
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-2115        No. 93-2116                  IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.                                      __________                    WILLIAM LYON and HOLDERS CAPITAL CORPORATION,                  Appellants, Cross-Claimants, and Cross-Defendants,                                          v.                         PACIFIC EMPLOYERS INSURANCE COMPANY                          and FIRST STATE INSURANCE COMPANY,                  Appellees, Cross-Defendants, and Cross-Claimants.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                    [Hon. Raymond L. Acosta, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Maureen E.  Mahoney and  Theodore A.  Pianko with  whom Milton  A.            ___________________      ___________________            __________        Miller, Michael  Bruce  Abelson,  Max L.  Gillam,  Latham  &  Watkins,        ______  _______________________   ______________   __________________        Etienne Totti Del Valle, Dominguez & Totti and Sidley & Austin were on        _______________________  _________________     _______________        joint briefs for William Lyon and Holders Capital Corporation.            Ralph  W. Dau  with whom  Peter  B.  Ackerman, O'Melveny  & Myers,            _____________             ___________________  __________________        Raul E.  Gonzalez-Diaz, A.J. Bennazar-Zequeira and Gonzalez & Bennazar        ______________________  ______________________     ___________________        were on brief for Pacific Employers Insurance Company.            Homer  L. Marlow with whom Marlow, Connell, Valerius, Abrams, Lowe            ________________           _______________________________________        & Adler was on brief for First State Insurance Company.        _______                                 ____________________                                   January 27, 1995                                 ____________________                 BOUDIN, Circuit Judge.  These two  appeals stem from the                         _____________            third and final phase of the San Juan Dupont Plaza Hotel fire            litigation1  and  concern  insurance  coverage.    Appellants            William  Lyon and  Holders  Capital  Corporation  ("Holders")            challenge the  district  court's determination  that  certain            excess  liability   policies  issued  by   Pacific  Employers            Insurance Company ("PEIC") and  First State Insurance Company            ("FSIC") to  Lyon  and others  do not  cover the  appellants'            fire-related obligations.  We affirm the district court.                                         I.                  Lyon is a principal shareholder and director of Holders,            a holding company that  invested in various hotels, including            the  ill-fated  Dupont  Plaza.    In  phase  I  of  the  fire            litigation, the fire victims sued Holders and Lyon as well as            the hotel and other defendants affiliated with it.  (Phase II            concerned liability  claims  against suppliers  of goods  and            services to  the  hotel, and  phase  III sought  to  allocate            liability of insurers.)   Hoping to establish Lyon's personal                                            ____________________                 1See  In re Two Appeals  Arising Out of  San Juan Dupont                  ___  __________________________________________________            Plaza Hotel Fire Litig., 994 F.2d  956 (1st Cir. 1993); In re            _______________________                                 _____            San Juan Dupont  Plaza Hotel  Fire Litig., 989  F.2d 36  (1st            _________________________________________            Cir.  1993); In re Nineteen  Appeals Arising Out  of San Juan                         ________________________________________________            Dupont Plaza Hotel Fire Litig., 982 F.2d 603 (1st Cir. 1992);            ______________________________            In re San Juan Dupont  Plaza Hotel Fire Litig., 958  F.2d 361            ______________________________________________            (1st  Cir. 1992) (table); In  re San Juan  Dupont Plaza Hotel                                      ___________________________________            Fire  Litig., 907  F.2d 4  (1st Cir.  1990); In  re San  Juan            ____________                                 ________________            Dupont Plaza Hotel Fire Litig., 888 F.2d 940 (1st Cir. 1989);            ______________________________            In re San Juan Dupont Plaza Hotel Fire Litig., 859  F.2d 1007            _____________________________________________            (1st Cir. 1988); In re Recticel Foam, 859 F.2d 1000 (1st Cir.                             ___________________            1988).                                           -2-                                         -2-            liability (and so  to reach his  personal fortune), the  fire            victims sought in  phase I to pierce Holders'  corporate veil            and  to  prove  that  the  hotel  was  actually  managed  and            controlled  by  a  de  facto partnership  of  Holders'  three                               _________            shareholders, Brian Corbell, William Eberle and Lyon (the so-            called "Holders partnership").                 In May  1989, after  eight weeks  of trial, Holders  and            Lyon, along with the other phase I defendants, entered into a            multimillion  dollar  settlement   agreement  with  the  fire            victims.  Under the agreement, Lyon  was to seek contribution            from his various  insurers, which included PEIC and  FSIC, to            fund his portion of the settlement.  PEIC and  FSIC both paid            their  policy  limits to  Lyon,  $3 million  and  $2 million,            respectively,  subject to  their right  to seek  repayment by            Lyon  if  it was  later determined  in  phase III  that their            policies did not  cover the hotel fire.   