ajc logistics, llc v. triple-s propiedad, 1st cir. (2015)
TRANSCRIPT
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United States Court of AppealsFor the First Circuit
No. 13- 2348
AJ C I NTERNATI ONAL, I NC. ; AJ C LOGI STI CS, LLC,
Pl ai nt i f f s , Appel l ant s ,
UNDERWRI TERS LLOYDS OF LONDON
Pl ai nt i f f ,
v.
TRI PLE- S PROPI EDAD
Def endant , Appel l ee,
ECONOMY I NTERNATI ONAL SERVI CES, I NC. ;MANUEL ESPI NOSA- CASANOVA, d/ b/ a Economy I nternat i onal Ser vi ces,
I nc. ; J OHN DOE; J ANE DOE; I NSURANCE COMPANI ES X, Y, Z,
Def endants.
APPEAL FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF PUERTO RI CO
[ Hon. Franci sco A. Besosa, U. S. Di st r i ct J udge]
Bef or e
Thompson, Li pez, and Bar r on,Ci r cui t J udges.
Manol o T. Rodr guez- Bi r d, wi t h whomJ i mnez Gr af f am& Lausel lwas on br i ef , f or appel l ant s.
Wi l l i am A. Schnei der , wi t h whom Mor r i son Mahoney LLP was onbr i ef , f or appel l ee.
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J une 12, 2015
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THOMPSON, Circuit Judge. Thi s i s an i nsur ance case
gr ounded on di ver si t y. The par t i es agr ee t hat t he pol i cy i n
quest i on pr ovi des cover age f or a par t i cul ar l oss of per i shabl e
f oodst uf f s. So t hat ' s t he easy par t . What t he par t i es need us t o
deci de i s exact l y how much coverage there i s - - $500, 000 or
$25, 000? For t he r easons bel ow, we agr ee wi t h t he di st r i ct cour t ' s
answer : $25, 000.
I. BACKGROUND
The under l yi ng f act s ar e undi sput ed and not par t i cul ar l y
numerous. Based i n Puert o Ri co, Economy I nt ernat i onal Syst ems,
I nc. ( "Economy") pr ovi des col d- st or age f or i t s cl i ent s' f ood
pr oduct s unt i l t hey ar e r eady f or di st r i but i on t o cust omer s.
Dur i ng t he summer of 2010, Economy was keepi ng mor e t han
a mi l l i on dol l ar s wor t h of f oodst uf f s - - t hi ngs l i ke seaf ood, beef ,
and chi cken - - on i ce f or appel l ant s AJ C I nt er nat i onal , I nc. and
AJ C Logi st i cs, LLC. 1 Unf or t unat el y, t he wal k- i n f r eezer s i n whi ch
AJ C' s pr oduct s wer e st or ed mal f unct i oned on a f ew di f f er ent days,
and t he pr obl em di dn' t come t o l i ght unt i l Economy not i ced t he
t emper at ur e i n i t s f r eezer s was of f . Economy di scover ed a st r ong
odor emanat i ng f r om pr oduct boxes, a pr et t y cl ear i ndi cat i on t hat
t he f ood i nsi de had gone bad.
1 The part i es do not di st i ngui sh bet ween t hese t wocor por at i ons. And nei t her do we, especi al l y as i t makes nodi f f er ence t o t he out come. From now on, we' l l j ust cal l t hem,col l ect i vel y, "AJ C. "
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The Uni t ed Stat es Depar t ment of Agr i cul t ure st epped i n
and order ed t he dest r uct i on of t he beef and chi cken pr oduct s. AJ C
worked wi t h t he U. S. Food and Dr ug Admi ni st r at i on t o come up wi t h
any way t o sal vage the seaf ood, but i t , t oo, ended up bei ng t ossed.
Havi ng suf f er ed a l oss i n excess of one mi l l i on dol l ar s,
AJ C sought r ecover y under Economy' s i nsur ance pol i cy i ssued by
appel l ee Tr i pl e- S Pr opi edad, I nc. ( "Tri pl e- S") . The par t i es agr ee
t hat t he nat ur e of t he l oss was i n t he manner of f ood spoi l age, and
t hat t he spoi l age was caused by a mechani cal breakdown of Economy' s
f r eezer s. And t hey bot h agr ee t hat t he Tr i pl e- S pol i cy pr ovi des
cover age f or AJ C' s l oss as "per sonal pr oper t y of ot her s. " Though
t hey agr ee on t hi s much, t he par t i es coul dn' t r each an accord as t o
t he amount of cover age - - AJ C bel i eves i t i s ent i t l ed t o $500, 000,
whi l e Tr i pl e- S says t he most AJ C can get out of i t i s $25, 000.
I nvoki ng di ver s i t y j ur i sdi ct i on, AJ C f i l ed sui t agai nst
Tr i pl e- S i n t he di st r i ct cour t and sought a r ul i ng t hat i t may
r ecover $500, 000 under t he pol i cy. 2 Each si de moved f or summar y
j udgment , asser t i ng no t r i al was needed t o answer t hi s cont r act
i nt er pr et at i on cover age quest i on.
The mot i ons wer e r ef er r ed t o a magi st r at e j udge, who
i ssued a detai l ed r epor t and r ecommendat i on. The magi st r ate j udge
f ound the Pol i cy' s t erms cl ear and unambi guous and concl uded t hat
2 AJ C al so sued Economy i n t he di st r i ct cour t , but i t neveranswered t he compl ai nt and was ul t i matel y def aul t ed. Economy i snot a par t y t o t hi s appeal .
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l anguage i n the Pol i cy' s cover age f or l osses caused by equi pment
br eakdown l i mi t ed AJ C' s r ecover y t o $25, 000. Accor di ngl y, t he
magi st r ate j udge r ecommended t hat Tr i pl e- S' s mot i on be gr ant ed and
AJ C' s deni ed. The di st r i ct j udge adopt ed t he magi st r at e j udge' s
f i ndi ngs and r ecommendat i ons i n f ul l , deni ed AJ C' s mot i on f or
summar y j udgment , and gr ant ed Tr i pl e- S' s. Unsat i sf i ed, AJ C
appeal ed.
