LÓPEZ & MEDINA CORP., d/b/a Emmanuel Travel & Tours, Plaintiff, Appellant, v. MARSH USA, INC., as agent for certain subscribing and/or participating insurance underwriters for Policies No. AW823101, S1HL-200A, HL3391396-02, PXLA37000032-01, MMO2326AV501 and AAV01.440 issued to Patriot Air LLC, d/b/a Marsh Aviation; PIEDMONT AVIATION SERVICES, INC., d/b/a Pace Airlines, Defendants, UNITED STATES AVIATION UNDERWRITERS, INC., as Managers of United States Aircraft Insurance Group & Other Underwriters and Co-Insurers, Certain Underwriters at the Institute of London, Certain Underwriters at Lloyd‘s, AIG Aviation, Inc., Brockbank Underwriting Syndicate (U.K.), Mutual Marine Office, AXA Equity and Law (U.K.), and XYZ Insurance Company, Defendant, Appellee.
No. 10-1702
United States Court of Appeals For the First Circuit
January 26, 2012
Before Lynch, Chief Judge, Torruella and Stahl, Circuit Judges.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Juan M. Pérez-Giménez, U.S. District Judge]
TORRUELLA, Circuit Judge. Plaintiff-appellant López & Medina Corp. (“L&M“) appeals the district court‘s order denying its cross-motion for summary judgment. The cross-motion was denied on the grounds that the insurance policy pursuant to which L&M sought coverage, issued by defendant-appellee United States Aviation Underwriters, Inc. (“USAUI“),1 did not cover L&M‘s losses arising from an alleged breach of contract. López & Medina Corp. v. Marsh USA, Inc. et al., 694 F. Supp. 2d 119 (D.P.R. 2010). We affirm the decision of the district court.
In addressing whether USAUI‘s policy covered L&M‘s contractually based claim, we tread on virgin ground in our circuit. We have not yet had the opportunity to address whether the phrase “legally obligated to pay as damages” in a commercial general liability (“CGL“)2 policy, which usually covers only tort claims, also provides coverage for claims in an underlying action arising out of and related to a contract between the parties. In resolving this matter of first impression, we join the majority of
I. Background
A. Factual Background
On September 1, 2001, USAUI and other defendant co-insurers issued Airline Insurance Form PA-01, Policy #SIHL1-200A (the “Policy“) to Pace Airlines, Inc. (“Pace“).4 Pace was the “Named Insured” under the Policy, and two Boeing 737-200 aircraft were listed as the insured subjects. The Policy covered certain risks assumed by its insured, Pace, in its contractual arrangements with other companies, which generally consisted of charter programs.
That same month (September 10, to be precise), Pace entered into one such charter program contractual arrangement. Pace signed an Aircraft Charter and Management Agreement (“Charter Agreement“) with Patriot Air, LLC (“Patriot“). Pursuant to this agreement, Pace, as a direct air carrier, leased to Patriot, an
Thereafter, on May 15, 2002, Patriot entered into a Passenger Aircraft Agreement (“Passenger Agreement“) with L&M. Pursuant to this agreement, Patriot, acting as an indirect air carrier, agreed to provide L&M with aircraft transportation (specifically, the Boeing 737 aircraft leased from Pace) to transport L&M customers to destinations that L&M had booked on the travelers’ behalf.5 In return, L&M agreed to “submit a schedule of Flights to Patriot . . . forty-five (45) days prior to the month in which the Flights are to occur.” Additionally, L&M agreed to make
With all matters seemingly finalized, Patriot and L&M prepared for their business venture, titled “Dream Air operated by Pace Airlines,” to take off. On June 22, 2002, the first chartered flight left Luis Muñoz Marín International Airport, departing from San Juan, Puerto Rico to the Dominican Republic. Business seemingly continued to soar into early July, with additional flights occurring on July 3, 4, 7, 8, 11, 12, and 14 of 2002. However, it was not long before L&M and Patriot‘s business arrangement began to experience turbulence.
