
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          July 5, 1994                                [Not for Publication]                                [Not for Publication]                            United States Court of Appeals                            United States Court of Appeals                                For the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,                                    ____________________                              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,                                         -2-                                          2            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                                         -3-                                          3            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.                                         -4-                                          4                      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                                        _____ ____            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                                         -5-                                          5            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.                                         -6-                                          6            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.                                         -7-                                          7            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.            _____________________________                                         -8-                                          8