II. DISCUSSION
A. Standard of Review
Cr oss- mot i ons f or summar y j udgment r equi r e the di st r i ct
cour t t o "consi der each mot i on separ at el y, dr awi ng al l i nf er ences
i n f avor of each non- movi ng part y i n t ur n. " D & H Therapy Assocs. ,
LLC v. Bos. Mut . Li f e I ns. Co. , 640 F. 3d 27, 34 ( 1st Ci r . 2013)
( ci t i ng Mer chs. I ns. Co. of N. H. , I nc. v. U. S. Fi d. & Guar . Co. ,
143 F. 3d 5, 7 ( 1st Ci r . 1998) ) . But see P. R. Am. I ns. Co. v.
Ri ver a- Vazquez, 603 F. 3d 125, 133 ( 1st Ci r . 2010) ( not i ng t hat when
"cr oss- mot i ons f or summary j udgment ar e f i l ed si mul t aneousl y, or
near l y so, t he di st r i ct cour t or di nar i l y shoul d consi der t he t wo
mot i ons at t he same t i me, " but i f i t "opt s t o consi der t hem at
di f f er ent t i mes, i t must at t he ver y l east appl y the same st andar ds
t o each") .
Our r evi ew i s de novo. Sch. Uni on No. 37 v. Uni t ed Nat ' l
I ns. Co. , 617 F. 3d 554, 558 ( 1st Ci r . 2010) . We f ol l ow t he
f ami l i ar summary j udgment r ul es and af f i r m summary j udgment "onl y
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i f t he r ecor d di scl oses no genui ne i ssue as t o any mat er i al f act
and t he movi ng par t y i s ent i t l ed t o j udgment as a mat t er of l aw. "
Tr opi gas de P. R. , I nc. v. Cer t ai n Under wr i t er s at Ll oyd' s of
London, 637 F. 3d 53, 56 ( 1st Ci r . 2011) ( ci t at i ons omi t t ed) . " [ W] e
ar e not st r ai t j acket ed by t he [ di st r i ct ] j udge' s reasoni ng - - qui t e
t he cont r ar y, we ar e f r ee t o uphol d [ t he cour t ' s] or der on any
basi s pr esent i n t he r ecor d. " St or / Gar d, I nc. v. St r at hmor e I ns.
Co. , 717 F. 3d 242, 247 ( 1st Ci r . 2013) .
B. Applicable Law and Policy Language
The par t i es do not di sput e t hat Puer t o Ri co l aw appl i es
i n t hi s di ver si t y case. And qui t e r i ght l y so. See Ener gyNor t h
Nat ur al Gas, I nc. v. Cent ur y I ndem. Co. , 452 F. 3d 44, 47- 48 ( 1st
Ci r . 2006) . Bef or e get t i ng i nt o t he speci f i c Pol i cy l anguage
bear i ng on our anal ysi s and the par t i es' ar gument s about how i t
appl i es t o t he undi sput ed f act s, i t i s hel pf ul t o t al k about a f ew
basi c pr i nci pl es of Puer t o Ri co i nsur ance l aw.
i. General Principles of Construction
Under Puer t o Ri co' s I nsur ance Code, P. R Laws Ann. , t i t .
26, 101, et seq. , " [ e] ver y i nsur ance cont r act shal l be const r ued
accor di ng t o t he ent i r et y of i t s t er ms and condi t i ons as set f or t h
i n t he pol i cy, and as ampl i f i ed, extended, or modi f i ed by any
l awf ul r i der , endor sement , or appl i cat i on at t ached t o and made a
par t of t he pol i cy. " I d. 1125. As t he Puer t o Ri co Supr eme Cour t
has expl ai ned
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[ w] i t h r egar d t o t he i nt er pr et at i on ofi nsur ance cont r act s, . . . t hese "shoul d begeneral l y underst ood wi t hi n t hei r most commonand usual meani ng, not payi ng much at t ent i ont o gr ammat i cal r i gour , but t o t he gener al useand popul ar meani ng of t he i di oms. The
i nsur ed who acqui r es a pol i cy i s ent i t l ed t or el y on t he cover age of f er ed t o hi m whenr eadi ng i t s cl auses i n t he l i ght of t hepopul ar meani ng of t he words used t herei n. "
Pagn Car abal l o v. Si l va Del gado, 22 P. R. Of f i c. Tr ans. 96, 101
( 1988) ( quot i ng Mor al es Gar ay v. Rol dn Coss, 10 P. R. Of f i c. Tr ans.
909, 916 ( 1981) ) . " [ E] xcl usi onar y cl auses ar e not f avor ed, [ and]
shoul d be st r i ct l y const r ued and i n such a way t hat t he pol i cy' s
pur pose of pr ot ect i ng t he i nsur ed i s met . " I d.
Any ambi gui t i es i n t he pol i cy l anguage "shal l be r esol ved
i n f avor of t he i nsur ed. " I d. Thi s i s because "[ t ] he
i nt er pr et at i on of obscur e st i pul at i ons of a cont r act must not f avor
t he par t y occasi oni ng t he obscur i t y. " Mel ndez Pi er o v. Levi t t &
Sons of P. R. , I nc. , 129 P. R. Dec. 521, 546 ( 1991) . Fur t her , when
a Puer t o Ri co i nsur ance cont r act i s ambi guous, " t he i nsur ance
pol i cy st i pul at i ons are const r ued st r ongl y agai nst t he i nsur er and
l i ber al l y i n f avor of t he i nsur ed. " I d. at 547; see al so Qui ones
Lpez v. Manzano Pozas, 141 P. R. Dec. 139, 155 ( 1996) ( " [ N] i ce
const r uct i ons t hat woul d al l ow i nsur er s t o dodge l i abi l i t y ar e not
f avor ed. ") .
On the ot her hand, Puer t o Ri co l aw does "not compel
const r uct i ons i n f avor of t he i nsur ed when a cl ause f avor s t he
i nsurer , and i t s meani ng and scope i s [ si c] cl ear and unambi guous. "
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Qui ones Lpez, 141 P. R. Dec. at 155 ( ci t i ng cases) ; cf .
