AJC Logistics, LLC v. Triple-S Propiedad , 790 F.3d 1 ( 2015 )

United States Court of Appeals
For the First Circuit
No. 13-2348
AJC INTERNATIONAL, INC.; AJC LOGISTICS, LLC,
Plaintiffs, Appellants,
UNDERWRITERS LLOYDS OF LONDON
Plaintiff,
v.
TRIPLE-S PROPIEDAD
Defendant, Appellee,
ECONOMY INTERNATIONAL SERVICES, INC.;
MANUEL ESPINOSA-CASANOVA, d/b/a Economy International Services,
Inc.; JOHN DOE; JANE DOE; INSURANCE COMPANIES X, Y, Z,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Francisco A. Besosa, U.S. District Judge]
Before
Thompson, Lipez, and Barron,
Circuit Judges.
Manolo T. Rodríguez-Bird, with whom Jiménez Graffam & Lausell
was on brief, for appellants.
William A. Schneider, with whom Morrison Mahoney LLP was on
brief, for appellee.
June 12, 2015
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THOMPSON, Circuit Judge. This is an insurance case
grounded on diversity. The parties agree that the policy in
question provides coverage for a particular loss of perishable
foodstuffs. So that's the easy part. What the parties need us to
decide is exactly how much coverage there is -- $500,000 or
$25,000? For the reasons below, we agree with the district court's
answer: $25,000.
I. BACKGROUND
The underlying facts are undisputed and not particularly
numerous. Based in Puerto Rico, Economy International Systems,
Inc. ("Economy") provides cold-storage for its clients' food
products until they are ready for distribution to customers.
During the summer of 2010, Economy was keeping more than
a million dollars worth of foodstuffs -- things like seafood, beef,
and chicken -- on ice for appellants AJC International, Inc. and
AJC Logistics, LLC.1 Unfortunately, the walk-in freezers in which
AJC's products were stored malfunctioned on a few different days,
and the problem didn't come to light until Economy noticed the
temperature in its freezers was off. Economy discovered a strong
odor emanating from product boxes, a pretty clear indication that
the food inside had gone bad.
1
The parties do not distinguish between these two
corporations. And neither do we, especially as it makes no
difference to the outcome. From now on, we'll just call them,
collectively, "AJC."
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The United States Department of Agriculture stepped in
and ordered the destruction of the beef and chicken products. AJC
worked with the U.S. Food and Drug Administration to come up with
any way to salvage the seafood, but it, too, ended up being tossed.
Having suffered a loss in excess of one million dollars,
AJC sought recovery under Economy's insurance policy issued by
appellee Triple-S Propiedad, Inc. ("Triple-S"). The parties agree
that the nature of the loss was in the manner of food spoilage, and
that the spoilage was caused by a mechanical breakdown of Economy's
freezers. And they both agree that the Triple-S policy provides
coverage for AJC's loss as "personal property of others." Though
they agree on this much, the parties couldn't reach an accord as to
the amount of coverage -- AJC believes it is entitled to $500,000,
while Triple-S says the most AJC can get out of it is $25,000.
Invoking diversity jurisdiction, AJC filed suit against
Triple-S in the district court and sought a ruling that it may
recover $500,000 under the policy.2 Each side moved for summary
judgment, asserting no trial was needed to answer this contract
interpretation coverage question.
The motions were referred to a magistrate judge, who
issued a detailed report and recommendation. The magistrate judge
found the Policy's terms clear and unambiguous and concluded that
2
AJC also sued Economy in the district court, but it never
answered the complaint and was ultimately defaulted. Economy is
not a party to this appeal.
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language in the Policy's coverage for losses caused by equipment
breakdown limited AJC's recovery to $25,000. Accordingly, the
magistrate judge recommended that Triple-S's motion be granted and
AJC's denied. The district judge adopted the magistrate judge's
findings and recommendations in full, denied AJC's motion for
summary judgment, and granted Triple-S's. Unsatisfied, AJC
appealed.
