Holders Capital Corp. v. California Union Insurance
989 F.2d 36
1st Cir.1993Check TreatmentMarch 29, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 92-2216
IN RE: SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.
HOLDERS CAPITAL CORPORATION, ET AL.,
Cross-Claimants, Appellants,
v.
CALIFORNIA UNION INSURANCE COMPANY, ET AL.,
Cross-Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge].
Before
Selya and Cyr, Circuit Judges,
and Fuste,* District Judge.
Gary L. Bostwick, with whom R. Lance Belsome was on brief,
for appellants.
Ralph W. Dau and Andrew K. Epting, Jr., with whom Peter B.
Ackerman, Jeffrey W. Kilduff, O'Melveny & Myers, Raul E.
Gonzalez-Diaz, A.J. Bennazar-Zequeira, Gonzalez & Bennazar, G.
Trenholm Walker, Wise & Cole, Homer L. Marlow, William G. Liston,
Marlow, Shofi, Connelly, Velerius, Abrams, Lowe & Adler, Paul K.
Connolly, Jr., Damian R. LaPlaca, LeBoeuf, Lamb, Leiby & MacRae,
Deborah A. Pitts, Hancock, Rothert & Bunshoft, Lon Harris, Harris
& Green, Bethany K. Culp, Patrick McCoy, Oppenheimer Wolff &
Donnelly, Stuart W. Axe, Lester, Schwab, Katz & Dwyer, Francisco
J. Colon-Pagan, Adrian Mercado, Mercado & Soto, Marcos Perez
Cruz, Virgilio Mendez Cuesta, Ernesto Rodriguez-Suris, and
Latimer, Biaggi, Rachid, Rodriguez-Suris & Godreau were on brief,
for appellees.
March 29, 1993
*Of the District of Puerto Rico, sitting by designation.
SELYA Circuit Judge. We approach once more the lair of
SELYA Circuit Judge.
the fabled "litigatory monster," In re Recticel Foam Corp., 859
F.2d 1000, 1001 (1st Cir. 1988), spawned by the deadly fire which
engulfed the San Juan Dupont Plaza Hotel on December 31, 1986.
In this appeal, three entities interested in the ownership and
operation of the hotel contest the district court's entry of
summary judgment in favor of a group of seventeen insurers (the
pre-fire insurers) whose comprehensive general liability (CGL)
and excess insurance policies had expired before the fire
occurred.1 Finding no error of law, we affirm.
We recently traced the six-year procedural history of
this gargantuan litigation, see In Re Nineteen Appeals Arising
Out of the San Juan Dupont Plaza Hotel Fire Litig., 982 F.2d 603,
605-08 (1st Cir. 1992), and it would be pleonastic to repeat that
exercise. We remind the reader, however, that the district court
segmented the liability inquiry into three phases. See id. at
606. This appeal concerns the third, and final, phase a phase designed to "determin[e] the contractual liability of various insurers."Id.
at 606 n.3.
The district court wrote a lengthy opinion that
describes the mechanics of Phase III and we refer those who
thirst for greater detail to that rescript. See In Re San Juan
Dupont Plaza Hotel Fire Litig., 802 F. Supp. 624, 629-30 (D.P.R.
1992); see also id. at 652-57 (chronicling partial history of the
1The opinion below provides a complete list of the insurers
in question. See In Re San Juan Dupont Plaza Hotel Fire Litig.,
802 F. Supp. 624, 628 n.3 (D.P.R. 1992).
2
insurance-related litigation). To put this appeal into workable
perspective, it suffices to relate that, during Phase III, a
covey of cross-claimants, comprising forty-eight entities who
allegedly owned, operated, or managed the hotel, sought to recoup
from the pre-fire insurers some $78,000,000 which the entities,
collectively, had contributed to settlement of victims' claims.
Finding an absence of coverage, the district court denied the
cross-claimants' requests for indemnification. See id. at 651.