Li t t l ef i el d v. Acadi a I ns. Co. , 392 F. 3d 1, 8 ( 1st Ci r . 2004)
( appl yi ng New Hampshi r e l aw and obser vi ng t hat "we may not f i nd a
t er m ambi guous mer el y because i t el i mi nat es cover age") . " I n such
cases, i t [ i . e. , t he unambi guous cl ause] shoul d be hel d as bi ndi ng
on t he i nsured. " Qui ones Lpez, 141 P. R. Dec. at 155; see al so
Ni eves v. I nt er cont i nent al Li f e I ns. Co. of P. R. , 964 F. 2d 60, 63
( 1st Ci r . 1992) ( "I f t he wor di ng of t he cont r act i s expl i ci t and
i t s l anguage i s cl ear , i t s t er ms and condi t i ons ar e bi ndi ng on t he
par t i es. " ( ci t i ng cases)) . 3
ii. Policy Language
To set t he st age f or t he r est of our di scussi on, we begi n
wi t h a run- down of t he Pol i cy l anguage rel evant t o thi s appeal .
Fi r st , t he ver y basi cs. The Pol i cy def i nes t he wor ds
"you" and "your " t o mean the "Named I nsured shown i n t he
3 We not e ther e i s some aut hor i t y f or t he pr oposi t i on t hatPuer t o Ri co' s r ul es of const r uct i on may be r el axed and appl i ed mor eeven- handedl y i n a commerci al set t i ng, where t he i nsur ed can beexpect ed t o have knowl edge of t he par t i cul ar subj ect mat t er of t hepol i cy beyond t hat of an or di nar y i ndi vi dual . See Mel ndez Pi ero,129 P. R. Dec. at 548- 49 ( r ecogni zi ng t hat whi l e t he wor di ng of apar t i cul ar commer ci al gener al l i abi l i t y pol i cy "may be t oot echni cal and sophi st i cat ed f or t he aver age per son who buys apol i cy, " a pr i nci pal of t he i nsur ed const r uct i on company "woul d
const r ue such t erms as woul d a speci al i zed average busi nessman wi t hvast exper i ence i n t he const r uct i on f i el d, " and r ej ect i ng t henot i on t hat "a const r uct i on company t hor oughl y f ami l i ar wi t h ur bandevel opment pr oj ect s woul d t hi nk t hat when i t buys l i abi l i t yi nsur ance i t i s act ual l y buyi ng pr oper t y i nsur ance, a per f or mancebond or a war r ant y of goods and servi ces" ) . The par t i es do notmake any argument s al ong these l i nes, t hough.
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Decl ar at i ons. " Tur ni ng t o t hose Decl ar at i ons, we see t he Named
I nsured i s " Manuel Espi nosa DBA Economy I nt er nat i onal Ser vi ces. "
Thus, when r eadi ng t he Pol i cy, "you" and "your " mean Economy, and
onl y Economy. 4 Si mi l ar l y, t he t er ms "' we, ' ' us' and ' our ' r ef er t o
t he Company pr ovi di ng t hi s i nsur ance, " Tr i pl e- S.
Thi s case deal s wi t h a cl ai m of l oss t o AJ C' s proper t y
whi l e i t was st or ed i n Economy' s f r eezer s. The Pol i cy i ncl udes
"Per sonal Pr oper t y of Ot her s" as a cat egor y of "Cover ed Pr oper t y. "
Mor e speci f i cal l y ( and exci si ng l anguage not ger mane t o our
anal ysi s) Tr i pl e- S agr eed t o cover such pr oper t y as f ol l ows:
A. COVERAGE
We wi l l pay f or di r ect physi cal l oss of ordamage t o Covered Proper t y . . . caused by orr esul t i ng f r om any Cover ed Cause of Loss.
1. Covered Property
Cover ed Proper t y, as used i n t hi s Cover age
Par t , means t he f ol l owi ng t ypes of pr oper t yf or whi ch a Li mi t of I nsur ance i s shown i n t heDecl ar at i ons:
. . .
c. Personal Property of Otherst hat i s :
(1) I n your car e, cust ody orcont r ol ; . . .
However , our payment f or l oss ofor damage t o personal pr oper t yof ot her s wi l l onl y be f or t he
4 AJ C concedes i t i s nei t her a named nor addi t i onal i nsur ed.
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account of t he owner of t hepr oper t y.
Per t he Decl ar at i ons, t he l i mi t of cover age f or "Per sonal Pr oper t y
of Ot her s" i s $500, 000. 5
The Pol i cy goes on, t hough, t o excl ude cer t ai n causes of
l oss f r omcover age. Excl uded f r omcover age - - meani ng t hat Tr i pl e-
S "wi l l not pay f or l oss or damage caused di r ect l y or i ndi r ect l y"
by a par t i cul ar cause - - i s any "l oss or damage caused by or
r esul t i ng f r om . . . [ m] echani cal br eakdown. " From now on, we' l l
cal l t hi s t he "Mechani cal Br eakdown Excl usi on. "
But because Economy want ed t he Pol i cy t o cover l osses
caused by mechani cal br eakdown, i t sought , and Tr i pl e- S added, an
endorsement whi ch speci f i cal l y pr ovi ded "Equi pment Br eakdown
Cover age. " The r esul t i ng Equi pment Br eakdown Endorsement , as
r el evant her e, pr ovi des:
5 The Decl ar at i ons al so ref l ect a separ at e "Spoi l age Cover age"wi t h a $50, 000 l i mi t , but t hi s cover age i s l i mi t ed t o spoi l agecaused by a "power out age. " The part i es agr ee t hat t hi s cover agedoes not appl y, as t he spoi l age i n t hi s case was caused bymechani cal breakdown and not a power out age. So, we don' t have t owor r y about t hat pr ovi si on her e.
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A. The Bui l di ng and Per sonal Proper t yCover age For m i s modi f i ed as f ol l ows:
Addi t i onal Cover ages
The f ol l owi ng i s added t o 4. Addi t i onal
Coverages:
Equipment Breakdown
( 1) We wi l l pay f or l oss caused by orr esul t i ng f r om an "acci dent " t o "cover edequi pment . " As used i n t hi s Addi t i onalCoverage, an "acci dent " means di r ect physi call oss as f ol l ows:
( a) mechani cal br eakdown . . .