II. DISCUSSION
A. Standard of Review
Cross-motions for summary judgment require the district
court to "consider each motion separately, drawing all inferences
in favor of each non-moving party in turn." D & H Therapy Assocs.,
LLC v. Bos. Mut. Life Ins. Co., 640 F.3d 27, 34 (1st Cir. 2013)
(citing Merchs. Ins. Co. of N.H., Inc. v. U.S. Fid. & Guar. Co.,
143 F.3d 5, 7 (1st Cir. 1998)). But see P.R. Am. Ins. Co. v.
Rivera-Vazquez, 603 F.3d 125, 133 (1st Cir. 2010) (noting that when
"cross-motions for summary judgment are filed simultaneously, or
nearly so, the district court ordinarily should consider the two
motions at the same time," but if it "opts to consider them at
different times, it must at the very least apply the same standards
to each").
Our review is de novo. Sch. Union No. 37 v. United Nat'l
Ins. Co., 617 F.3d 554, 558 (1st Cir. 2010). We follow the
familiar summary judgment rules and affirm summary judgment "only
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if the record discloses no genuine issue as to any material fact
and the moving party is entitled to judgment as a matter of law."
Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of
London, 637 F.3d 53, 56 (1st Cir. 2011) (citations omitted). "[W]e
are not straitjacketed by the [district] judge's reasoning -- quite
the contrary, we are free to uphold [the court's] order on any
basis present in the record." Stor/Gard, Inc. v. Strathmore Ins.
Co., 717 F.3d 242, 247 (1st Cir. 2013).
B. Applicable Law and Policy Language
The parties do not dispute that Puerto Rico law applies
in this diversity case. And quite rightly so. See EnergyNorth
Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44, 47-48 (1st
Cir. 2006). Before getting into the specific Policy language
bearing on our analysis and the parties' arguments about how it
applies to the undisputed facts, it is helpful to talk about a few
basic principles of Puerto Rico insurance law.
i. General Principles of Construction
Under Puerto Rico's Insurance Code, P.R Laws Ann., tit.
26, § 101, et seq., "[e]very insurance contract shall be construed
according to the entirety of its terms and conditions as set forth
in the policy, and as amplified, extended, or modified by any
lawful rider, endorsement, or application attached to and made a
part of the policy." Id. § 1125. As the Puerto Rico Supreme Court
has explained
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[w]ith regard to the interpretation of
insurance contracts, . . . these "should be
generally understood within their most common
and usual meaning, not paying much attention
to grammatical rigour, but to the general use
and popular meaning of the idioms. The
insured who acquires a policy is entitled to
rely on the coverage offered to him when
reading its clauses in the light of the
popular meaning of the words used therein."
Pagán Caraballo v. Silva Delgado, 22 P.R. Offic. Trans. 96, 101
(1988) (quoting Morales Garay v. Roldán Coss, 10 P.R. Offic. Trans.
909, 916 (1981)). "[E]xclusionary clauses are not favored, [and]
should be strictly construed and in such a way that the policy's
purpose of protecting the insured is met." Id.
Any ambiguities in the policy language "shall be resolved
in favor of the insured." Id. This is because "[t]he
interpretation of obscure stipulations of a contract must not favor
the party occasioning the obscurity." Meléndez Piñero v. Levitt &
Sons of P.R., Inc., 129 P.R. Dec. 521, 546 (1991). Further, when
a Puerto Rico insurance contract is ambiguous, "the insurance
policy stipulations are construed strongly against the insurer and
liberally in favor of the insured." Id. at 547; see also Quiñones
López v. Manzano Pozas, 141 P.R. Dec. 139, 155 (1996) ("[N]ice
constructions that would allow insurers to dodge liability are not
favored.").
On the other hand, Puerto Rico law does "not compel
constructions in favor of the insured when a clause favors the
insurer, and its meaning and scope is [sic] clear and unambiguous."
-7-
Quiñones López, 141 P.R. Dec. at 155 (citing cases); cf.
