Rios v. El Fenix de PR

Opinion

USCA1 Opinion

July 5, 1994
                                [Not for Publication]
                                [Not for Publication]

                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 93-1643

                                   ARTURO M. RIOS,

                                Plaintiff, Appellant,

                                          v.

                               EL FENIX DE PUERTO RICO,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

[Hon. Justo Arenas, U.S. Magistrate Judge]
                                          _____________________

                                 ____________________

                                        Before

                                  Cyr, Circuit Judge,
                                       _____________
                            Bownes, Senior Circuit Judge,
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                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            M. Martinez Umpierre for appellant.
            ____________________
            Juan B.  Soto-Balbas with  whom Mercado  & Soto  was on  brief for
            ____________________            _______________
        appellee.

                                  __________________

                                  __________________

Per  Curiam.   Plaintiff-appellant  Arturo  M. Rios
                      Per  Curiam.
                      ____________

            brought an  action  against defendant-appellee  El  Fenix  de

            Puerto  Rico  Compania  de  Seguros  charging  that defendant

            insurance   company  failed   to  repair   and/or  compensate

            plaintiff for  damages to his  insured yacht.   Plaintiff now

            appeals the decision of  the magistrate judge, in defendant's

            favor.  After careful consideration, we reverse and remand.

                                          I.
                                          I.
                                          __

                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       ________________________________________

                      Plaintiff, a  Florida resident,  is the owner  of a

            53-  foot Norseman  Flybridge Sport  Fishing yacht  named the

            "Lady Myrna."  Plaintiff insured  the craft with defendant, a

            duly licensed insurance company of Puerto Rico.  The  policy,

            issued on May 17, 1990, provided that defendant would pay for

            direct  and accidental loss up to  $280,000.00 for damages to

            the watercraft and equipment "required to be on board for the

            operation  and maintenance  of the  watercraft."   The policy

            further  provided  that  the  defendant would  pay  the  full

            $280,000.00 to  plaintiff "if the insured  watercraft and its

            equipment are  completely lost, or if  the reasonable expense

            of recovering  and repairing the property  exceeds the amount

            of insurance." 

                      While en  route  from St.  Petersburg, Florida,  to

            Puerto Rico,  the Lady Myrna was  hit by rogue  waves four to

            five  miles  off  the  northwestern  coast  of  Puerto  Rico,

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resulting   in  extensive  structural  damage  and  flooding.

            According  to the engineer  on board, the  engine room filled

            with twelve inches of sea water,  which in turn was picked up

            and sprayed  throughout the engine room by  the crank shafts.

            The crew managed to  make emergency repairs and to  guide the

            vessel  safely  into  the   port  of  Arecibo,  Puerto  Rico.

            Pursuant  to his  policy  obligation,  plaintiff  immediately

            notified defendant of the damage to the vessel.  

                      Defendant  thereafter  dispatched Arturo  Vaello, a

            marine  surveyor  for  Action  Adjustment  Bureau,  Inc.,  to

            Arecibo.  Arturo Vaello, accompanied by his father, Guillermo

            Vaello,  assessed the  damages  to the  Lady  Myrna and  made

            temporary repairs.  Then, over plaintiff's express objection,

            Arturo Vaello took  control of the yacht  and authorized that

            it be  transported under its  own power to  Vaello's father's

            shipyard (the Vaello Shipyard) in Catano, Puerto Rico, for an

            assessment  of   permanent  repairs.     Plaintiff,  who  was

            uncomfortable   with  the  choice  of  the  Vaello  Shipyard,

            requested  the alternative  dry  dock  facilities  of  Isleta

            Marina in  Fajardo, Puerto Rico, or,  alternatively, San Juan

            Marina in San Juan,  Puerto Rico.  Arturo Vaello  refused and

            sent the yacht to his father's shipyard in Catano.

                      In the following weeks,  plaintiff sent a series of

            letters addressed  to and acknowledged  by defendant, clearly

            expressing his  objection to having the  repairs performed at

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the Vaello Shipyard.  Plaintiff was convinced that the Vaello

            Shipyard  did  not have  the  necessary  expertise to  repair

            wooden custom-built  crafts like  the Lady Myrna.   Defendant

            disagreed and  authorized Arturo  Vaello  to begin  permanent

            repairs  to  the hull  of the  Lady  Myrna.   Defendant never

            authorized  any  work  to  be  performed  on  the  engine  or

            electrical systems  because, in its opinion,  the only damage

            the  yacht sustained  was to  its hull.   In  time,  the hull

            repairs were completed and defendant paid the Vaello Shipyard

            approximately $119,000.00 for its work.

                      Plaintiff  refused to  retrieve the  yacht, arguing

            that  1)  defendant illegally  took  possession  of the  Lady

            Myrna, 2) while in defendant's possession, her hull had  been

            negligently  repaired causing further  structural damage, and

            3) the engines and electrical system had corroded  and become

            a  fire hazard  because defendant  failed to  disassemble and

            flush the same after they were exposed to the salt water.  On

            June 24,  1991, plaintiff commenced this action in the United

            States  District Court for the  District of Puerto  Rico.  In

            his complaint, plaintiff charged  defendant with 1) breach of

            its insuring agreement, 2)  conversion, 3) negligence, and 4)

            constructive loss.   On  July  6, 1992,  the district  court,

            pursuant to motions  filed by both parties,  ordered the case

            referred to a federal magistrate judge.