( 2) Unl ess ot her wi se shown i n a Schedul e, t hef ol l owi ng cover ages al so appl y t o l oss causedby or r esul t i ng f r oman "acci dent " t o "cover edequi pment " . These cover ages do not pr ovi deaddi t i onal amount s of i nsur ance.
. . .
( c) Spoi l age
( i ) We wi l l pay f or your l oss of
"per i shabl e goods" due t ospoi l age.
. . .
The most we wi l l pay f or l oss or damage undert hi s [ Spoi l age] cover age i s $25, 000 unl essotherwi se shown i n a Schedul e.
To keeps t hi ngs cl ear , f r om now on we' l l cal l t he cover age f or
spoi l age of per i shabl e goods added by t hi s Endorsement "Spoi l age
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Cover age. " We' l l al so r ef er t o t he $25, 000 l i mi t r ef er enced at t he
end of t he Spoi l age Cover age t he "Spoi l age Subl i mi t . " 6
The added Endor sement provi des i t s own excl usi ons:
B. The Causes of Loss- - Basi c For m, Br oadFor m or Speci al For m i s modi f i ed as f ol l ows:
Exclusions
( 1) Al l excl usi ons and l i mi t at i ons appl yexcept :
( a) I n t he Causes of Loss- - Speci alFor m:
( i ) Excl usi ons B. 2. a, B. 2. d. ( 6)and B. 2. e.
One of t he r ef er enced, now- i nappl i cabl e excl usi ons t o Equi pment
Br eakdown Cover age i s Excl usi on B. 2. d. ( 6) - - t he Mechani cal
Br eakdown Excl usi on.
The Endor sement set s f or t h ot her , new excl usi ons t o i t s
speci f i c Equi pment Br eakdown Coverage t hat are not f ound i n t he
mai n body of t he Pol i cy. For exampl e, t hi ngs such as st r uct ur es,
f oundat i ons, i nsul at i ng mat er i al , spr i nkl er pi pi ng, and sewer
pi pi ng are not " covered equi pment . " Al so excl uded i s any "damage
caused by or r esul t i ng f r om" Economy' s " f ai l ur e t o use al l
r easonabl e means t o pr ot ect t he ' per i shabl e goods' f r om damage
6 The Equi pment Br eakdown Endorsement def i nes sever al t ermsused t her ei n, i ncl udi ng "acci dent , " "cover ed equi pment , " and"per i shabl e goods. " We don' t need t o worr y about t hesedef i ni t i ons, t hough, because the par t i es do not di sput e t hatEconomy' s f r eezers const i t ut ed "cover ed equi pment " or t hat AJ Csuf f er ed a l oss of "per i shabl e goods" as a r esul t of an "acci dent . "
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f ol l owi ng an ' acci dent , ' " al ong wi t h damage caused by or r esul t i ng
f r om "any def ect, vi r us, l oss of dat a or ot her si t uat i on wi t hi n
' medi a. ' " Addi t i onal l y, t he Endor sement modi f i es some of t he
excl usi ons f ound i n t he Pol i cy' s mai n body by addi ng or subt r act i ng
l anguage.
Thi s r un- down i s suf f i ci ent t o get t he l ay of t he l and.
Ot her r el evant pr ovi si ons wi l l be i dent i f i ed and di scussed as
needed bel ow.
C. Coverage Analysis
i. Framing the Issues
Now f or t he par t i es' ar gument s on appeal . I n pur sui t of
i t s cover age cl ai m, AJ C does not t ake t he posi t i on t hat t he Pol i cy
i s ambi guous. I nst ead, i t r el i es on t he Pol i cy' s pl ai n l anguage t o
say t hat t he Equi pment Br eakdown Endorsement del et ed t he Mechani cal
Br eakdown Excl usi on f ound i n t he or i gi nal Pol i cy. I t pi ns t hi s
argument on Sect i on B. 1( a) ( i ) of t he Equi pment Br eakdown
Endor sement , whi ch st at es t hat " [ a] l l excl usi ons and l i mi t at i ons
appl y except " f or cer t ai n speci f i cal l y- enumer at ed ones - - i ncl udi ng
t he Mechani cal Br eakdown Excl usi on - - l i st ed i mmedi at el y af t er .
AJ C ur ges us t o f i nd t hat t hi s cont r act ual l anguage del et es t hose
excl usi ons f r om t he or i gi nal Pol i cy. And wi t h t he excl usi on
del et ed, AJ C r easons, cover age i s t hen f ound i n t he Pol i cy' s mai n
body ( t he Per sonal Pr oper t y of Ot her s pr ovi si ons) , not t he
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Endor sement . 7 AJ C goes on t o say t hat t hi s means t he $500, 000
cover age l i mi t f or Per sonal Pr oper t y of Ot her s ( whi ch i s set f or t h
i n t he Decl ar at i ons) i s avai l abl e t o sat i sf y i t s cl ai ms. 8
Not sur pr i si ngl y, Tr i pl e- S di sagr ees wi t h AJ C, t el l i ng us
t hat t he "cl ear and unambi guous t er ms of t he Tr i pl e- S Pol i cy
pr ovi de a $25, 000 sub- l i mi t f or spoi l age of ' per i shabl e goods'
caused by or r esul t i ng f r omequi pment br eakdown. " Appel l ee Br . at
18. Thanks t o t he Pol i cy' s excl usi on of l osses caused by
mechani cal br eakdown ( as happened her e) , Tr i pl e- S says, i nst ead of
$500, 000 bei ng avai l abl e f or l oss t o t he Per sonal Pr oper t y of
Ot her s, $0 i s. I n ot her wor ds, t he mai n body of t he Pol i cy
pr ovi des no cover age f or AJ C' s l oss. But , Tr i pl e- S expl ai ns, t he
Equi pment Br eakdown Endor sement added coverage f or l osses s t emmi ng
f r om equi pment br eakdown back to t he Pol i cy, i ncl udi ng si t uat i ons
7 As AJ C put s i t , cover age i s "pur suant t o Sect i on A. of t heBui l di ng and Per sonal Proper t y Cover age For m. " Appel l ant Br . at20.