Between June and July 2002, L&M and Patriot exchanged various communications, in which L&M claimed that Patriot had unlawfully refused to provide aircraft for already scheduled
Two months later, Patriot filed for voluntary bankruptcy under Chapter 11 in the United States Bankruptcy Court for the Northern District of Texas. L&M filed a proof of claim against Patriot for the former‘s incurred costs and suffered damages resulting from the latter‘s alleged breach of the Passenger Agreement and failure to provide chartered aircraft to L&M‘s booked passengers. The bankruptcy court subsequently disallowed L&M‘s claim against Patriot after the Chapter 11 proceedings were converted to a Chapter 13 liquidation. The bankruptcy judge confirmed a plan of liquidation on May 25, 2004, and all bankruptcy proceedings were terminated on August 31, 2004.
B. Procedural History
On June 3, 2005, L&M filed the complaint in this action against Patriot and Pace‘s insurers (specifically, USAIG and its co-insurers, including USAUI, the manager of the Policy).7 L&M
L&M alleged three causes of action in its complaint: (1) the named defendants were liable under Puerto Rico‘s Direct Action Statute,
USAUI subsequently requested that the district court certify for interlocutory appeal the question of whether coverage even applied under the Policy to the breach of contract claim that (USAUI contended) was alleged in L&M‘s complaint. Although the district court granted defendants the opportunity to file a motion explaining why certification as to this issue was appropriate, defendants elected instead to file a supplemental memorandum of law on the issue of coverage. Specifically, defendants requested that the district court dismiss the case with prejudice because the undisputed facts (namely, the plain language of the Policy) showed that the Policy did not cover L&M‘s alleged breach of contract claim, regardless of whether a breach of contract ultimately was or was not established.
The district court rejected L&M‘s motion, concluding that the Policy “clearly and unambiguously does not provide coverage for a breach of contract claim.” López & Medina, 694 F. Supp. 2d at 122. In brief, the district court carefully reviewed the Policy‘s plain language, relevant insurance treatises, and case law;
The district court also rejected L&M‘s subsequent reframing of its argument in its Motion to Alter or Amend Judgment under
L&M now appeals, arguing that the district court erred when it determined that the scope of the Policy‘s CGL coverage for Personal Injury was limited to tort claims.10 Mindful that we face a matter of first impression for this circuit, we proceed down the rabbit hole.
II. Discussion
A. Standard of Review
Summary judgment is properly granted where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
B. Insurance Policy Construction Under Puerto Rico Law
Puerto Rico law governs this diversity case. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); see also Daniels-Recio, 109 F.3d at 90. Pursuant to such law, we must first turn to the
Where the Insurance Code fails to provide an interpretative approach for a given situation, we also may turn to the Civil Code as a supplemental source of law. Nieves, 964 F.2d at 63 (citing P.R. Hous. Bank v. Pagán Ins. Underwriters, 11 Offic. Trans. 3, 8 (1981), 111 P.R. Dec. 1, 6). “Article 1233 of the Puerto Rico Civil Code provides that when the terms of a contract are clear and leave no doubt as to the intentions of the contracting parties, the literal sense of its stipulations shall be observed.”
We lastly note that insurance contracts generally are viewed as adhesion contracts under Puerto Rico law, requiring liberal construction in favor of the insured. Fajardo Shopping Ctr., S.E. v. Sun Alliance Ins. Co. of P.R., Inc., 167 F.3d 1, 7 (1st Cir. 1999) (citing Quiñones López v. Manzano Pozas, 96 J.T.S. 95, at 1306, P.R. Offic. Trans. RE-91-567, slip op. at 10, 1996 WL 499244 (P.R. June 25, 1996)). However, we are cognizant that where a contract‘s wording is explicit and its language unambiguous, the parties are bound by its clearly stated terms and conditions, with no room for further debate. Nieves, 964 F.2d at 63; see also Vulcan Tools of P.R. v. Makita U.S.A., Inc., 23 F.3d 564, 567 (1st Cir. 1994) (where no doubt or ambiguity lies amidst the meaning of a contract‘s terms, “the court cannot dwell on the ‘alleged’ intent of the parties at the time they entered into the contract.”
