UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 97-1882
ALLSTATE INSURANCE COMPANY,
Plaintiff - Appellee,
v.
OCCIDENTAL INTERNATIONAL, INC.
AND OMAR CHAVEZ,
Defendants - Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jaime Pieras, Jr., Senior U.S. District Judge]
Before
Boudin, Circuit Judge,
Coffin, Senior Circuit Judge,
and Shadur, Senior District Judge.
Eugene F. Hestres, with whom Bird Bird & Hestres was on brief
for appellants.
Ronald L. Kammer, Eric G. Belsky, Hinshaw & Culbertson,
Francisco E. Coln-Ramrez and Law Offices of Francisco Coln-Pagnwere on brief for appellee.
March 25, 1998
SHADUR, Senior District Judge. Occidental International,
Inc. ("Occidental") and Omar Chavez ("Chavez") appeal the order of
the United States District Court for the District of Puerto Rico
granting a Fed. R. Civ. P. ("Rule") 56 summary judgment motion
filed by Allstate Insurance Company ("Allstate"). Allstate had
brought its diversity-of-citizenship action for a declaration
pursuant to the Declaratory Judgment Act (28 U.S.C. 2201) that an
insurance policy it had issued to Occidental imposed no obligation
to defend or to indemnify Occidental and Chavez with respect to any
damages, attorneys' fees or costs incurred in defending a lawsuit
brought by a former Occidental employee. We affirm.
Facts
We briefly summarize the uncontroverted essential facts.
Other relevant facts that fit better into the substantive legal
discussion will be set out later in this opinion.
On September 26, 1991 Allstate issued a commercial
general liability insurance policy ("Policy") to Occidental.
Coverage under the Policy was predicated on Occidental's adherence
to several conditions. Of particular importance here, coverage was
conditional on Occidental's providing Allstate with "prompt notice"
of any claim made against any insured party (R. 70).
In November 1992 Sandra Rodrguez Hernndez
("Rodrguez"), the former office manager of Occidental's Puerto
Rico office, filed a lawsuit against Occidental, Chavez and others
seeking damages for wrongful termination and sexual harassment. On
September 1, 1995 a jury awarded Rodrguez $200,000, and shortly
thereafter she filed a post-trial motion to recover attorneys' fees
and costs in excess of $420,000.
Meanwhile Occidental had said nothing at all to Allstate
during the nearly three-year life of the Rodrguez lawsuit.
Instead it waited until nearly two months after it had been tagged
with the adverse judgment--October 25, 1995--to notify Allstate.
In light of that belated notification, which Allstate contends
violated the Policy's notice provision, Allstate sought the
declaration referred to at the outset of this opinion. After the
parties then filed cross-motions for summary judgment, the district
court granted Allstate's motion and correspondingly denied the
Occidental-Chavez motion. This appeal followed.
Standard of Review
We review the district court's grant of summary judgment
de novo (Vartanian v. Monsanto Co., 131 F.3d 264, 266 (1st Cir.
1997)). Familiar Rule 56 principles impose on a party seeking
summary judgment the burden of establishing the lack of a genuine
issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317,
P.R., Inc 322-23 (1986)). As we stated in Woods-Leber v. Hyatt
Hotels of P.R., Inc., 124 F.3d 47, 49 (1st Cir. 1997)(internal
citations and quotation marks omitted):
The genuineness requirement signifies that a
factual controversy must be sufficiently open-
ended to permit a rational factfinder to
resolve the issue in favor of either side.
The materiality requirement signifies that the
factual controversy must pertain to an issue
which might affect the outcome of the suit
under the governing law.
For Rule 56 purposes we read the record in the light most
favorable to the non-moving party, drawing all reasonable
inferences in that party's favor (Reich v. John Alden Life Ins.Co., 126 F.3d 1, 6 (1st Cir. 1997)). In that regard "[a]n
inference is reasonable only if it can be drawn from the evidence
without resort to speculation" (Mulero-Rodrguez v. Ponte, Inc., 98
F.3d 670, 672 (1st Cir. 1996), quoting Frieze v. Boatmen's Bank,
950 F.2d 538, 541 (8th Cir. 1991)).
Where as here cross-motions for summary judgment are
involved, "the court must consider each motion separately, drawing
inferences against each movant in turn" (Reich, 126 F.3d at 6).
