López & Medina Corp. v. Marsh USA, Inc.
667 F.3d 58
1st Cir.2012Background
- Policy PA-01 Airline Insurance Form SIHL1200A issued to Pace Airlines; Pace listed as Named Insured with two Boeing 737-200s.
- Patriot Air, LLC entered into charter arrangements with Pace, with Patriot acting as indirect air carrier under contract.
- Patriot and L& M entered Passenger Aircraft Agreement whereby Patriot would transport L& M customers (Dream Air operated by Pace).
- L& M agreed to schedule flights, fund deposits and maintain a surety bond to ensure Patriot’s performance; bond purchased from United Surety and Indemnity Company.
- Patriot terminated the Passenger Agreement in July 2002; Patriot later filed Chapter 11 bankruptcy; L& M filed claims against Patriot in bankruptcy and against USAUI-managed policy defendants in Puerto Rico action.
- District court denied summary judgment for USAUI; held policy language did not cover breach-of-contract claims; L& M appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the CGL policy cover contract-based damages? | L& M argues policy covers contract claims via Part I-Liability Coverage. | USAUI contends CGL covers torts, not contract liabilities. | No; policy covers tort claims only. |
| "Legally obligated to pay as damages" extends to contract claims? | Phrase includes contract-based liability under the policy terms. | Phrase pertains to tort liability; not contract. | No; applies to tort liability only. |
| Is the policy language ambiguous under Puerto Rico law so as to favor L& M? | Ambiguity should be construed in insured’s favor; extrinsic sources permissible. | Language is clear and unambiguous; extrinsic sources unnecessary. | No ambiguity; plain terms control. |
Key Cases Cited
- Data Specialties, Inc. v. Transcon. Ins. Co., 125 F.3d 909 (5th Cir.1997) (legally obligated to pay as damages applies to tort, not contract)
- Stanford Ranch, Inc. v. Md. Cas. Co., 89 F.3d 618 (9th Cir.1996) (contractual liability general exclusion for CGL)
- Nationwide Mut. Ins. Co. v. CPB Int'l, Inc., 562 F.3d 591 (3d Cir.2009) (Pennsylvania law; breach of contract not covered by CGL)
- VBF, Inc. v. Chubb Grp. of Ins. Cos., 263 F.3d 1226 (10th Cir.2001) (legally obligated to pay as damages refers to tort liability)
- Keystone Filler & Mfg. Co., Inc. v. Am. Mining Ins. Co., 179 F.Supp.2d 432 (M.D.Pa.2002) (CGLs generally cover tort, not economic losses from contract)
- Hartford Accident & Indem. Co. v. A.P. Reale & Sons, Inc., 644 N.Y.S.2d 442 (N.Y. App. Div. 1996) (CGL covers tort liability, not contractual liability)
- Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 607 N.W.2d 289 (Wis. 2000) (CGL not for contractual economic losses)
- Nieves v. Intercontinental Life Ins. Co. of P.R., 964 F.2d 60 (1st Cir.1992) (insurance contract interpretation; adhesion and ambiguity rules)