Littlefield v. Acadia Ins. Co., 392 F.3d 1, 8 (1st Cir. 2004)
(applying New Hampshire law and observing that "we may not find a
term ambiguous merely because it eliminates coverage"). "In such
cases, it [i.e., the unambiguous clause] should be held as binding
on the insured." Quiñones López, 141 P.R. Dec. at 155; see also
Nieves v. Intercontinental Life Ins. Co. of P.R., 964 F.2d 60, 63
(1st Cir. 1992) ("If the wording of the contract is explicit and
its language is clear, its terms and conditions are binding on the
parties." (citing cases)).3
ii. Policy Language
To set the stage for the rest of our discussion, we begin
with a run-down of the Policy language relevant to this appeal.
First, the very basics. The Policy defines the words
"you" and "your" to mean the "Named Insured shown in the
3
We note there is some authority for the proposition that
Puerto Rico's rules of construction may be relaxed and applied more
even-handedly in a commercial setting, where the insured can be
expected to have knowledge of the particular subject matter of the
policy beyond that of an ordinary individual. See Meléndez Piñero,
129 P.R. Dec. at 548-49 (recognizing that while the wording of a
particular commercial general liability policy "may be too
technical and sophisticated for the average person who buys a
policy," a principal of the insured construction company "would
construe such terms as would a specialized average businessman with
vast experience in the construction field," and rejecting the
notion that "a construction company thoroughly familiar with urban
development projects would think that when it buys liability
insurance it is actually buying property insurance, a performance
bond or a warranty of goods and services"). The parties do not
make any arguments along these lines, though.
-8-
Declarations." Turning to those Declarations, we see the Named
Insured is "Manuel Espinosa DBA Economy International Services."
Thus, when reading the Policy, "you" and "your" mean Economy, and
only Economy.4 Similarly, the terms "'we,' 'us' and 'our' refer to
the Company providing this insurance," Triple-S.
This case deals with a claim of loss to AJC's property
while it was stored in Economy's freezers. The Policy includes
"Personal Property of Others" as a category of "Covered Property."
More specifically (and excising language not germane to our
analysis) Triple-S agreed to cover such property as follows:
A. COVERAGE
We will pay for direct physical loss of or
damage to Covered Property . . . caused by or
resulting from any Covered Cause of Loss.
1. Covered Property
Covered Property, as used in this Coverage
Part, means the following types of property
for which a Limit of Insurance is shown in the
Declarations:
. . .
c. Personal Property of Others
that is:
(1) In your care, custody or
control; . . .
However, our payment for loss of
or damage to personal property
of others will only be for the
4
AJC concedes it is neither a named nor additional insured.
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account of the owner of the
property.
Per the Declarations, the limit of coverage for "Personal Property
of Others" is $500,000.5
The Policy goes on, though, to exclude certain causes of
loss from coverage. Excluded from coverage -- meaning that Triple-
S "will not pay for loss or damage caused directly or indirectly"
by a particular cause -- is any "loss or damage caused by or
resulting from . . . [m]echanical breakdown." From now on, we'll
call this the "Mechanical Breakdown Exclusion."
But because Economy wanted the Policy to cover losses
caused by mechanical breakdown, it sought, and Triple-S added, an
endorsement which specifically provided "Equipment Breakdown
Coverage." The resulting Equipment Breakdown Endorsement, as
relevant here, provides:
5
The Declarations also reflect a separate "Spoilage Coverage"
with a $50,000 limit, but this coverage is limited to spoilage
caused by a "power outage." The parties agree that this coverage
does not apply, as the spoilage in this case was caused by
mechanical breakdown and not a power outage. So, we don't have to
worry about that provision here.
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A. The Building and Personal Property
Coverage Form is modified as follows:
Additional Coverages
The following is added to 4. Additional
Coverages:
Equipment Breakdown
(1) We will pay for loss caused by or
resulting from an "accident" to "covered
equipment." As used in this Additional
Coverage, an "accident" means direct physical
loss as follows:
(a) mechanical breakdown . . .
