940, to June 30, 1941. Johns-Manville is listed as a contractor. Although covering a year-long period and stating that the quantities required cannot be determined, the document states: “Contracts were made after newspaper advertisement. Award was made to the lowest satisfactory bidder____” During the war the Navy was relieved of a requirement to advertise, but Mr. Barnett of Johns-Manville’s Government Department testified pointedly that the contracts entered into between the Navy and Johns-Manville were bid competitively.
Other documents referring to contracts with Johns-Manville for packings mention negotiation, but in the context of a negotiated schedule, which is not inconsistent with the testimony of Mr. Barnett that, in responding to invitations to bid, Johns-Man-ville inserted delivery dates that were subject to negotiation. According to Mr. Adams, the requests for tender he received from the Navy between 1937-1940 were substantially the same as a wartime form. A 1943 “Request for Tender” used by the Navy’s Bureau of Supplies and Accounts reads, in pertinent part:
The articles or services described in the accompanying negotiation are required by the Navy. If you are interested in furnishing any of such articles or services, you may submit a tender EXE *103 CUTED IN DUPLICATE for opening on the date and at the time specified in the Schedule annexed____
The Tender itself, in pertinent part reads: The undersigned
offers, if this tender be accepted within 30 days from the last date on which tenders may be submitted on this negotiation, to deliver any or all of the items in the accompanying Schedule upon which prices are named, at the price stated opposite each item. This offer is made subject to all the terms and conditions set forth in such Schedule and the General Provisions on the reserve side hereof, the Supplier being therein referred to as the “Contractor” and the United States of America as the ['^Government”. Acceptance of this tender, in whole or in part, by the United States of America will constitute a contract for the portion accepted____
This form, the provisions of which do not discuss insurance, is as consistent with relaxed competitive bidding as formal negotiation. Since Johns-Manville contends that the Navy changed its policy in World War II and the tender form, according to Mr. Adams, was used in 1937, the form does not implement a changed policy. The renegotiation report for 1942 of another manufacturer of asbestos thermal insulation, Union Asbestos & Rubber Company, reflects that the company stated that its sales to the Government had all been made by competitive bidding.
The documents of record either are as consistent with relaxed competitive bidding as formal negotiations; refer to requests for tender or bids; or state that all the terms and conditions, none of which mentions insurance or costs of insurance, are expressly set forth in an attachment to the tender or bid.
This evidence does not show that a policy of assumption of risk or any form of Navy self-insurance was made the subject of price negotiation between Johns-Manville and the Navy.
C. Whether the Navy’s policy of assumption of risk for third-party liabilities extended to fixed-price contracts
H. Struve Hensel was Johns-Manville’s pivotal witness on the existence of policy whereby the Navy assumed the risk for third-party personal injuries caused by Johns-Manville’s products. Mr. Hensel began working with the Navy Department in December 1940 as Special Assistant to Under Secretary Forrestal. He was the innovator of what became the Procurement Legal Division (the “PLD”). Mr. Hensel recognized that contracts were not signed by the personnel who negotiated them and that the Navy had no legal counsel for its contracting program, nor any business experience in negotiating contracts. Mr. Hensel’s concept for the PLD was a commercial law firm, whereby in each of the Navy’s six bureaus a team of negotiators and contracting officers worked with a bureau counsel, who reported to Mr. Hensel as Chief of the PLD, who, in turn, reported to Under Secretary Forrestal. The PLD was established by directive dated December 13, 1942. The PLD was redesignated as the Office of General Counsel on August 3, 1944, and Mr. Hensel became General Counsel of the Navy. Mr. Hensel was appointed Assistant Secretary of the Navy in January 1945 and took charge of all aspects of Navy contracting.
After he established the PLD, Mr. Hen-sel was advised by the negotiators and bureau counsel that insurance premiums were included in pricing or costs of contracts. The insurance protected against consequential damages, which Mr. Hensel defined as damages to other government property and damages and injury to property and persons of third parties. Initiating a study of insurance, Mr. Hensel also learned that before the war it had been customary to include costs of Miller Act performance bonds in fixed-price contracts. However, during the war it became apparent that the Navy needed the goods it was buying, not money damages provided by performance bonds, and the bonds became a useless expense. It was Mr. Hensel’s view that as the volume of contracts in *104 creased, insurance premiums should decrease, since the spread of risk was expanded. Accordingly, Mr. Hensel met with 15 or 20 of the larger insurance companies that wrote these policies and asked them to reduce their premiums, but they declined.