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After  listening  to  evidence  for  one  day,  the

            magistrate  judge entered judgment in favor of defendant.  In

            his written order,  the magistrate judge found  that a clause

            in   the  marine  insurance  policy  provided  the  necessary

            authorization for defendant to  take possession of the vessel

            and  make  repairs  without  first  seeking  the  consent  of

            plaintiff.   Therefore,  according to  the magistrate  judge,

            because defendant was  legally in  possession of  plaintiff's

            yacht,  plaintiff's conversion  claim must  necessarily fail.

            Moreover,  despite a  finding  that defendant  had not  fully

            repaired  the  insured  craft  while it  was  in  defendant's

            possession, the lower court ruled that 1) plaintiff failed to

            make  out  a  negligence  claim,  and  2)  plaintiff  was not

            entitled to damages because he had failed to present evidence

            of  the amount  of money needed  to return  the yacht  to its

            former condition.   It is from  these rulings that  plaintiff

            now appeals.

                                         II.
                                         II.
                                         ___

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                      Plaintiff argues, inter alia,  that the lower court
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            erred in  interpreting the "Option  of Repair" clause  in the

            marine   insurance   policy  as   providing   defendant  with

            authorization  to make  repairs  to the  Lady  Myrna.1   More

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            1.  In  his conclusion of law number  5, the magistrate judge
            ruled that

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specifically, plaintiff avers that  the plain language of the

            clause merely gives defendant the right to limit the cost and

            type  of  repairs an  insured  may  make  to  a boat  with  a

            particular type of  hull, and does  not give defendant  carte

            blanche  to decide where, when  and how to  repair an insured

            vessel.  We agree with plaintiff.

                      In   Puerto   Rico,  interpretation   of  insurance

            contracts  is  governed by  P.R. Laws  Ann.  tit. 31,    3471

            (1991), which states in relevant part that

                           if  the terms of a contract are
                           clear and leave  no doubt as to
                           the    intentions     of    the
                           contracting     parties,    the
                           literal     sense    of     the
                           stipulations shall be observed.

Because  the  "construction  of  an  insurance  policy  is  a

            question  of law, and  the legal conclusions  of the district

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                      [t]he  policy  provides that  the insurer
                      has an  option of repairing  the hull  of
                      the insured watercraft instead  of making
                      payment  for  insured  damages.   (Marine
                      Insurance  Policy-"Our Option  to Repair"
                      Clause at 3.)  It is clear that plaintiff
                      had  already  consented  to   having  the
                      defendant   repair   the  hull.     After
                      plaintiff placed the  vessel in the hands
                      of  the insurer to  determine the damages
                      and   make  the   repairs,  it   was  not
                      necessary  to  request again  plaintiff's
                      consent  before taking the  vessel to the
                      Vaello Shipyard.  Therefore, plaintiff is
                      not entitled  to recover damages  for the
                      alleged conversion of its vessel.

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court  are of course, not  binding on the  court of appeals,"

            Nieves v. Intercontinental Life. Ins. Co. of Puerto Rico, 964
            ______    ______________________________________________

            F.2d 60,  63 (1st  Cir. 1992),  we review  insurance contract

            constructions de novo.
                          __ ____

                      We  begin by noting that the hull of the Lady Myrna

            is  constructed  of  carvel-planked  mahogany  with  mahogany

            frames.   Thus,  under the  express terms  in the  "Option of

            Repair"  clause, which only covers hulls "made in whole or in

            part of  plywood, plastic, fiberglass, metal  or other molded

            material,"  the clause  does not  apply in  this case.2   Nor

            does  the clause give rise  to an inference  that the parties

            intended to allow the insurer to step in, take possession and

            decide  who  should  make  the  repairs  and  what  should be

            repaired.  By its very language, i.e., "we have the option of

            limiting payment to the  reasonable cost of applying suitable

            patches,  in accordance  with  good repair  practice, to  the

            damaged  area," the  clause merely  gives the  insurer, under

            certain   circumstances,   the   option   of   limiting   its

            reimbursement  to  the  cost  of  patches  rather  than  full

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            2.  The "Option of Repair" clause states: 

                      If the hull of  the insured watercraft is
                      made  in  whole or  in  part of  plywood,
                      plastic,   fiberglass,  metal   or  other
                      molded  material, we  have the  option of
                      limiting payment to  the reasonable  cost
                      of   applying    suitable   patches,   in
                      accordance with good repair  practice, to
                      the damaged area.

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replacement  of a  hull.   This  is a  fair position  for the

            insurance  company  to  take  given  the  properties  of  the

            enumerated hull materials.

                      Defendant  does  not argue,  nor  could  it on  the

            record  before  us, that  it  had  plaintiff's permission  to

            repair the yacht and have the repairs performed at the Vaello

            Shipyard.  On the contrary, defendant concedes that plaintiff

            objected to its choice of shipyard and insisted on having the

            repairs  performed elsewhere.   Therefore,  because defendant

            took  possession of  plaintiff's  yacht  against  plaintiff's

            express wishes, defendant acted at its own peril.  

                      We need go no  further.  Because we find  that this

            error of law so infected the magistrate judge's dismissal  of

            the   conversion,   negligence,   breach   of   contract  and

            constructive  loss  claims, we  remand  the  entire case  for

            retrial.

                                         III.
                                         III.
                                         ____

                                      CONCLUSION
                                      CONCLUSION
                                      __________

                      For  the  foregoing  reasons, the  judgment  of the

            lower court is 

                      Vacated  and  remanded   for  further   proceedings
                      Vacated  and  remanded   for  further   proceedings
                      ___________________________________________________

            consistent with this opinion.
            consistent with this opinion.
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