(2) Unless otherwise shown in a Schedule, the
following coverages also apply to loss caused
by or resulting from an "accident" to "covered
equipment". These coverages do not provide
additional amounts of insurance.
. . .
(c) Spoilage
(i) We will pay for your loss of
"perishable goods" due to
spoilage.
. . .
The most we will pay for loss or damage under
this [Spoilage] coverage is $25,000 unless
otherwise shown in a Schedule.
To keeps things clear, from now on we'll call the coverage for
spoilage of perishable goods added by this Endorsement "Spoilage
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Coverage." We'll also refer to the $25,000 limit referenced at the
end of the Spoilage Coverage the "Spoilage Sublimit."6
The added Endorsement provides its own exclusions:
B. The Causes of Loss-- Basic Form, Broad
Form or Special Form is modified as follows:
Exclusions
(1) All exclusions and limitations apply
except:
(a) In the Causes of Loss-- Special
Form:
(i) Exclusions B.2.a, B.2.d.(6)
and B.2.e.
One of the referenced, now-inapplicable exclusions to Equipment
Breakdown Coverage is Exclusion B.2.d.(6) -- the Mechanical
Breakdown Exclusion.
The Endorsement sets forth other, new exclusions to its
specific Equipment Breakdown Coverage that are not found in the
main body of the Policy. For example, things such as structures,
foundations, insulating material, sprinkler piping, and sewer
piping are not "covered equipment." Also excluded is any "damage
caused by or resulting from" Economy's "failure to use all
reasonable means to protect the 'perishable goods' from damage
6
The Equipment Breakdown Endorsement defines several terms
used therein, including "accident," "covered equipment," and
"perishable goods." We don't need to worry about these
definitions, though, because the parties do not dispute that
Economy's freezers constituted "covered equipment" or that AJC
suffered a loss of "perishable goods" as a result of an "accident."
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following an 'accident,'" along with damage caused by or resulting
from "any defect, virus, loss of data or other situation within
'media.'" Additionally, the Endorsement modifies some of the
exclusions found in the Policy's main body by adding or subtracting
language.
This run-down is sufficient to get the lay of the land.
Other relevant provisions will be identified and discussed as
needed below.
C. Coverage Analysis
i. Framing the Issues
Now for the parties' arguments on appeal. In pursuit of
its coverage claim, AJC does not take the position that the Policy
is ambiguous. Instead, it relies on the Policy's plain language to
say that the Equipment Breakdown Endorsement deleted the Mechanical
Breakdown Exclusion found in the original Policy. It pins this
argument on Section B.1(a)(i) of the Equipment Breakdown
Endorsement, which states that "[a]ll exclusions and limitations
apply except" for certain specifically-enumerated ones -- including
the Mechanical Breakdown Exclusion -- listed immediately after.
AJC urges us to find that this contractual language deletes those
exclusions from the original Policy. And with the exclusion
deleted, AJC reasons, coverage is then found in the Policy's main
body (the Personal Property of Others provisions), not the
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Endorsement.7 AJC goes on to say that this means the $500,000
coverage limit for Personal Property of Others (which is set forth
in the Declarations) is available to satisfy its claims.8
Not surprisingly, Triple-S disagrees with AJC, telling us
that the "clear and unambiguous terms of the Triple-S Policy
provide a $25,000 sub-limit for spoilage of 'perishable goods'
caused by or resulting from equipment breakdown." Appellee Br. at
18. Thanks to the Policy's exclusion of losses caused by
mechanical breakdown (as happened here), Triple-S says, instead of
$500,000 being available for loss to the Personal Property of
Others, $0 is. In other words, the main body of the Policy
provides no coverage for AJC's loss. But, Triple-S explains, the
Equipment Breakdown Endorsement added coverage for losses stemming
from equipment breakdown back to the Policy, including situations
7
As AJC puts it, coverage is "pursuant to Section A. of the
Building and Personal Property Coverage Form." Appellant Br. at
20.