Adopting such a dual perspective--one that can best be described as
Janus-like--sometimes forces the denial of both motions. That
potential for a dual denial does not arise here, however, because
the underlying facts are not in dispute. Instead the parties are
at odds about whether as a matter of law the district court erred
in holding that:
1. Florida's substantive law, rather than Puerto Rico's,
governed this controversy.
2. Occidental's failure to notify Allstate of the
Rodrguez claim until after an adverse judgment had been
rendered leads to a ruling of prejudice as a matter of law,
thus relieving Allstate of its duties to defend or to
indemnify under the Policy.
Choice of Law
Before we turn to the merits of the parties' respective
positions, we must first identify the applicable substantive law,
a subject on which the Policy is silent. Allstate argues that
Florida law controls, while Occidental and Chavez plump for the
application of Puerto Rican law. That issue has particular
importance here: Florida law presumes that an insurer is
prejudiced by an insured's failure to give prompt notice of a
claim, with the burden placed on the insured to rebut that
presumption, while under Puerto Rican law an insurer must prove
actual prejudice to prevail in a late-notice case.
For cases sounding in diversity, the Erie v. Tompkins mandate
to look to state law for the substantive rules of decision includes
the application of the forum's choice of law doctrines (Klaxon Co.v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). New PonceShopping Ctr., S.E. v. Integrand Assurance Co., 86 F.3d 265, 267
(1st Cir. 1996) (internal citations omitted), recently clarified
our task in the absence of a choice of law contractual provision
Hyatt Hotels of P.R.:
A federal court sitting in a diversity case must apply
the choice of law rules of the forum state. Puerto Rico,
the forum territory in this case, has approved the
"dominant or significant contacts" test for contract and
tort actions. Under that test, the laws of the
jurisdiction with the most significant contacts to the
disputed issues will apply.
In making that assessment we are guided by the Restatement (Second)
of Conflict of Laws (1971) ("Restatement") (A.M. Capen's Co. v.
American Trading & Prod. Corp., 74 F.3d 317, 320 (1st Cir. 1996)).
Restatement 188 identifies, for contract actions such as
this one, five significant contacts to be evaluated in accordance
with their relative importance to the issues presented by the
lawsuit:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract,
and
(e) the domicil, residence, nationality, place of
incorporation and place of business of the parties.
In those terms the Policy's Florida contacts have overwhelming
significance:
(a) Occidental entered into the Policy in Florida,
though Allstate's agents signed the document in Illinois (R.
73).
(b) Florida was the place where the Policy was applied
for, negotiated and issued (id. 288-90).
(c) All demands for coverage were sent to Allstate's
Florida office (id. 206-20). Occidental paid the premium in
Florida (id. 28).
(d) According to the policy application itself, which
required Occidental to list all locations for which it desired
insurance coverage, the insured premises are located at "5001
SW 74 Ct. #203 Miami F[lorida] 33155" (id. 27). Although the
application had a specifically designated set of boxes for the
listing of other premises, no other locations were listed
there. Indeed, Allstate underwriter Germaine Smith testified
that the policy was underwritten and issued based upon the
belief that the Miami address was Occidental's principal and
sole place of business (id. 288-91). She stated without
contradiction that Allstate was unaware "that Occidental
maintained any office in Puerto Rico or that it sold
transformers to the Puerto Rico Electric Power Authority" (id.292). Thus it is clear that the principal location of the
intended insured risks was in Florida, although the general
language of the Policy's coverage provision was broad enough
to encompass the Puerto-Rico-based conduct for which Rodrguez
sued.
(e) As to the final factor, Allstate is an Illinois
corporation with its principal place of business in Illinois.