Phase III  does not            affect the  victim's  settlement fund.   See  In re  Nineteen                                                     ___  _______________            Appeals, 982 F.2d at 606.            _______                 The insurance policies  at issue  here were  part of  an            excess coverage plan for the William Lyon Company, a southern            California residential  building and development  company, as            well as numerous other listed  affiliated insureds, including            Lyon himself.  Within the excess coverage framework, the PEIC            and  FSIC policies  provided  second- and  third-level excess            coverage;  first-level  excess   coverage  was  provided   by                                         -3-                                         -3-            National  Union  Fire Insurance  Company.    Other than  Lyon            himself,  no  entity  connected   to  the  Dupont  Plaza  was            expressly listed as an insured.                  In phase III  of the litigation,  Holders and Lyon  both            filed  claims in the district  court to affirm  that PEIC and            FSIC were responsible to  provide coverage for the fire.   To            this  end appellants needed a theory that would not only show            that  the  policies  extended  to Lyon  or  Holders  but also            explain  how Lyon  or Holders  could be  liable for  the fire            under the policies; after  all, the hotel was not  insured by            PEIC or  FSIC; and in  view of  the settlement, no  court had            ever  held Lyon or Holders liable for the fire.  Accordingly,            Lyon  and  Holders adopted  the  position taken  by  the fire            victims  in phase I of the litigation, i.e., that Holders was                                                   ____            merely a corporate shell and that Lyon had operated the hotel            through the alleged Holders partnership.                 On this theory, Holders  and Lyon claimed coverage under            the PEIC policy based  on a so-called "omnibus" clause;  this            clause (they  argued) extended coverage to  any entity (here,            Holders and the Holders partnership) in which a named insured            (here, Lyon) had  management responsibility or responsibility            for insurance.   Lyon claimed coverage for  himself under the            FSIC policy based on a  "joint venture endorsement," which he            argued  explicitly covered  his  involvement in  the  alleged                                         -4-                                         -4-            Holders partnership.   Both  policy provisions are  set forth            below.                 On December 7, 1992,  the district court granted summary            judgment  for  PEIC  and  FSIC, ruling  that  neither  policy            covered  Holders' or  Lyon's fire-related  obligations.   The            court  held  inter  alia   that  PEIC's  omnibus  clause  was                         _____  ____            ambiguous  as to who was covered and thus should be construed            against  Lyon,   its  supposed  drafter;  and   that  a  sole            proprietor endorsement  applicable to both the  PEIC and FSIC            policies, which  limited coverage for  individual insureds to            their sole  proprietorships,  precluded coverage  for  Lyon's            business involvement in the Dupont Plaza.  The district court            ordered Lyon  to reimburse  PEIC  and FSIC  the five  million            dollars they had advanced  for the settlement obligations and            then  awarded  PEIC and  FSIC  pre-judgment  interest on  the            amount.  These appeals followed.                                         II.                 Because  the  district court  disposed  of  the case  on            summary  judgment,  we review  the  court's  ruling de  novo,                                                                __  ____            Goldman  v. First Nat'l Bank  of Boston, 985  F.2d 1113, 1116            _______     ___________________________            (1st Cir.  1993), and first  address coverage under  the PEIC            policy.  Holders and Lyon claim that the district court erred            in  finding that the omnibus clause was ambiguous and then in            construing it  against Holders and  Lyon.  They  contend that            the clause unambiguously extends  coverage to Holders and the                                         -5-                                         -5-            Holders  partnership and,  if  ambiguous, then  it should  be            construed  against the insurers or at least a trial should be            provided.                   The  omnibus clause is contained at the end of the named            insured  endorsement  which  lists   by  name  53   insureds,            beginning with  the William Lyon Company  and including among            many business entities  two individuals, one being Lyon.  The            omnibus clause reads:                              NAMED INSURED ENDORSEMENT                 It  is  understood and  agreed that  item 1  of the                 policy declarations ["Name  of Insured"] shall read                 as follows:                                        . . .                  The interest of the William  Lyon Company or any of                 its   affiliated  entities   in  any   joint  power                 agreement,  joint  venture, partnership  or similar                 entity, and  any entity in which  any named insured                 owns   majority   interest,  possesses   management                 responsibility, or responsibility for insurance.                              