8
AJC further posits that, "[i]f, in fact, the $500,000.00
coverage limit in the Triple-S Policy is not available for a loss
caused by or resulting from a mechanical breakdown of frozen food
products owned by a client of the insured (Economy), then this
coverage limit is illusory." Appellant Br. at 22. While the Court
is familiar with the concept of illusory coverage, AJC does not
explain what it means by an illusory coverage limit. And even if
we presume that what AJC actually means to say is that the coverage
itself is what's illusory, AJC fails to tell us how this can be so
when both parties agree that there is coverage for AJC's loss. Any
argument along the lines of illusory coverage or an illusory
coverage limit (whatever that might be) has been waived for failure
to develop it on appeal. See United States v. Zannino, 895 F.2d 1,
17 (1st Cir. 1990).
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like here where an equipment breakdown results in loss of
perishable goods. Furthermore, Triple-S argues that the
Endorsement's Spoilage Coverage comes with its own $25,000 limit,
which caps AJC's recovery at $25,000.9
ii. Analysis
Now that we've laid out the applicable law, Policy
provisions, and the parties' arguments, we can get to the bottom of
this dispute.
Because neither party contends the Policy or its
Mechanical Breakdown Exclusion is ambiguous, we will not go out of
our way to find ambiguity. In the absence of claimed ambiguity,
our job under Puerto Rico law is to simply apply the provisions as
written. We begin, as we must, with the plain language.
1. Policy Language
As noted, the parties agree on the essential facts:
AJC's perishable goods spoiled while in Economy's care, resulting
in financial loss to AJC. They agree the spoilage resulted from a
mechanical breakdown of Economy's freezers, and that AJC's goods,
as Personal Property of Others, fall under the Policy's definition
of Covered Property.
Turning to the Policy itself, we see that Triple-S agreed
it would "pay for direct physical loss of or damage to Covered
9
Triple-S raises a few other arguments, but we do not need to
reach them to decide this appeal.
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Property . . . caused by or resulting from any Covered Cause of
Loss." Policy, Building and Personal Property Coverage Form, § A.
This type of policy, "called, in insurance lingo, an 'all risks
policy' -- covers all physical loss to the [specified] property
unless 'caused by or resulting from' an excluded peril."
Stor/Gard, 717 F.3d at 244. The Equipment Breakdown Exclusion then
precludes coverage for losses caused by or resulting from the peril
of mechanical breakdown. Policy, Causes of Loss - Special Form,
§ B.(2)(6).
Significantly, though, the Policy is individualized so as
to contain the Equipment Breakdown Endorsement, which adds
"Equipment Breakdown Coverage" back to the Policy. Under this
coverage, Triple-S agreed to pay for certain losses "caused by or
resulting from an 'accident' to 'covered equipment.'" Policy,
Equipment Breakdown Endorsement ("Endorsement") § A.(2). The
Endorsement also explicitly adds coverage for a "loss of
'perishable goods' due to spoilage," id. at § A.(2)(c)(i), which is
what we've been calling Spoilage Coverage.
In light of the agreed upon facts, it is clear from the
Endorsement's plain language that Spoilage Coverage applies to
AJC's loss. There is no dispute about this. The question is, just
how much coverage is available? The Spoilage Coverage itself,
setting forth its own Sublimit, suggests an answer: "The most we
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will pay for loss or damage under this coverage is $25,000 unless
otherwise shown in a Schedule." Id. at § A.(5)(c).10
AJC raises a couple of arguments as to why we should
interpret the Policy and Equipment Breakdown Endorsement as
providing $500,000 of coverage for its loss. Neither, we believe,
has merit.
2. Deletion of the Mechanical Breakdown Exclusion
We start with AJC's contention that the Equipment
Breakdown Endorsement "expressly deleted" the Mechanical Breakdown
Exclusion altogether. AJC relies (almost exclusively) on our
opinion in Fidelity Co-Operative Bank v. Nova Casualty Co., 726
F.3d 31 (1st Cir. 2013), to say that we have already decided
language similar to that in the Endorsement deletes an exclusion.