8 AJ C f ur t her posi t s t hat , "[ i ] f , i n f act, t he $500, 000. 00cover age l i mi t i n t he Tr i pl e- S Pol i cy i s not avai l abl e f or a l osscaused by or r esul t i ng f r om a mechani cal br eakdown of f r ozen f oodpr oduct s owned by a cl i ent of t he i nsured ( Economy) , t hen t hi scover age l i mi t i s i l l usor y. " Appel l ant Br . at 22. Whi l e t he Cour ti s f ami l i ar wi t h t he concept of i l l usor y cover age, AJ C does notexpl ai n what i t means by an i l l usory cover age l i mi t . And even i f
we pr esume t hat what AJ C act ual l y means t o say i s t hat t he cover agei t sel f i s what ' s i l l usor y, AJ C f ai l s t o t el l us how t hi s can be sowhen bot h par t i es agr ee t hat t her e i s cover age f or AJ C' s l oss. Anyar gument al ong t he l i nes of i l l usor y cover age or an i l l usor ycover age l i mi t ( what ever t hat mi ght be) has been wai ved f or f ai l ur et o devel op i t on appeal . See Uni t ed St at es v. Zanni no, 895 F. 2d 1,17 ( 1st Ci r . 1990) .
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l i ke here where an equi pment br eakdown r esul t s i n l oss of
per i shabl e goods. Fur t her mor e, Tr i pl e- S ar gues t hat t he
Endorsement ' s Spoi l age Coverage comes wi t h i t s own $25, 000 l i mi t ,
whi ch caps AJ C' s r ecover y at $25, 000. 9
ii. Analysis
Now t hat we' ve l ai d out t he appl i cabl e l aw, Pol i cy
pr ovi si ons, and t he par t i es' ar gument s, we can get t o the bot t omof
t hi s di sput e.
Because nei t her par t y cont ends t he Pol i cy or i t s
Mechani cal Br eakdown Excl usi on i s ambi guous, we wi l l not go out of
our way t o f i nd ambi gui t y. I n t he absence of cl ai med ambi gui t y,
our j ob under Puer t o Ri co l aw i s t o si mpl y appl y the pr ovi si ons as
wr i t t en. We begi n, as we must , wi t h t he pl ai n l anguage.
1. Policy Language
As not ed, t he par t i es agr ee on t he essent i al f act s:
AJ C' s per i shabl e goods spoi l ed whi l e i n Economy' s car e, r esul t i ng
i n f i nanci al l oss to AJ C. They agr ee t he spoi l age r esul t ed f r oma
mechani cal br eakdown of Economy' s f r eezer s, and that AJ C' s goods,
as Per sonal Pr oper t y of Ot her s, f al l under t he Pol i cy' s def i ni t i on
of Covered Propert y.
Turni ng t o t he Pol i cy i t sel f , we see t hat Tr i pl e- S agr eed
i t woul d "pay f or di r ect physi cal l oss of or damage t o Cover ed
9 Tr i pl e- S r ai ses a f ew ot her ar gument s, but we do not need t or each t hem t o deci de t hi s appeal .
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Pr oper t y . . . caused by or r esul t i ng f r om any Cover ed Cause of
Loss. " Pol i cy, Bui l di ng and Per sonal Pr oper t y Cover age For m, A.
Thi s t ype of pol i cy, "cal l ed, i n i nsur ance l i ngo, an ' al l r i sks
pol i cy' - - cover s al l physi cal l oss to t he [ speci f i ed] pr oper t y
unl ess ' caused by or r esul t i ng f r om' an excl uded per i l . "
St or / Gard, 717 F. 3d at 244. The Equi pment Br eakdown Excl usi on t hen
pr ecl udes cover age f or l osses caused by or r esul t i ng f r omt he per i l
of mechani cal br eakdown. Pol i cy, Causes of Loss - Speci al For m,
B. ( 2) ( 6) .
Si gni f i cant l y, t hough, t he Pol i cy i s i ndi vi dual i zed so as
t o cont ai n t he Equi pment Br eakdown Endorsement , whi ch adds
"Equi pment Br eakdown Coverage" back t o t he Pol i cy. Under t hi s
cover age, Tr i pl e- S agr eed t o pay f or cer t ai n l osses "caused by or
r esul t i ng f r om an ' acci dent ' t o ' cover ed equi pment . ' " Pol i cy,
Equi pment Br eakdown Endorsement ( "Endorsement " ) A. ( 2) . The
Endor sement al so expl i ci t l y adds cover age f or a " l oss of
' per i shabl e goods' due t o spoi l age, " i d. at A. ( 2) ( c)( i ) , whi ch i s
what we' ve been cal l i ng Spoi l age Coverage.
I n l i ght of t he agr eed upon f acts, i t i s cl ear f r om t he
Endor sement ' s pl ai n l anguage that Spoi l age Cover age appl i es t o
AJ C' s l oss. Ther e i s no di sput e about t hi s. The quest i on i s, j ust
how much cover age i s avai l abl e? The Spoi l age Cover age i t sel f ,
set t i ng f or t h i t s own Subl i mi t , suggest s an answer: "The most we
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wi l l pay f or l oss or damage under t hi s cover age i s $25, 000 unl ess
ot her wi se shown i n a Schedul e. " I d. at A. ( 5) ( c) . 10
AJ C r ai ses a coupl e of argument s as t o why we shoul d
i nt erpr et t he Pol i cy and Equi pment Br eakdown Endorsement as
pr ovi di ng $500, 000 of cover age f or i t s l oss. Nei t her , we bel i eve,
has mer i t .
2. Deletion of the Mechanical Breakdown Exclusion
We st ar t wi t h AJ C' s cont ent i on t hat t he Equi pment
Br eakdown Endor sement "expr essl y del et ed" t he Mechani cal Br eakdown
Excl usi on al t oget her . AJ C r el i es ( al most excl usi vel y) on our
opi ni on i n Fi del i t y Co- Oper at i ve Bank v. Nova Casual t y Co. , 726
F. 3d 31 ( 1st Ci r . 2013) , t o say t hat we have al r eady deci ded
l anguage si mi l ar t o t hat i n t he Endor sement del et es an excl usi on.