At this juncture, forty-five cross-claimants threw in
the towel. The remaining three, Holders Capital Corporation,
Hotel Systems International, and Dupont Plaza Associates, were
arguably made of sterner stuff. They appealed, hawking the
theorem that defects in the hotel, apparent before the
ustulation, gave rise to the liability upon which the settlements
were based; and that, therefore, these payments reflect "property
damage" of a kind covered under the insuring agreements of the
policies underwritten by the pre-fire insurers.2
We believe that appellants' theorem is utterly without
merit. To say that damages for bodily injury and wrongful death
are really "property damage" within the ambit of carefully
written insurance policies, and then to argue that coverage
attaches not when the harm-producing incident occurs but when
2Appellants chose to limit their appeal to the "property
damage" theory, eschewing further pursuit of other contentions
they originally espoused in the district court. Hence, we
confine our comments to the single issue advanced on appeal,
mindful that "theories neither briefed nor argued on appeal are
deemed to have been waived." United States v. Slade, 980 F.2d
27, 30 n.3 (1st Cir. 1992).
3
alleged product defects first become visible, is to construct a
pyramidal proposition more reminiscent of Lewis Carroll than of
the lexicon of insurance law.3 We cannot subscribe to so
fanciful a reading of either the appellees' policies or the
applicable precedents. And, moreover, because we find the
district court's opinion on this point to be well-reasoned and
clearly articulated, see id. at 643-48, we will be brief. Where,
as here, a trial court has produced a first-rate work product, a
reviewing tribunal should hesitate to wax longiloquent simply to
hear its own words resonate. We therefore affirm the entry of
summary judgment in this case substantially on the basis of the
opinion below, embellishing our affirmance with a decurtate
explanation of why two recently decided cases, not considered by
the district court, fail to tip the scales in appellants' favor.
Relying heavily on Eljer Mfg., Inc. v. Liberty Mutual
Ins. Co., 972 F.2d 805 (7th Cir. 1992), appellants argue that the
district court applied an incorrect rule of law. Eljer involved
defective plumbing systems that had been installed in homes
throughout the United States. Citing policy language identical
to that contained in several of the CGL policies here at issue,
3One is reminded of Alice who, upon tumbling into the rabbit
hole and finding the garden door locked, decided to solve her
dilemma by eating a piece of cake. "`Well, I'll eat it,' said
Alice, `and if it makes me grow larger, I can reach the key; and
if it makes me grow smaller, I can creep under the door; so
either way I'll get into the garden, and I don't care which
happens!'" Lewis Carroll, Alice's Adventures In Wonderland 8-9
(Delacorte Press ed. 1966). Alice enjoyed her snack but she
remained the same size and the garden door remained inviolate.
See id. at 9.
4
the manufacturer of the systems sought a declaration that it was
covered for damages flowing from leaks occurring after its
policies had lapsed. A divided panel of the Seventh Circuit
upheld the insured's right to coverage on the basis that the
"physical injury" took place when the systems were implanted not
when the leakage occurred and the latent harm materialized. Id.
at 814.
We refuse to accord Eljer controlling weight for a
myriad of reasons. In the first place, the Eljer court decided
the coverage issue under Illinois law, see id. at 806, in part
through the use of what it termed "first principles." Id. at
812. To the extent that Eljer is good law in Illinois, a matter
about which Judge Cudahy disagreed, see id. at 814-17 (Cudahy,
J., dissenting), and upon which we do not opine, we have no
occasion to transplant its holding to a case, like this one,
which is governed by state law requiring a different result.4
See, e.g., Albany Ins. Co. v. Compania de Desarrollo Comercial,
90 JTS 19 (P.R. 1990); Maples v. Aetna Casualty & Sur. Co., 83
Cal. App. 3d 641,148 Cal. Rptr. 80
(1978).
In the second place, insofar as Eljer purports to claim
nationwide application, we decline the invitation, whether
4The district court saw no need to make a choice of law as
to whether the pre-fire insurers' policies were governed by
Puerto Rico or California law. See In re Hotel Fire Litig., 802
F. Supp. at 637 n.31. Because Puerto Rico law and California law coincide on the issue presented in this appeal, we, too, abjure such a choice. See Fashion House, Inc. v. K Mart Corp.,892 F.2d 1076
, 1092 (1st Cir. 1989) (recognizing that a court need not
make a formal choice of law when nothing would turn on it).