Although AJC makes Fidelity the centerpiece of its
argument, it is of no assistance. The long and short of it is that
the policy and endorsement at issue there involved quite different
language than appears in the Triple-S Policy. In Fidelity, an
amendatory endorsement provided simply that certain "[e]xclusions
are deleted." 726 F.3d at 37 (emphasis added). This clear text,
we found, resulted in the deletion of the "entire exclusion" at
issue there. Id. at 37 n.2.
10
AJC does not argue that any Schedule applies to increase the
$25,000 Spoilage Sublimit.
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The contractual language here is not even close to what
we had before us in Fidelity. Most obviously, the Equipment
Breakdown Endorsement does not say that it deletes the Mechanical
Breakdown Exclusion. It provides instead that "[a]ll exclusions
and limitations apply except" for those specifically designated,
including the Mechanical Breakdown Exclusion. And, per the plain
language, the exceptions referred to are inapplicable only insofar
as the reestablished additional coverage provided by the
Endorsement is concerned.11 Far from deleting that Exclusion from
the original Policy, the Equipment Breakdown Endorsement simply
renders it inapplicable to certain coverage situations, like when
perishable goods spoil as a result of "an 'accident' to 'covered
equipment.'" See Endorsement § A.(2). In sum, Fidelity's
dissimilar contract language does not support AJC's proposition
that the Equipment Breakdown Endorsement's language in Economy's
policy deleted the Mechanical Breakdown Exclusion.
Having disposed of its Fidelity-based argument, AJC is
left with the bald assertion that the Endorsement "expressly
deleted the [M]echanical [B]reakdown [E]xclusion." Appellant Br.
at 18. Beyond citing to Fidelity, AJC does not explain how the
Endorsement does so. Since nowhere does the Endorsement state that
11
Further, use of the word "apply" presupposes the continuing
existence of the Mechanical Breakdown Exclusion. After all, it
would be nonsensical to say that something which no longer exists
in the world (having been deleted) does or does not apply in a
particular situation.
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it deletes the Exclusion, this omission is practically enough on
its own to doom AJC's position. And what's more, we find that
AJC's take doesn't jibe with the Policy's overall structure or
plain language.
First, by setting forth new "Additional Coverages"
previously unknown to the Policy (including Spoilage Coverage), the
Endorsement acts as a sort of "mini-policy." Like the Policy
itself, the Endorsement sets forth an insuring agreement complete
with its own definitions, detailed conditions, and deductible. The
Endorsement even has something to say about exclusions. As we have
seen, it specifies that certain existing exclusions do not apply to
the Endorsement's coverage, it modifies other exclusions, and it
adds still others that are only applicable to the Endorsement's
brand of Equipment Breakdown Coverage.12 Against this backdrop, it
is clear that the Equipment Breakdown Endorsement is meant to do
much more than simply delete an exclusion.
Furthermore, and perhaps most telling of all, the
Endorsement does explicitly delete a portion of one of the original
12
For example, the Endorsement excludes things like
foundations, cabinets, insulating material, sewer pipes, water
pipes, excavation or construction equipment, and equipment mounted
on a vehicle from its definition of "covered equipment."
Endorsement § B.(3)(a). And among other causes of loss, it
excludes coverage for loss or damage caused by or resulting from "a
hydrostatic, pneumatic or gas pressure test of any boiler or
pressure vessel," along with loss caused by or resulting from "an
insulation breakdown test of any type of electrical equipment."
Id. at § B.(3)(b)(iii).
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exclusions in certain situations. And -- unlike the policy we
construed in Fidelity -- the Endorsement explicitly limits the
effect of that deletion to coverage under the Endorsement itself.
Specifically, the Endorsement states that
[i]f the Causes of Loss-- Special Form
applies, as respects this endorsement only,
the last paragraph of Exclusion B.2.d.13 is
deleted and replaced with the following: But
if loss or damage by an "accident" results, we
will pay for that resulting loss or damage.