Holders  and  Lyon  treat the  last  17  words  of the  final            sentence (beginning  "any entity") as an  independent clause;            assert  that   Lyon  is  a  "named   insured"  and  possessed            management  or  insurance  responsibility  for  Holders,  the            alleged  Holders  partnership,  or  both;  and conclude  that            Holders and the  Holders partnership are each "any entity" of            the type described  in the last 17 words and thus are insured            under the policy.                 One  may wonder at first  glance why it  is necessary to            trace  through the omnibus  clause to Holders  or the Holders            partnership, since under an earlier clause of the endorsement                                         -6-                                         -6-            Lyon himself is unquestionably a named  insured.  However, as            a  partner or manager of Holders, Lyon was barred from making            a claim  in his own right  as a named insured  because of the            PEIC policy's sole  proprietor endorsement, which  contains a            special limitation on coverage otherwise available to a named            individual insured.  The sole proprietor endorsement reads as            follows:                               INDIVIDUAL AS NAMED INSURED                 It is  agreed that if any  named insured designated                 in the declaration is an individual, coverage under                 this policy for such individual named insured shall                 apply  only  with  respect  to  the  conduct  of  a                 business of which he is the sole proprietor.            In our  view this  provision excludes  coverage not  only for            Lyon claiming directly but also for Holders, or the  supposed            Holders partnership, claiming through  Lyon under the omnibus            clause.  This is  PEIC's first argument in its  appeals brief            and we think that it is persuasive.                 The parties  are agreed that California  law governs the            interpretation of the insurance  policies in this case.   But            there is nothing  in the  California precedents  cited to  us            that  relates directly  to the  interplay between  an omnibus            clause and a  sole proprietor endorsement.   We thus confront            the language  of the two provisions head-on,  mindful that an            insurance policy--like any other contract--is to be construed            as a whole  and not by reading its parts  in isolation.  Cal.                                         -7-                                         -7-            Civ. Code    1641; Bank  of the West  v. Superior  Court, 833                               _________________     _______________            P.2d 545, 552 (Cal. 1992).                 Reading the parts together, we think that a reference to            "any named insured"  in the omnibus  clause fairly means  any            company or individual named  in the named insured endorsement            but subject to any other language that directly restricts the                __________            extent to which that company or individual is classified as a            named insured.   The sole proprietor  endorsement does impose            such a restriction as to Lyon: it says that even though named            as  an insured,  he  is covered  "only  with respect  to  the            conduct  of a business of  which he is  the sole proprietor."            As already  noted, it is  for this reason that  Lyon, even if            personally  liable  for  the  fire,  would  not  be  directly            protected as a named insured.                 Appellants argue that we  are not faced with a  claim by            Lyon  in  his own  right  but  rather with  a  claim by  "any            entity"--here, Holders and the Holders  partnership--in which            Lyon  as  "any named  insured"  has  management or  insurance            responsibility.   Yet  by virtue  of the  sole proprietorship            endorsement,  Lyon is "any named insured" only with a respect            to  the  conduct  of a  business  of  which  he is  the  sole            proprietor.   A sole  proprietorship  is a  business form  in            which an individual--rather than, for example,  a partnership            or  corporation--owns   the  business.     See  Black's   Law                                                       ___  _____________            Dictionary,  1392 (6th ed. 1990).  No one claims that Holders            __________                                         -8-                                         -8-            or the Holders partnership fits this definition; nor is there            any  plausible  claim  that  Lyon's  participation in  either            entity was in the capacity of sole proprietor.                 In  sum,  we  think  that  by  its  language  the   sole            proprietor  endorsement--in describing the  coverage for "any            named insured" who is an "individual" limits other references            to Lyon as  "any named insured" wherever that phrase appears.            Where the entity claiming through Lyon in  the omnibus clause            is  not a  sole proprietorship,  and his relationship  to the            entity  was not  in  his capacity  as  sole proprietor  of  a            business,  then that  entity is  not  covered by  the omnibus            clause.   And while the  concept of ambiguity  is not without            ambiguities of  its own, the policy language  does not appear            to us to be fuzzy or unclear on this point.                 Insurance  policies  are commonly  constructed not  as a            continuous  narrative  but, as  this  one  illustrates, by  a            succession of  juxtaposed clauses defining  the insured,  the            risks  covered,  the  extent  and  amount  of  coverage,  and            (typically) the various limitations or restrictions on all of            these concepts.  Such  a document not only invites  but, like            some  complicated  Christmas   toy,  virtually  demands  that            different parts be inserted into one another according to the            instructions.    