Mr. Hensel concluded that since the Navy now was awarding contracts equivalent in size to an earlier year’s entire annual Navy appropriation, a spread of risk was created that no insurance company could match. He saw that the Navy also could eliminate the high administrative costs of an insurance policy by itself assuming the risk. Thus, Mr. Hensel resolved that it would be cheaper for the Navy to assume the costs of insurance rather than have contractors buy private insurance and pass it on as costs. On Mr. Hensel’s recommendation, Under Secretary Forrestal decided that all insurance charges should be eliminated from the price of Navy contracts, both CPFF and fixed-price, and that the Navy would assume the corresponding risk of loss. Mr. Hensel testified that Under Secretary Forrestal announced the assumption of risk policy either before or just after Pearl Harbor at one of the weekly meetings attended by the bureau chiefs and Mr. Hensel. Mr. Hensel was given the job of applying the assumption of risk policy, and undertook to communicate the policy to all bureau counsel and the negotiators. Thereafter, according to Mr. Hen-sel, “the insurance policies disappeared from the shelves of the insurance compa-nies____” To Mr. Hensel’s knowledge, the assumption of risk policy was not reduced to writing. He explained that the Navy’s Insurance Division was established after the assumption of risk policy had been adopted and that the Insurance Division had no authority to change that policy.
Although itself not perfect, the documentary evidence establishes that the Navy, through the Insurance Division, eliminated the costs of performance bonds; reimbursed contractors for casualty insurance premiums on CPFF contracts — but not products liability coverage — assuming the risk for third-party liabilities when the insurance was inadequate; assumed certain risks for government-owned property, but not risks of third-party products liability, for both CPFF and fixed-price contracts; and assumed specified risks to government-owned property and for third-party liabilities for subcontracts on CPFF contracts. The documentation suggests that the Navy also assumed the risk for third-party liabilities for CPFF contracts when the Navy provided no reimbursement for insurance, but is definite that any extension of this policy to fixed-price subcontracts expressly was made part of the contract. The documents are conclusive that the Insurance Division administered all Navy self-insurance programs, including assumption of risk. Moreover, the testimony of Johns-Manville’s other witnesses does not eliminate the problems with Mr. Hensel’s.
The Navy Insurance History, written by the Insurance Division in 1945, explains that the genesis of the Navy self-insurance policy was the cost of payment and performance bonds, as well as the contractual requirement that the contractor maintain insurance against loss of or damage to property employed in connection with the performance of contracts, especially where the Navy held title to or lien on such property. Navy Insurance History, supra, at 1. It describes the meeting with insurers, to which Mr. Hensel referred, as a meeting of the committee of the surety industry. Id., supra, at 3. In 1942 W. John Kenney was Mr. Hensel’s Deputy Chief of the PLD, later serving as General Counsel of the Navy Department, Deputy Chief of the Office of Procurement and Material, Assistant Secretary of the Navy, and Under Secretary of the Navy. He also confirmed that the insurance study and meeting focused on Miller Act bonds.
Contrary to Mr. Hensel’s recollection of Secretary of the Navy Frank Knox’s testimony, the latter stated in 1942 that the Government should carry its own insurance with respect to the cost of performance bonds; he did not recommend that the Navy should self-insure for consequential damages. Navy Appropriations Bill for 1942: Hearings Before the House Sub-comm. on Appropriations, 77th Cong., 1st Sess. 16 (1941) (statement of Frank Knox, *105 Secretary of the Navy). The result of the unsuccessful meeting with the surety representatives was that the Navy relieved contractors of the requirement for these bonds, but did not jettison all liability insurance. See id; Navy Insurance History, supra, at 3. Thereafter, the Office of Procurement and Material was established on January 30, 1942, to coordinate all the material procurement activities of the Navy Department. Navy Procurement Directives, supra, 1110,141, at 5131. The tremendous increase in volume of contracting had distorted the insurance rating structure creating excessive rates. It was decided that a central insurance division should be established to serve all the contracting bureaus, Navy Insurance History, supra, at 4, and a directive by then-Acting Secretary Forrestal dated May 6, 1942, established a “Central Insurance Division.” He directed that the Division, within the Office of Procurement and Material, “will formulate uniform insurance procurement policies and procedure for the Navy Department and supervise their execu-tion____” Navy Procurement Directives, supra, ¶ 12,702, at 7011. The Navy Insurance History goes on to state that “with the one exception noted [approval of Supply Officer’s Bonds], the Insurance Division assumed all insurance functions previously performed by the several Bureaus and offices of the Navy Department.” Id., supra, at 4.