Endorsement § B.(2)(c) (emphasis added).14 Had Triple-S intended
to delete the Mechanical Breakdown Exclusion, surely it would have
used the word "delete" to say so. Instead, it made the Mechanical
Breakdown Exclusion inapplicable solely to the Endorsement's
coverage. That Triple-S chose not to use simple language deleting
the Mechanical Breakdown Exclusion, when it obviously knew how to
do so, further demonstrates that the Equipment Breakdown
Endorsement did not delete the Exclusion from the Policy.
13
The referenced paragraph appears immediately after seven
specific exclusions (including the Mechanical Breakdown Exclusion)
in the original Policy and states, "[b]ut if loss or damage by the
'specified causes of loss' or building glass breakage results, we
will pay for that resulting loss or damage." Causes of Loss -
Special Form, § B.(2)(d). "Specified Causes of Loss," in turn, is
itself defined in the Endorsement as "[f]ire; lightning; explosion;
windstorm or hail; smoke; aircraft or vehicles; riot or civil
commotion; vandalism; leakage from fire extinguishing equipment;
sinkhole collapse; volcanic action; falling objects; weight of
snow, ice or sleet; water damage." Id. at § F.
14
Although each party set forth this particular policy
language in its brief, neither makes any argument based upon it.
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In essence, AJC's position that the Endorsement deleted
the Exclusion effectively asks us to redraft the Policy's clear and
unambiguous language. Accepting this invitation would contravene
the well-established tenets of Puerto Rico's insurance law
requiring us to interpret and apply unambiguous provisions of an
insurance contract as they are written. We, therefore, reject
AJC's argument that the Equipment Breakdown Endorsement deletes the
Mechanical Breakdown Exclusion.
Let's take stock of what this means for coverage. The
Mechanical Breakdown Exclusion continues to exist in the Policy.
And the only coverage to which the Exclusion does not apply is that
additional coverage set forth in the Equipment Breakdown
Endorsement. So, coverage for AJC's loss must flow from that
Endorsement because any potential alternative source of coverage
falls prey to the Mechanical Breakdown Exclusion. Thus, the only
coverage available for AJC's loss is provided by the Spoilage
Coverage, as set forth in the Equipment Breakdown Endorsement.
3. $25,000 Spoilage Coverage Limit
This brings us to AJC's final argument.
As we mentioned, the Endorsement's Spoilage Coverage
comes with its own $25,000 Spoilage Sublimit. See Endorsement
§ A.(2)(c) ("The most we will pay for loss or damage under this
coverage is $25,000 unless otherwise shown in a Schedule.").
Although it is not particularly clear from its brief (or oral
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argument), AJC seems to be arguing that even if coverage for its
loss is found in the Endorsement's Spoilage Coverage rather than
the main Policy, the $500,000 coverage limit in the Declarations
nevertheless prevails over the lower Spoilage Sublimit. This is
because, in AJC's view, the Sublimit applies only to spoilage of
goods owned by the Named Insured, Economy, and not goods owned by
Economy's clients. AJC asserts that, since the $25,000 Spoilage
Sublimit does not apply to its loss, the $500,000 limit set forth
in the Declarations becomes available to it.15 Triple-S, however,
tells us that the Spoilage Sublimit applies to Economy's loss of
perishable goods no matter who owns those goods.
To unravel this question, we return to the Endorsement's
language. The relevant part of the Spoilage Coverage provision
states the following: "We will pay for your loss of 'perishable
goods' due to spoilage." Recall that "you" and "your" refer only
to the Named Insured, Economy. Thus, what this provision says is
that Triple-S will pay up to $25,000 for "Economy's loss of
'perishable goods' due to spoilage." Since AJC's goods spoiled
while in Economy's freezers, this $25,000 Sublimit kicks in to
limit AJC's recovery.
15
AJC does not, however, explain why this might be so where
the only coverage for spoilage is by way of the Mechanical
Breakdown Endorsement, not from the main Policy itself. This turns
out to be academic anyway, given our ultimate conclusion.