Al t hough AJ C makes Fi del i t y t he cent er pi ece of i t s
ar gument , i t i s of no assi st ance. The l ong and shor t of i t i s t hat
t he pol i cy and endor sement at i ssue t her e i nvol ved qui t e di f f er ent
l anguage t han appear s i n t he Tr i pl e- S Pol i cy. I n Fi del i t y, an
amendat or y endor sement pr ovi ded si mpl y t hat cer t ai n "[ e] xcl usi ons
ar e del et ed. " 726 F. 3d at 37 ( emphasi s added) . Thi s cl ear t ext ,
we f ound, r esul t ed i n t he del et i on of t he "ent i r e excl usi on" at
i ssue t her e. I d. at 37 n. 2.
10AJ C does not ar gue that any Schedul e appl i es t o i ncr ease t he$25, 000 Spoi l age Subl i mi t .
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The cont r act ual l anguage her e i s not even cl ose t o what
we had bef or e us i n Fi del i t y. Most obvi ousl y, t he Equi pment
Br eakdown Endorsement does not say t hat i t del etes t he Mechani cal
Br eakdown Excl usi on. I t pr ovi des i nst ead t hat "[ a] l l excl usi ons
and l i mi t at i ons appl y except " f or t hose speci f i cal l y desi gnat ed,
i ncl udi ng t he Mechani cal Br eakdown Excl usi on. And, per t he pl ai n
l anguage, t he except i ons r ef er r ed t o ar e i nappl i cabl e onl y i nsof ar
as t he r eest abl i shed addi t i onal cover age pr ovi ded by the
Endor sement i s concer ned. 11 Far f r om del et i ng t hat Excl usi on f r om
t he or i gi nal Pol i cy, t he Equi pment Br eakdown Endorsement si mpl y
r ender s i t i nappl i cabl e t o cer t ai n cover age si t uat i ons, l i ke when
per i shabl e goods spoi l as a r esul t of "an ' acci dent ' t o ' cover ed
equi pment . ' " See Endor sement A. ( 2) . I n sum, Fi del i t y' s
di ssi mi l ar cont r act l anguage does not suppor t AJ C' s pr oposi t i on
t hat t he Equi pment Br eakdown Endorsement ' s l anguage i n Economy' s
pol i cy del et ed the Mechani cal Br eakdown Excl usi on.
Havi ng di sposed of i t s Fi del i t y- based ar gument , AJ C i s
l ef t wi t h t he bal d asser t i on t hat t he Endor sement "expr essl y
del et ed t he [ M] echani cal [ B] r eakdown [ E] xcl usi on. " Appel l ant Br .
at 18. Beyond ci t i ng t o Fi del i t y, AJ C does not expl ai n how t he
Endor sement does so. Si nce nowher e does t he Endor sement st at e t hat
11 Fur t her , use of t he wor d "appl y" pr esupposes t he cont i nui ngexi st ence of t he Mechani cal Br eakdown Excl usi on. Af t er al l , i twoul d be nonsensi cal t o say t hat somethi ng whi ch no l onger exi st si n t he wor l d ( havi ng been del et ed) does or does not appl y i n apar t i cul ar s i t uat i on.
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i t del et es t he Excl usi on, t hi s omi ssi on i s pr act i cal l y enough on
i t s own t o doom AJ C' s posi t i on. And what ' s mor e, we f i nd t hat
AJ C' s t ake doesn' t j i be wi t h t he Pol i cy' s over al l st r uctur e or
pl ai n l anguage.
Fi r st , by set t i ng f or t h new "Addi t i onal Cover ages"
pr evi ousl y unknown t o t he Pol i cy ( i ncl udi ng Spoi l age Cover age) , t he
Endor sement act s as a sor t of "mi ni - pol i cy. " Li ke t he Pol i cy
i t sel f , t he Endor sement sets f or t h an i nsur i ng agr eement compl et e
wi t h i t s own def i ni t i ons, det ai l ed condi t i ons, and deduct i bl e. The
Endor sement even has somet hi ng t o say about excl usi ons. As we have
seen, i t speci f i es t hat cer t ai n exi st i ng excl usi ons do not appl y t o
t he Endor sement ' s cover age, i t modi f i es ot her excl usi ons, and i t
adds st i l l ot her s t hat ar e onl y appl i cabl e t o t he Endor sement ' s
brand of Equi pment Br eakdown Coverage. 12 Agai nst t hi s backdr op, i t
i s cl ear t hat t he Equi pment Br eakdown Endorsement i s meant t o do
much more t han si mpl y del ete an excl usi on.
Fur t her mor e, and per haps most t el l i ng of al l , t he
Endor sement does expl i ci t l y del et e a por t i on of one of t he or i gi nal
12 For exampl e, t he Endor sement excl udes t hi ngs l i kef oundat i ons, cabi net s, i nsul at i ng mat er i al , sewer pi pes, wat erpi pes, excavat i on or const r uct i on equi pment , and equi pment mount ed
on a vehi cl e f r om i t s def i ni t i on of "cover ed equi pment . "Endor sement B. ( 3) ( a) . And among ot her causes of l oss, i texcl udes cover age f or l oss or damage caused by or r esul t i ng f r om" ahydr ost at i c, pneumat i c or gas pr essure t est of any boi l er orpr essur e vessel , " al ong wi t h l oss caused by or r esul t i ng f r om "ani nsul at i on br eakdown t est of any t ype of el ect r i cal equi pment . "I d. at B. ( 3) ( b) ( i i i ) .
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excl usi ons i n cer t ai n si t uat i ons. And - - unl i ke t he pol i cy we
const r ued i n Fi del i t y - - t he Endor sement expl i ci t l y l i mi t s t he
ef f ect of t hat del et i on t o cover age under t he Endor sement i t sel f .
Speci f i cal l y, t he Endor sement st at es t hat
[ i ] f t he Causes of Loss- - Speci al For mappl i es, as r espect s t hi s endor sement onl y,t he l ast par agr aph of Excl usi on B. 2. d. 13 i sdel et ed and r epl aced wi t h t he f ol l owi ng: Buti f l oss or damage by an "acci dent " r esul t s, wewi l l pay f or t hat r esul t i ng l oss or damage.
