July 5, 1994
[Not for Publication]
United States Court of Appeals
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,
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.
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.
DISCUSSION
Plaintiff argues, inter alia, that the lower court
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
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
[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
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.
CONCLUSION
For the foregoing reasons, the judgment of the
lower court is
Vacated and remanded for further proceedings
consistent with this opinion.
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