C. Whether the Policy Extends Coverage to L&M‘s Claims
L&M‘s essential argument on appeal is that the Policy -- in contrast to the district court‘s finding -- is not limited solely to tort claims, but instead covers both contract and tort actions.11 Thus, L&M‘s claims also must be covered under the Policy. Because our analysis centers on the Policy‘s language, which serves as the best evidence of the parties’ intentions, we address the relevant terms of the CGL provision. However, we begin our analysis by examining L&M‘s claims, for we cannot adequately consider whether the Policy covers L&M‘s claims without first understanding their actual nature.
1. L&M‘s Claims
A careful review of L&M‘s pleadings, motions, and arguments on appeal establishes that L&M‘s allegations against USAUI -- based on L&M‘s asserted damages for Patriot‘s alleged failure to provide chartered air transport via Pace -- sound in
L&M‘s arguments on appeal -- generally, that the district court improperly limited L&M‘s allegations to a breach of contract claim, despite defendants’ tortious act of refusing or withholding of transportation -- do little to persuade us otherwise as to the
There can be no doubt that L&M‘s allegations here sound in contract, and L&M fails to establish otherwise in its arguments on appeal. Thus, in order for L&M to receive coverage under the Policy, it must establish that the Policy‘s coverage extends to contract-based claims. To the Policy we go.
2. Relevant Policy Terms
L&M directs us to specific provisions in the Policy which it alleges support its claim of coverage. Specifically, there are two main sources of coverage that L&M contends are relevant to our interpretation of the Policy. The first (and uncontested) type of coverage is that listed under “Part II - Physical Damages,” which extends coverage to Pace for conventional aviation risks and
1. COVERAGE
The INSURER will pay on behalf of the INSURED all sums which the INSURED shall become legally obligated to pay as damages arising out of the Named Insured‘s Airline Operations because of:
. . .
B. PERSONAL INJURY arising out of one or more of the following offenses committed during the policy period;
. . .
Group 3.14 - Refusal or withholding of transportation or other public accommodation; but coverage hereunder shall not apply to payments made by the Insured under the provisions of its tariffs or contract of carriage, to persons holding confirmed reserved space on a flight and who are denied boarding on such flights whether such space is relinquished voluntarily or involuntarily.15
Furthermore, L&M, throughout its various pleadings and motions, has relied on the following specific language within the CGL provision to support its position that L&M suffered damages due to Patriot‘s allegedly bad faith failure to provide air transportation to L&M in
The insurer will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages arising out of the Named Insured‘s Airline Operations because of . . . personal injury arising out of . . . refusal or withholding of transportation or other public accommodation.
(Emphasis added).
We address the relevant language of the CGL provision.
a. “Legally Obligated to Pay as Damages”
The circuit courts of appeals that have ruled on the interpretation of the phrase, “legally obligated to pay as damages,” in a CGL provision have all held that it applies to tort and not contractual liability. See Data Specialties, Inc. v. Transcon. Ins. Co., 125 F.3d 909, 911 (5th Cir. 1997) (“[T]he CGL policy language ‘legally obligated to pay as damages’ applies only to tort-based obligations.“); Smith Mailer Mfg. v. Lib. Mut. Ins. Co., 119 F.3d 7, 1997 WL 407862, at *3 (9th Cir. 1997) (unpublished table decision) (“California courts have consistently interpreted [the ‘legally obligated to pay as damages‘] language to cover only tort liabilities and not those liabilities arising in contract.” (quoting Stanford Ranch, Inc. v. Md. Cas. Co., 89 F.3d 618, 624 (9th Cir. 1996)) (internal quotation marks omitted)); see also Nationwide Mut. Ins. Co. v. CPB Int‘l, Inc., 562 F.3d 591, 597-98 (3d Cir. 2009) (addressing the phrase “legally obligated to pay” in