Endorsement B. ( 2) ( c) ( emphasi s added) . 14 Had Tr i pl e- S i nt ended
t o del ete t he Mechani cal Br eakdown Excl usi on, surel y i t woul d have
used t he wor d "del et e" t o say so. I nst ead, i t made t he Mechani cal
Br eakdown Excl usi on i nappl i cabl e sol el y t o t he Endor sement ' s
cover age. That Tr i pl e- S chose not t o use si mpl e l anguage del et i ng
t he Mechani cal Br eakdown Excl usi on, when i t obvi ousl y knew how t o
do so, f ur t her demonst r ates t hat t he Equi pment Br eakdown
Endor sement di d not del et e t he Excl usi on f r om t he Pol i cy.
13 The ref erenced paragr aph appear s i mmedi atel y af t er sevenspeci f i c excl usi ons ( i ncl udi ng t he Mechani cal Br eakdown Excl usi on)i n t he or i gi nal Pol i cy and st at es, "[ b] ut i f l oss or damage by t he' speci f i ed causes of l oss' or bui l di ng gl ass br eakage r esul t s, wewi l l pay f or t hat r esul t i ng l oss or damage. " Causes of Loss -Speci al For m, B. ( 2) ( d) . "Speci f i ed Causes of Loss, " i n t ur n, i si t sel f def i ned i n t he Endor sement as "[ f ] i r e; l i ght ni ng; expl osi on;
wi ndstor m or hai l ; smoke; ai r cr af t or vehi cl es; r i ot or ci vi lcommot i on; vandal i sm; l eakage f r om f i r e ext i ngui shi ng equi pment ;si nkhol e col l apse; vol cani c act i on; f al l i ng obj ect s; wei ght ofsnow, i ce or sl eet ; wat er damage. " I d. at F.
14 Al t hough each par t y set f or t h t hi s par t i cul ar pol i cyl anguage i n i t s br i ef , nei t her makes any ar gument based upon i t .
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I n essence, AJ C' s posi t i on t hat t he Endor sement del et ed
t he Excl usi on ef f ect i vel y asks us t o r edr af t t he Pol i cy' s cl ear and
unambi guous l anguage. Accept i ng t hi s i nvi t at i on woul d cont r avene
t he wel l - est abl i shed t enet s of Puer t o Ri co' s i nsur ance l aw
r equi r i ng us t o i nt er pr et and appl y unambi guous provi si ons of an
i nsur ance cont r act as t hey ar e wr i t t en. We, t her ef or e, r ej ect
AJ C' s ar gument t hat t he Equi pment Br eakdown Endor sement del et es t he
Mechani cal Br eakdown Excl usi on.
Let ' s t ake st ock of what t hi s means f or cover age. The
Mechani cal Br eakdown Excl usi on cont i nues t o exi st i n t he Pol i cy.
And t he onl y cover age t o whi ch the Excl usi on does not appl y i s t hat
addi t i onal cover age set f or t h i n t he Equi pment Br eakdown
Endor sement . So, cover age f or AJ C' s l oss must f l ow f r om t hat
Endor sement because any pot ent i al al t er nat i ve sour ce of cover age
f al l s pr ey t o t he Mechani cal Br eakdown Excl usi on. Thus, t he onl y
cover age avai l abl e f or AJ C' s l oss i s pr ovi ded by t he Spoi l age
Coverage, as set f or t h i n t he Equi pment Br eakdown Endorsement .
3. $25,000 Spoilage Coverage Limit
Thi s br i ngs us t o AJ C' s f i nal ar gument .
As we ment i oned, t he Endor sement ' s Spoi l age Cover age
comes wi t h i t s own $25, 000 Spoi l age Subl i mi t . See Endorsement
A. ( 2) ( c) ( "The most we wi l l pay f or l oss or damage under t hi s
cover age i s $25, 000 unl ess ot her wi se shown i n a Schedul e. " ) .
Al t hough i t i s not par t i cul ar l y cl ear f r om i t s br i ef ( or or al
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ar gument ) , AJ C seems t o be ar gui ng t hat even i f cover age f or i t s
l oss i s f ound i n t he Endor sement ' s Spoi l age Cover age r at her t han
t he mai n Pol i cy, t he $500, 000 cover age l i mi t i n t he Decl ar at i ons
never t hel ess pr evai l s over t he l ower Spoi l age Subl i mi t . Thi s i s
because, i n AJ C' s vi ew, t he Subl i mi t appl i es onl y t o spoi l age of
goods owned by t he Named I nsur ed, Economy, and not goods owned by
Economy' s cl i ent s. AJ C asser t s t hat , si nce t he $25, 000 Spoi l age
Subl i mi t does not appl y t o i t s l oss, t he $500, 000 l i mi t set f or t h
i n t he Decl ar at i ons becomes avai l abl e t o i t . 15 Tr i pl e- S, however ,
t el l s us t hat t he Spoi l age Subl i mi t appl i es t o Economy' s l oss of
per i shabl e goods no mat t er who owns t hose goods.
To unr avel t hi s quest i on, we r et urn t o t he Endor sement ' s
l anguage. The r el evant par t of t he Spoi l age Cover age pr ovi si on
st at es t he f ol l owi ng: "We wi l l pay f or your l oss of ' per i shabl e
goods' due t o spoi l age. " Recal l t hat "you" and "your " r ef er onl y
t o t he Named I nsured, Economy. Thus, what t hi s pr ovi si on says i s
t hat Tr i pl e- S wi l l pay up t o $25, 000 f or "Economy' s l oss of
' per i shabl e goods' due t o spoi l age. " Si nce AJ C' s goods spoi l ed
whi l e i n Economy' s f r eezer s, t hi s $25, 000 Subl i mi t ki cks i n t o
l i mi t AJ C' s r ecover y.
15 AJ C does not , however , expl ai n why t hi s mi ght be so wheret he onl y cover age f or spoi l age i s by way of t he Mechani calBr eakdown Endor sement , not f r omt he mai n Pol i cy i t sel f . Thi s t ur nsout t o be academi c anyway, gi ven our ul t i mate concl usi on.