5
proffered by appellants or by the Eljer majority, to supplant a
state's body of contract law with "federal general common law."
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
In the third place, Eljer's rule of law evolved in
connection with, and was applied to, a markedly different factual
situation. The inherently defective plumbing system at issue
there was installed in hundreds of thousands of homes nationwide.
See Eljer, 972 F.2d at 807. It bore the risk of leaking, with a
failure rate "sufficiently high to mark the product as
defective," from the moment of installation, even when used as
intended. Id. at 812. By contrast, the products found in the
Dupont Plaza Hotel, although alleged to have created an
unreasonable danger in this particular instance, were not
generally defective. They functioned properly, with no risk of
failure, upon normal use and became dangerous only upon the
outbreak of the conflagration.
Fourth, and finally, the property damage caused by the
defective plumbing systems was just that property damage, e.g.,
claims for water damage to the victims' homes, diminution in
property values, loss of use, costs of replacing the systems,
etc. See id. at 807. Here, however, unlike in Eljer, the
insureds' expenditures were made to recompense personal injury
and wrongful death claims rather than property damage claims.
While it is true, in a metaphysical sense, that any expenditure
of funds from a party's estate can always be visualized as
property damage, the term "property damage" as used in the
6
appellees' policies is a term of art.5 We agree with the
district court that the term is not ambiguous and, fairly read,
triggers coverage only when damage to property occurs during the
applicable policy period. See In Re Hotel Fire Litig., 802 F.
Supp. at 645-46.
Appellants also cite Chemstar, Inc. v. Liberty Mutual
Ins. Co., 797 F. Supp. 1541 (C.D. Cal. 1992), as a basis for
urging that the dismissal of their coverage claims was premature.
In particular, they brandish Chemstar's acknowledgement that
California courts have adopted more than one rule for
ascertaining the date upon which property damage occurs. See id.
at 1549. Arguing that the district court "did not have
undisputed material facts allowing it to decide between the
various trigger rules and to determine the proper application of
the one that it chose," appellants maintain that summary judgment
was inappropriate.
Even assuming that California law supplies the rule of
decision, see supra note 4, we disagree with appellants'
characterization of the sufficiency of the factual exposition
before the district court. Chemstar makes clear that under
California law "insurance policies are triggered when property
damage actually occurs, rather than when some prior wrongful act
is committed." Id. at 1548. Indeed, the Chemstar court embarked
5This term is precisely defined in most of the policies and
is satisfactorily defined by the structure of the one policy that
does not contain an explicit definition. See In re Hotel Fire
Litig., 802 F. Supp. at 645-46.
7
upon a discussion of various trigger rules merely because it
observed that, in latent defect cases, the "date when property
damage occurs is often difficult to pinpoint." Id.
In the case at bar, no such difficulty existed. The
record makes manifest that none of the hotel's property contained
the type of latent defect that would have set the stage for a
complex determination of the date damage occurred. Bearing in
mind the illogic of the proposition that products fit for
ordinary use can be deemed defective at all, we are unable to
conceive of any evidentiary proffer that could alter the obvious
trigger date and appellants have not suggested, let alone
documented, a viable scenario for such an alteration. Here, the
damage indisputably occurred on the date of the fire, well after
the expiration of the insurance policies underwritten by the
appellees. Hence, coverage was triggered at a time when
appellees were no longer on the risk.
We need go no further. The supposed defects that were
apparent in the Dupont Plaza Hotel before the fire and which
allegedly contributed to the victims' injuries were not at all
representative of the specie of "property damage" contemplated in
the pre-fire insurers' policies. Because this is so, and because
no insured loss took place during the policy period(s), the
district court did not err in granting the pre-fire insurers'
motion for brevis disposition.
Affirmed.
8