Other state and federal courts similarly echo that a CGL provision, such as that at issue here, generally applies to tort, and not contract, claims. See, e.g., Keystone Filler & Mfg. Co., Inc. v. Am. Mining Ins. Co., 179 F. Supp. 2d 432, 439 (M.D. Pa. 2002) (“The purpose and intent of [a general liability] insurance policy is to protect the insured from liability for essentially accidental injury to the person or property of another rather than coverage for disputes between parties to a contractual undertaking.” (alterations in original) (citations and internal quotation marks omitted)); Hartford Accident & Indem. Co. v. A.P. Reale & Sons, Inc., 644 N.Y.S.2d 442, 443 (N.Y. App. Div. 1996) (“[T]he purpose of a [CGL] policy . . . is to provide coverage for tort liability . . . and not for contractual liability of the
Renowned insurance treatises and commentators also agree that the purpose of a CGL policy is to indemnify a party against tort and not contract-based liability. For instance, Couch on Insurance, considered one of the leading sources on insurance law, clearly states that CGL policies “are designed to cover an insured‘s tort liability, . . . [and thus] liability based upon contract is generally excluded from coverage.” 7A Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 103:19 (3d ed. 2009); see
Secondly, such trusted insurance resources have also widely accepted that the phrase, “legally obligated to pay as damages,” refers exclusively “to the liability of the insured arising from the breach of a duty that exists independent of any contractual relationship between the insured and the injured party.” 1 Ostrager & Newman, § 7.01 at 468 (emphasis added); see also 7A Couch at § 103:14 (“While the phrase ‘legal liability’ includes liability assumed by contract, the phrases ‘liability imposed by law,’ and ‘legally obligated to pay as damages’ do not.“).
III. Conclusion
Finding no ambiguity in the Policy‘s clear language, we may enforce it according to its express terms, which, as previously stated, provide no coverage for L&M‘s contract-based claims. See Nieves, 964 F.2d at 63. We need not address L&M‘s other arguments, as they invite us to look outside the clearly delineated scope of the Policy to external documents and the parties’ alleged intent when entering the agreement -- factors that are not relevant where a policy‘s language is unambiguous. See Vulcan Tools of P.R., 23 F.3d at 567.
For the foregoing reasons, we affirm.
Affirmed.
TORRUELLA
CIRCUIT JUDGE
Notes
- A charter flight is “a flight operated under the terms of a charter contract between a direct air carrier and its customer.”
14 C.F.R. § 380.2 . - A public charter is “a one-way or round-trip charter flight to be performed by one or more direct air carriers that is arranged and sponsored by a charter operator.”
Id. - A direct air carrier (in this case, Pace) is “a certificated commuter or foreign air carrier . . . that directly engages in the operation of aircraft under a certificate, authorization, permit or exemption issued by the Department.”
Id. - An indirect air carrier (here, Patriot) is “any person who undertakes to engage indirectly in air transportation operations and who uses for such transportation the services of a direct air carrier.”
Id. - A sub-operator (here, L&M) is a “Public Charter operator that has contracted for its charter seats from a Public Charter operator that has contracted from one or more direct air carriers. A sub-operator is itself an indirect air carrier, not an agent of the Public Charter operator from which it has obtained its seat.”
Id.
For an injured party to successfully pursue a claim against an insurer under the Direct Action Statute, there still must be coverage under the policy for the alleged losses. See Torres-Troche v. Municipality of Yauco, 873 F.2d 499, 502 (1st Cir. 1989) (stating that an insurer “has no liability [under the Direct Action Statute] unless there is a loss covered by the policy held by the [insured]“). Because, as discussed infra, we agree with the district court‘s conclusion that L&M‘s claims are not covered under the Policy, L&M‘s contention as to the Direct Action Statute‘s relevance regardless of the “contractual or extra-contractual” nature of its claims holds little water.
Second, it is clear that the initial distinction the district court drew in its first order, and to which L&M refers, largely rests upon the fact that the defendant in the bankruptcy action (in contrast to the current action) was a different entity, with L&M raising actions against an insured (Patriot) in one instance, and against an insurer (USAUI) in another. See López & Medina v. Marsh, USA, Inc. et al., No. 05-1595, slip op. at 7 (D.P.R. Sept. 22, 2009). Thus, the court‘s conclusion that the underlying facts and allegations in each action would be “similar,” but certainly not “identical,” stands to reason.