Mr. Kenney agreed with Mr. Hensel that the policy of self-insurance went beyond eliminating Miller Act bonds. Navy Insurance History concurs, but charts the development of a policy primarily geared to CPFF contracts in 1942, which was before the explosion in fixed-price contracts reported by Secretary Forrestal in 1944:
One of the first and most important questions facing the Insurance Division was that of providing Government contractors under the rapidly multiplying volume of cost and cost-plus-fixed-fee contracts with insurance against their statutory liability under the several Workmen’s Compensation and Employers’ Liability Acts of the United States and of the several States and Territories and against their common law liability to third persons for personal injuries or loss of or damage to their property.
Id. at 5. The approach adopted by the Insurance Division was the War Projects Insurance Rating Plan, a method of determining insurance premiums at cost, applicable to workmen’s compensation, employers’ liability, automobile and general bodily injury, and property damage liability insurance. The contractor selected the carrier, subject to approval of the Insurance Division, and premiums were set on a cost basis, with the Navy assuming the uninsured liability in excess of the policy limits for third-party automobile and general liability damages. Id. at 5. Products liability coverage was eliminated. Navy Procurement Directives, supra, 1112,851, at 7058. The Navy Insurance History reflects that the Rating Plan was “described in detail,” id., supra, at 5, in the Navy Insurance Manual issued on October 13, 1943, and in a September 4, 1942 Insurance Circular Letter, which appears in the Navy Procurement Directives, supra, as 111112-841-72, at 7055-62.
The Insurance Division also developed a plan for assuming the risk of loss of or damage to government-owned property while in the hands of Navy contractors, be they cost, CPFF, or fixed-price. This principle was extended to CPFF subcontracts. Navy Insurance History, supra, at 6. The Navy Insurance History does not detail what risks were assumed with respect to government-owned property, other than to name the types of insurance coverage offered by insurers with which the Insurance Division consulted. See id., supra, at 8. However, an August 6,1942 directive specified:
In assuming the risk of loss of or damage to Government-owned property, the Navy Department is assuming such risks as are normally covered by the following types of property insurance: fire, windstorm, earthquake, hail, explosion, riot, civil commotion, vandalism, malicious mischief, smoke damage, vehicle damage, aircraft damage, transportation, aircraft flight and crash insur- *106 anee. Such list is indicative of the hazards assumed but is not all-inclusive.
Navy Procurement Directives, supra, II 12,811, at 7052; see Navy Insurance Manual, supra, at 47. Unlike the casualty insurance covered by the War Projects Insurance Rating Plan, the enumerated risks operate on government property, not third persons or their property.
Prior to 1942 shipbuilding contractors were required to carry builder’s risk insurance covering risks of loss of or damage to the ship and the materials used in its construction, as well as the contractor’s liabilities to third-parties from the time of launch to delivery. Navy Insurance History, supra, at 8-9. The testimony of the Chief of the Insurance Division before Congress makes clear that the builder’s risk insurance was eliminated only for CPFF contractors. Policy and Procedure of Letting Insurance Contracts by the Navy Dept.: Hearings Before the Comm, on Naval Affairs, 94th Cong., 2d Sess. 408 (1945) (statement of Lt. Cmdr. Saverio F. Procopio). Additionally, the Navy assumed risk of loss or damage covered by war damage insurance for property acquired under CPFF contracts and fixed-price contracts for the construction of vessels. Navy Insurance Manual, supra, id.
Johns-Manville points to other language of the Navy Insu

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/6825985. Public record. Not legal advice.