Here,  the  fact that  the  sole  proprietor            endorsement and  the omnibus clause  pivot on the  same words                                         -9-                                         -9-            ("any named insured") makes  it especially easy to  read them            together.                 Appellants respond by asserting that the sole proprietor            endorsement imposes no limitation  on coverage for any entity            other  than an  individual  because  the  endorsement  itself            purports  to restrict  "coverage under  this policy  for such                                                                 ________            individual named insured .  . ."  The "function  and purpose"            ________________________            of the endorsement, appellants say, was to  limit coverage to            business, as opposed to  personal, risks.  Finally, they  say            that PEIC has  not previously relied  on the sole  proprietor            endorsement  as it now  does and has  therefore "waived" this            interpretation as a ground for sustaining the judgment below.                 We  think  that  the underscored  language  is  entirely            consistent with reading  the limitation to apply  not only to            "such individual named insured"  but also any entity claiming            through  such a named insured  based on its relationship with            _______            the named  insured:   since  Lyon could  not claim  coverage,            Holders cannot claim coverage  derivatively through Lyon.  As            for the purpose and function argument, the endorsement on its            face does not draw a personal versus business distinction; it            restricts claims  to one specific business  capacity in which            an individual may  act, namely, as  a sole proprietor,  while            excluding  other possibilities (e.g.,  partner, manager  of a                                            ____            jointly  owned company)  that might  otherwise be  helpful to            appellants' claims.                                         -10-                                         -10-                 As  for  waiver, appellants  confine  themselves  to two            sentences in  their reply  brief, offer no  details, and  can            fairly be said to have waived the waiver argument themselves.            See Ryan  v. Royal  Ins.  Co., 916  F.2d 731,  734 (1st  Cir.            ___ ____     ________________            1990).  Even if they  had not, the argument on which  we rest            is  closely  related to,  although  not  identical with,  the            ground  on which  the district  court disposed  of  the claim            against  FSIC.   Under  these circumstances,  it is  somewhat            difficult  to  imagine  that  Holders  or  Lyon  was  greatly            surprised  to see  the argument  as the  first one  in PEIC's            appellate brief.                 2.   The  FSIC  policy   presents  overlapping  but  not            identical questions  relating only to Lyon.   The FSIC policy            itself  does  not  contain  the omnibus  endorsement,  so  to            establish coverage, Lyon  points to  a different  endorsement            relating  to  joint ventures.    According to  Lyon,  "by its            terms" this  endorsement "provides coverage `in  the event of            any  occurrence caused by or arising out of any joint venture            . . . or partnership (hereinafter joint venture) in which the                                                                      ___            insured has an interest.'"  Therefore, Lyon says, the alleged            _______            Holders partnership is entitled to coverage.                 This  argument  rests  on  a  selective,  and  we  think            misleading, quotation  from  the joint  venture  endorsement.            Its opening paragraph reads in full:                 It  is  agreed tjay  [sic]  in  the  event  of  any                 occurrence caused  by or  arising out of  any joint                                         -11-                                         -11-                 venture,  co-venture,  joint lease, joint operating                 agreement   or   partnership   (hereinafter   joint                 venture) in which the  insured has an interest, the                 limit of liability of the company under this policy                 shall be limited to the product of:            There follows a formula  designed, broadly speaking, to limit            the insurer's liability  to the share of the partner who is a            named  insured.  On its face, this endorsement is designed to            limit liability and not to extend coverage to any partnership            not  otherwise covered  (a number  of partnerships  are named            insureds).                 Thus,  the  claim  that  the  joint  venture endorsement            extends  protection to any partnership in which Lyon holds an            interest  appears to be mistaken.   But this does not end the            matter because Lyon is  a named insured under the  policy and            is entitled to claim in his  own right as a partner (assuming            that there  was a partnership  and subject  to the  formula's            limitation),  unless  the  FSIC  policy  otherwise  restricts            Lyon's  own protection.  The district court found that it did            and we agree.                 Although  the FSIC  policy itself  does not  contain the            sole proprietor endorsement contained  in the PEIC policy, it            does have a provision,  apparently common in excess liability            policies,  providing  that   "[t]his  policy,  except   where            provisions to the  contrary appear herein, is  subject to all            of the conditions, agreements, exclusions and limitations  of            and  shall follow  the underlying  policies in  all respects,                                         -12-                                         -12-            including changes by endorsement."  