Occidental is a Florida corporation with its principal place
of business in Miami. Occidental's president, chief executive
officer and primary shareholder Chavez is a citizen and
resident of Florida who occasionally travels to Puerto Rico
for business. Only Rodrguez is a citizen and resident of
Puerto Rico.
All of that presents a sharp contrast to the Policy's minimal
relevant contacts with Puerto Rico. It must be remembered that
this is a contract-based action, yet Puerto Rico had no contacts at
all either with the Policy or with the parties who signed it.
Instead Occidental must rely on the fortuity that the sexual
harassment and employment termination took place in Puerto Rico and
that the broad sweep of the insuring clause did extend coverage to
those incidents. Under that approach the same provisions in an
insurance contract could receive almost infinitely varied
constructions from time to time, based on the happenstance location
of insured events--for example, an automobile collision in a
jurisdiction where neither the insurer nor the insured had any
meaningful contacts at all. In that sense the distinction
articulated by In re San Juan Dupont Plaza Hotel Fire Litig., 45
F.3d 569, 576 (1st Cir. 1995) (citations and footnote omitted)
between an insurance policy itself and the specific occurrence that
may trigger potential coverage liability applies here with equal
force:
Because the district court here was sitting in diversity,
it was required to follow Puerto Rico's choice-of-law
rules. Puerto Rico applies a "dominant contacts" test in
contract actions. Under that test, the law that applies
is the law of the jurisdiction with the most significant
contacts to the disputed issue, with due consideration
given to the policies at stake. Although the factors do
not all point one way, we agree with the district court
that California has the most significant contacts with
the issue of pre-judgment interest.
In substance, pre-judgment interest is sought here in
connection with the interpretation and enforcement of a
contract--specifically two insurance policies--
indisputably governed by California law. The policies
were applied for, negotiated, issued and paid for in
California; and the William Lyon Company and Lyon himself
were based there. Puerto Rico, by contrast, has the main
connection with the fire but no contacts with the
policies except for the fortuity that insurance coverage
was litigated in the same case as liability for the fire.
That language might well have been written for this case, with
the now-disputed issue of notice to the insurer substituted for the
disputed issue of pre-judgment interest referred to in the
quotation. We agree with the district court's conclusion that
Florida substantive law provides the rules of decision.
Failure To Provide Timely Notice
Occidental-Chavez next argue that the district court
improperly held that Occidental breached the Policy's notice
provision and that such breach prejudiced Allstate as a matter of
law. As is proper in contract cases, we start with the Policy's
language. Condition 11 of the "General Conditions" section,
entitled "What To Do If You Have a Loss," provides:
If someone is injured or makes a liability claim against
any person insured, that person must:
a. Promptly notify us or one of our agents of what
happened. You must also furnish us the necessary
information regarding the time and place of the event and
the names and addresses of any witnesses and injured
people.
* * *
c. Send us copies of all legal documents if any
persons insured are sued, or someone files a claim
against any persons injured.
Yet it is undisputed that Occidental first provided Allstate
with the contractually required notice of the Rodrguez claim
almost two months after the rendition of the adverse jury verdict
and nearly three years after Rodriguez first filed her lawsuit.
There is simply no way in which that extraordinary tardiness can
fit the contractual requirement that Occidental must "promptly
notify" Allstate when it receives a "liability claim"--as it did in
November 1992--and must also transmit the suit papers to Allstate.
In light of that lengthy delay, it is clear that Occidental's post-
verdict notice constitutes a breach of the Policy's notice
provision, which was designated a condition precedent to coverage.
In that respect Bankers Ins. Co. v. Macas, 475 So.2d 1216,
1218 (Fla. 1985) has taught:
A notice of accident in most insurance policies is a
condition precedent to a claim. It was so designated in
the policy in this case. Such a condition can be avoided
by a party alleging and showing that the insurance
carrier was not prejudiced by noncompliance with the
condition. The burden should be on the party seeking an
avoidance of a condition precedent.