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At t empt i ng t o get out f r om under t he Spoi l age Subl i mi t ,
AJ C ur ges us t o add a "your " t o the sent ence and r ead i t t o say
t hat Tr i pl e- S wi l l onl y pay f or "Economy' s l oss of Economy' s
' per i shabl e goods' due t o spoi l age. " Thi s i nt er pr et at i on si mpl y
cannot be squared wi t h t he Endor sement ' s pl ai n and unambi guous
l anguage.
Accor di ng t o i t s t er ms, t he $25, 000 Subl i mi t comes i nt o
pl ay wher e Economy i s r esponsi bl e f or t he spoi l age of per i shabl e
goods, r egardl ess of who owns t hem. Thi s comes as no surpr i se.
Economy' s busi ness, af t er al l , i s st or i ng ot her compani es'
per i shabl e goods. So i t makes sense t hat Economy woul d seek t o
obt ai n i nsurance cover age f or t hose goods. 16 Thi s commer ci al l y-
sensi bl e r at i onal e, al ong wi t h t he expl i ci t Pol i cy l anguage
empl oyed by t he cont r act i ng par t i es ( Economy and Tr i pl e- S) , wor k
hand- i n- hand t o convi nce us t hat i t woul d be unr easonabl e f or us t o
r ead an ext r a "your " i nt o t he Spoi l age Cover age. I n t he absence of
any ambi gui t y i n t he Pol i cy l anguage, Puer t o Ri co l aw cal l s f or us
t o appl y t he Endorsement and i t s $25, 000 Spoi l age Subl i mi t as
16 We not e t hat when the Puer t o Ri co Supr eme Cour t consi der san i nsur ance pol i cy i n i t s ent i r et y, as we do her e, i t does nothesi t at e to " t ake i nt o account cer t ai n ext r i nsi c el ement s t hat mayshed l i ght on t he i nt ent i on of t he par t i es. " Soc. de Gananci al es
v. Serr ano, 145 P. R. Dec. 394, 400 ( 1998) . "These el ement s mayvar y accor di ng t o t he ci r cumst ances of each par t i cul ar case, butt hey gener al l y ar e: t he par t i es' cont r act i ng i nt ent i on, t hepr emi um agr eed on, t he ci r cumst ances sur r oundi ng t he negot i at i onand t he cont r act , and t he pr act i ces and cust oms est abl i shed by t hei nsur ance i ndust r y. " I d. at 401. We, t oo, f eel f r ee t o consi dert hese f act or s as necessary.
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wr i t t en. We may not j udi ci al l y r edr af t t he Pol i cy t o r ef l ect AJ C' s
wi shes.
Her e, i t i s uncont est ed t hat AJ C suf f er ed a l oss t o i t s
per i shabl e goods as a r esul t of Economy' s mal f unct i oni ng f r eezer s.
We have al r eady det er mi ned t hat cover age f or t hi s l oss i s provi ded
by t he Spoi l age Cover age set f or t h i n t he Equi pment Br eakdown
Endor sement . Thus, pur suant t o t he cl ear t er ms of t he Spoi l age
Subl i mi t , t he most t hat Tr i pl e- S i s r equi r ed t o pay out due t o t hi s
l oss i s $25, 000. Any ot her concl usi on woul d be cont r ar y t o t he
Endor sement ' s pl ai n l anguage and r un af oul of basi c pr ecept s of
Puer t o Ri co i nsurance l aw. We, t her ef or e, appl y t he Endorsement
and Spoi l age Subl i mi t as wr i t t en, and we concl ude that t he most AJ C
may recover f or Economy' s l oss of AJ C' s per i shabl e goods i s
$25, 000. 17
17
One l ast not e: AJ C' s br i ef i ncl udes an al l egat i on t hatTr i pl e- S "has admi t t ed t hat t he cover age under Personal Pr oper t y ofOt her s and i t s Li mi t of $500, 000. 00 i s avai l abl e f or damage causedby an equi pment breakdown. " Appel l ant Br . at 22. Al t hough AJ Cci t es t he addendumt o i t s br i ef t o suppor t t hi s st at ement , see i d. ,AJ C wai t ed unt i l i t s r epl y br i ef t o expl ai n t hat t hi s admi ssi oncomes f r omt he par t i es' pr oposed pr et r i al st i pul at i ons of f act , seeAppel l ant Repl y at 8 n. 2. Assumi ng an argument al ong t hese l i neshasn' t been wai ved, Uni t ed St at es v. Ar r oyo- Bl as, 783 F. 3d 361, 366n. 5 ( 1st Ci r . 2015) ( r ecogni zi ng t hat we need not addr ess ar gument st hat a par t y saves f or i t s r epl y br i ef ) , and t hat i t i s appr opr i at ef or us t o consi der mat er i al s submi t t ed i n an addendumt o a par t y' s
br i ef but not t he j oi nt appendi x, see Appel l ee Br . at 4 n. 1( poi nt i ng t hi s out ) , i t i s unavai l i ng.
The proposed st i pul at i on st at es, "Tr i pl e- S admi t s t hat t hecover age under Per sonal Proper t y of Ot her s and i t s Li mi t of$500, 000. 00 i s avai l abl e f or damage caused by an equi pmentbreakdown. " Recal l t hat t he Equi pment Breakdown Endor sementpr ovi des mor e t han j ust Spoi l age Cover age. See, e. g. , Endor sement ,
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III. CONCLUSION
For t he f or egoi ng r easons, t he di st r i ct cour t ' s j udgment
i s affirmed.
A. ( 1) ( a) ( pr ovi di ng cover age f or a mechani cal br eakdown ofcovered equi pment ) . Because we hol d t hat cover age f or AJ C' s l ossi s f ound sol el y by way of t he Endor sement ' s Spoi l age Cover age, t hedoor r emai ns open t o t he possi bi l i t y that cl ai ms f al l i ng underdi f f er ent cover age pr ovi si ons i n t he Endor sement coul d be cover edup t o $500, 000. Ther e i s si mpl y not hi ng i nconsi st ent bet ween t heTr i pl e- S admi ssi on and our hol di ng t oday.
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