The  policy issued by the            lead   excess  insurer,  National   Union,  contains  a  sole            proprietor endorsement (as does the PEIC policy).                 The   district  court  held  that  the  sole  proprietor            endorsement  was  adopted  by  the FSIC  policy  through  the            "subject to"  provision just  quoted, and  precluded coverage            for  the Holders partnership.  Lyon does not dispute that the            sole proprietor endorsement would be decisive if it applied--            manifestly, it would bar  his own claim as a  partner--but he            argues   that  the   sole   proprietor  endorsement   is  not            incorporated because  it is  inconsistent  with the  coverage            extended by the FSIC  policy.  He points specifically  to the            joint  venture  endorsement which  (allegedly) "affirmatively                                                            _____________            grants  coverage to William Lyon in his capacity as a partner            or joint venturer . . . ."                 This conflict  is wholly  imaginary.  The  joint venture            endorsement  does not grant  coverage to William  Lyon in his            capacity as partner; by its terms, it does not grant coverage            to any partner or  partnership but rather (as  already noted)               ___            restricts the extent of the protection available to otherwise            covered  partnerships  (e.g.,  partnerships listed  as  named                                    ____            insureds).  The  alleged Holders partnership  is not a  named            insured, nor  has Lyon suggested any  other basis--apart from            the joint venture endorsement--by which the partnership might            be covered.                                         -13-                                         -13-                 The result would  not change even  if the joint  venture            endorsement were read affirmatively to extend  coverage under            the FSIC policy to all partnerships where a named insured was            a partner.   For reasons already indicated  in our discussion            of the  PEIC policy,  we think that  Lyon as a  named insured            would still be restricted  by the sole proprietor endorsement            (incorporated  by  the  "subject   to"  endorsement);  and  a            partnership  claiming  through  him  would  impermissibly  be            seeking  to  take advantage  of his  status  as a  partner, a            status in which he has no protection.                   Once  again, there  would be no  irreconcilable conflict            between the joint venture  and sole proprietor  endorsements.            The  joint  venture  endorsement would  continue  to  protect            partnerships where  the named  insured, whose  partner status            was  used as  the  basis for  covering  the partnership,  was            insured without  limitation as  to capacity.   That would  be            true   under  the   FSIC  policy   of  all   insureds  (e.g.,                                                                    ____            corporations) except  individuals.   The  restriction of  one            provision by  another is  not automatically a  conflict where            both can continue to perform a function.  See Cal. Civil Code                                                      ___               1641, 1652.                 To  conclude  as to  coverage  claims:   based  on their            language,  neither  the  PEIC  nor  the  FSIC  policy  extend            liability  coverage for  the  fire to  Holders,  Lyon or  the            alleged Holders  partnership.  One might  argue about whether                                         -14-                                         -14-            the language can  be described  as "plain,"  since a  jig-saw            puzzle  of provisions has to be solved to determine the scope            of  the  policies.   But  the  fact  remains  that, when  the            provisions are properly  juxtaposed, their language  excludes                                                       ________            the claims here made.                 Language  is  the  baseline  for  interpretation  of  an            insurance policy  or other legal document.   But judges--like            everyone else--are more comfortable with their readings where            purpose is evident and  congruent with language.  It  is hard            to  say  that "purpose"  is  completely clear  in  this case.            Neither side has tried seriously to illuminate the purpose of            the  various  provisions  or   how  their  rationales   might            interact.    We  are  therefore  left  with  the  words,  and            appellants have  given us no affirmative  reason to disregard            the literal words of the policies.                 Although we  do not reach the  insurers' other arguments            against liability, one of  them is worth a brief  mention, if            only  to make clear that a literal reading of policy language            produces no obvious injustice.  The  pertinent documents as a            whole--most  importantly,  the  application  papers  and  the            policies--convey  the   surface  impression  that   Lyon  was            insuring  his construction  business  and a  bevy of  related            enterprises which owned  property in a number  of states, not            including  Puerto Rico.  There is no indication in the papers            that a hotel in Puerto Rico  existed or was in any way to  be                                         -15-                                         -15-            the subject  of either  policy; indeed, an  entirely separate            insurance structure  existed to  cover Lyon's and  the Dupont            Plaza entities' hotel operations.                   