And Bankers, id. explains the usual effect of an insured's failure
to satisfy that condition precedent:
If the insured breaches the notice provision, prejudice
to the insurer will be presumed, but may be rebutted by
a showing that the insurer has not been prejudiced by the
lack of notice.
At a minimum, then, Occidental's failure to comply with the
notice provision created a presumption of prejudice sufficient to
relieve Allstate of its duties under the Policy, thus shifting the
burden to Occidental to demonstrate that its tardiness did not in
fact prejudice Allstate. But the district court went one step
further and concluded that under the circumstances Allstate was
prejudiced as a matter of law (Opinion at 647):
[U]nder Florida law, failure to notify an insurer of a
claim until after an adverse judgment has been handed
down is evidence of prejudice as a matter of law.
Occidental and Chavez contend that prejudice is rather a
question of fact, so that the issue was inappropriate for
resolution at the summary judgment stage. They urge that they
should have been afforded an opportunity to adduce evidence
sufficient to rebut the prejudice presumption. To be sure, whether
an insurer has been prejudiced by the insured's failure to provide
timely notice is often a factual question. But where as here the
relevant facts are not in dispute and where as here notice was not
given until after judgment was entered against the insured, there
are a substantial number of cases from jurisdictions around the
country that hold that prejudice exists as a matter of law--
exemplary of such cases are Allstate Ins. Co. v. Kepchar, 592
N.E.2d 694, 698-99 (Ind. Ct. App. 1992); Lusalon, Inc. v. HartfordAccident & Indem. Co., 498 N.E.2d 1373, 1375 (Mass. App. Ct. 1986),
aff'd on other grounds, 511 N.E.2d 595, 598 n.9 (Mass. 1997); Huntv. Ford Motor Co., 1995 WL 523646, at *4 and n.3, reported in table
at 65 F.3d 178 (10th Cir. 1995) ; and other cases cited in each of
those decisions. We ourselves have relatedly said in PreferredMut. Ins. Co. v. Travelers Cos., 127 F.3d 136, 137 (1st Cir. 1997):
[C]onstruction of insurance contracts and application of
their terms to established facts are matters of law,
ultimately for us.
We have already said that Occidental's delay was not of the
modest type most frequently encountered, when an insurer contends
(for example) that its ability to investigate a covered occurrence
has been hampered by its not having been brought into the picture
as soon as the insured learned that a claim might be made. That
type of situation does indeed present a factual question of
reasonable notice, as Ideal Mut. Ins. Co. v. Waldrep, 400 So.2d
782, 785 (Fla. Dist. Ct. App. 1981) has explained regarding the
other facet of the Policy's Condition 11 notification requirement:
Notice is necessary when there has been an occurrence
that should lead a reasonable and prudent man to believe
that a claim for damages would arise.
Quite to the contrary in this case, prejudice to Allstate is
the inevitable consequence of Occidental's failure to provide it
with any notice of the lawsuit until after the entry of a large
adverse judgment against Occidental. By the time that Allstate
finally received notification, it was confronted with an
established liability of $200,000 plus attorneys' fees and costs
totaling more than $420,000. Occidental did not offer any
justification for its nearly three year delay, which thwarted the
essential purposes of the notification requirement. As the
district court correctly observed (Opinion at 647):
Where the insurer has not been notified of a pending
claim until after judgment, it is deprived of its ability
to investigate the allegations, to locate witnesses, to
appoint counsel of its choice, to negotiate a settlement,
and to develop its own trial strategy.
It is frankly difficult to imagine how Allstate could have
suffered greater prejudice from the clear breach of its contractual
right to prompt notice. We hold that Occidental's extraordinarily
tardy notice not only breached the Policy's notice provision but
also prejudiced Allstate as a matter of law, thus relieving it of
any duty to defend the Rodriguez suit on appeal or to indemnify
Occidental and Chavez for the judgment rendered against them.
Conclusion
There is no genuine issue of material fact, and the district
court correctly determined that Allstate was entitled to a judgment
as a matter of law. Its Rule 56 motion was properly granted, while
the Occidental-Chavez motion was of course properly denied. We
AFFIRM.