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Attempting to get out from under the Spoilage Sublimit,
AJC urges us to add a "your" to the sentence and read it to say
that Triple-S will only pay for "Economy's loss of Economy's
'perishable goods' due to spoilage." This interpretation simply
cannot be squared with the Endorsement's plain and unambiguous
language.
According to its terms, the $25,000 Sublimit comes into
play where Economy is responsible for the spoilage of perishable
goods, regardless of who owns them. This comes as no surprise.
Economy's business, after all, is storing other companies'
perishable goods. So it makes sense that Economy would seek to
obtain insurance coverage for those goods.16 This commercially-
sensible rationale, along with the explicit Policy language
employed by the contracting parties (Economy and Triple-S), work
hand-in-hand to convince us that it would be unreasonable for us to
read an extra "your" into the Spoilage Coverage. In the absence of
any ambiguity in the Policy language, Puerto Rico law calls for us
to apply the Endorsement and its $25,000 Spoilage Sublimit as
16
We note that when the Puerto Rico Supreme Court considers
an insurance policy in its entirety, as we do here, it does not
hesitate to "take into account certain extrinsic elements that may
shed light on the intention of the parties." Soc. de Gananciales
v. Serrano, 145 P.R. Dec. 394, 400 (1998). "These elements may
vary according to the circumstances of each particular case, but
they generally are: the parties' contracting intention, the
premium agreed on, the circumstances surrounding the negotiation
and the contract, and the practices and customs established by the
insurance industry." Id. at 401. We, too, feel free to consider
these factors as necessary.
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written. We may not judicially redraft the Policy to reflect AJC's
wishes.
Here, it is uncontested that AJC suffered a loss to its
perishable goods as a result of Economy's malfunctioning freezers.
We have already determined that coverage for this loss is provided
by the Spoilage Coverage set forth in the Equipment Breakdown
Endorsement. Thus, pursuant to the clear terms of the Spoilage
Sublimit, the most that Triple-S is required to pay out due to this
loss is $25,000. Any other conclusion would be contrary to the
Endorsement's plain language and run afoul of basic precepts of
Puerto Rico insurance law. We, therefore, apply the Endorsement
and Spoilage Sublimit as written, and we conclude that the most AJC
may recover for Economy's loss of AJC's perishable goods is
$25,000.17
17
One last note: AJC's brief includes an allegation that
Triple-S "has admitted that the coverage under Personal Property of
Others and its Limit of $500,000.00 is available for damage caused
by an equipment breakdown." Appellant Br. at 22. Although AJC
cites the addendum to its brief to support this statement, see id.,
AJC waited until its reply brief to explain that this admission
comes from the parties' proposed pretrial stipulations of fact, see
Appellant Reply at 8 n.2. Assuming an argument along these lines
hasn't been waived, United States v. Arroyo-Blas, 783 F.3d 361, 366
n.5 (1st Cir. 2015) (recognizing that we need not address arguments
that a party saves for its reply brief), and that it is appropriate
for us to consider materials submitted in an addendum to a party's
brief but not the joint appendix, see Appellee Br. at 4 n.1
(pointing this out), it is unavailing.
The proposed stipulation states, "Triple-S admits that the
coverage under Personal Property of Others and its Limit of
$500,000.00 is available for damage caused by an equipment
breakdown." Recall that the Equipment Breakdown Endorsement
provides more than just Spoilage Coverage. See, e.g., Endorsement,
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III. CONCLUSION
For the foregoing reasons, the district court's judgment
is affirmed.
§ A.(1)(a) (providing coverage for a mechanical breakdown of
covered equipment). Because we hold that coverage for AJC's loss
is found solely by way of the Endorsement's Spoilage Coverage, the
door remains open to the possibility that claims falling under
different coverage provisions in the Endorsement could be covered
up to $500,000. There is simply nothing inconsistent between the
Triple-S admission and our holding today.
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