Pacific Indemnity Company v. Deming
2016 U.S. App. LEXIS 12374
| 1st Cir. | 2016Background
- Tenant John Deming negligently left a bathtub running in Unit 1801, causing water damage to Unit 1601 in a Boston condominium building.
- Pacific Indemnity insured Unit 1601 and paid $351,159.01 to Unit 1601's owners; Pacific sued Deming in diversity as subrogee to recover that amount plus interest and costs.
- Condominium Bylaws (Paragraph 3.E) required each unit owner to carry insurance "and all such policies shall contain waivers of subrogation." Paragraph 3.A.1 limited trustees' policies to waivers as to trustees, unit owners, their employees, agents and guests.
- Deming moved for summary judgment arguing the Bylaws’ required waiver barred Pacific’s subrogation; the district court granted summary judgment for Deming, holding the waiver applied to tenants and ran with the land.
- The First Circuit reversed, holding the Bylaws do not plainly waive insurer subrogation against tenants and, in any event, there is no evidence Unit 1601’s owners executed an actual pre-loss written waiver of subrogation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bylaws’ requirement that owners carry policies containing "waivers of subrogation" bars insurer subrogation against a tenant | Bylaws do not apply to tenants; Pacific can subrogate because no written pre-loss waiver executed | Bylaws require owners’ policies to contain waivers and thus preclude Pacific’s subrogation against Deming (tenant) | The Bylaws do not plainly waive subrogation against tenants; reversed district court |
| Whether Paragraph 3.E must be read to bar subrogation as to any third party absent a specific scope | Pacific: Paragraph 3.E is not a self-effectuating waiver; it authorizes owners to enter waivers but does not evidence an executed waiver | Deming: the unconditional requirement to carry policies with waivers effects the waiver against third parties including tenants | Court: Paragraph 3.E is ambiguous but, read with Paragraph 3.A.1 and the documents as whole, does not clearly extend to tenants; alternative readings favor limiting scope |
| Whether an actual, written pre-loss waiver by Unit 1601’s owners exists or is created by the Bylaws/policy combination | Pacific: policy language merely permits insured to waive in writing before loss; no evidence owners waived | Deming: owners were required to obtain policies with waivers, so insurer is bound and cannot subrogate | Court: No record evidence of an actual written pre-loss waiver by Unit 1601’s owners; policy language alone does not constitute a waiver |
| Whether plaintiff may sue despite insured’s alleged breach of Bylaws requiring waiver | Pacific: insurer may still sue; breach claim is for owners to pursue separately | Deming: allowing suit would let insurer benefit from insured’s breach and frustrate Bylaws’ intent | Court: Allowing Pacific to pursue subrogation is consistent with policy and Bylaws; breach does not preclude suit |
Key Cases Cited
- New Eng. Gas & Elec. Ass'n v. Ocean Accident & Guarantee Corp., 116 N.E.2d 671 (Mass. 1953) (insurer’s right to subrogation upon payment of loss)
- J.A. Sullivan Corp. v. Commonwealth, 494 N.E.2d 374 (Mass. 1986) (contract interpretation principle: give meaning to every clause in instrument)
- Wickman v. Nw. Nat'l Ins. Co., 908 F.2d 1077 (1st Cir. 1990) (courts must follow plain policy language)
- García-Ayala v. Lederle Parenterals, Inc., 212 F.3d 638 (1st Cir. 2000) (distinguishing case-stated review and jury demand implications)
- United Paperworkers Int'l Union v. Int'l Paper Co., 64 F.3d 28 (1st Cir. 1995) (‘‘case stated’’ doctrine and standard of review)