If Lyon had owned the hotel as a sole  proprietorship,            interesting problems might  be posed.  He  would probably say            that  the language of the  policy squarely covered  him as an            individual named insured operating  as a sole proprietor; and            the  insurers   would  say--as   indeed  they  do   in  their            alternative  defense on  appeal--that  the applications  were            materially misleading in failing to furnish information about            the  hotel.   How  this controversy  would  be resolved  is a            matter of conjecture.                 Yet if Lyon did prevail--he says, for example, that  the            applications did  not seek information about  his investments            in  the  hotel--one  suspects  that  the  recovery  would  be            something of a windfall.   Sometimes valid general provisions            in  contracts  do  produce   recoveries  that  no  one  quite            envisioned.    In  this   instance,  at  worst,  the  general            provisions appear to have forestalled a  recovery that no one            quite envisioned.                                         III.                 We turn now to damages.  As noted earlier, both insurers            paid  Lyon up  to  their  policy  limits  but  subject  to  a            reservation of  rights.   After granting summary  judgment in            favor of  the insurers,  the district court  under California                                         -16-                                         -16-            law awarded  the insurers pre-judgment interest  on the funds            they had  advanced, at the rate of ten percent, to be paid by            Lyon.  Lyon  now argues that the district court  erred in not            applying Puerto  Rico law on pre-judgment  interest, where an            award  of  pre-judgment  interest  depends on  a  showing  of            obstinacy.                 We  review  de  novo a  district  court's  choice-of-law                             ________            determination.   Putnam Resources  v. Pateman, 958  F.2d 448,                             ________________     _______            466 (1st Cir. 1992).  In California, pre-judgment interest is            awarded  virtually as a matter of right to a prevailing party            as delay  damages to reflect  the time  value of money.   See                                                                      ___            Cal. Civ.  Code   3287; McConnell  v. Pacific Mut.  Life Ins.                                    _________     _______________________            Co. of Cal., 24  Cal. Rptr. 5, 11 (Cal.  App. Ct. 1962).   In            ___________            Puerto Rico,  pre-judgment interest  is imposed as  a penalty            when the losing party was obstinate.  See P.R. Laws Ann. tit.                                                  ___            32,  app. III, rule 44.3;  Reyes v. Banco  Santander de P.R.,                                       _____    _________________________            N.A., 583 F. Supp. 1444, 1446 (D.P.R. 1984).            ____                 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.   In re  San Juan Dupont  Plaza Hotel  Fire                                _________________________________________            Litig., 745 F. Supp. 79, 82  (D.P.R. 1990).  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.  Id.  Although                                                            ___                                         -17-                                         -17-            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.2                 So far as the California pre-judgment interest rule aims            at reflecting the time value of money and making the deprived            litigant whole, California's interest applies with full force            in this case.   The  fact that the  insurance companies  paid            first  and  then sought  reimbursement  is happenstance;  the            dispute still concerns  liability under California  policies.                                            ____________________                 2PEIC  and FSIC  had  earlier sought  to litigate  their            coverage in  a declaratory judgment action  in California but            the court dismissed the action in light of the omnibus Puerto            Rico litigation.  Appellants have  asked us to take  judicial            notice of a  supposed finding in  the California action  that            Puerto Rico has the most important contacts with this action.            A review  of the transcript  shows that the  California judge            simply  determined that a  multiplicity of proceedings should            be  avoided.   The judge did  not undertake  a choice  of law            analysis  on any issue, let  alone the one  with which we are            concerned.                                         -18-                                         -18-            To the  extent that California wants  its contracting parties            to pay (here, to  repay) obligations promptly, again applying            California law serves California interests.                 Of  course, requiring  pre-judgment interest may  have a            secondary  purpose--perhaps  more  than  secondary  in Puerto            Rico's   case--since   it  discourages   frivolous  defenses.            Defendants  who  owe debts  are  less  likely  to  stall  and            litigate, thus benefitting the courts and the public.  Puerto            Rico's use of an obstinacy  test may suggest that it is  less            concerned   with  making   the   creditor  whole   than  with            discouraging meritless litigation in its courts.  Even so, in            this case there is no conflict between Puerto Rico's interest            and the award to the insurers.                 Here,  the  award  of  pre-judgment  interest  does  not            frustrate  Puerto  Rico's   desire  to  discourage  obstinate            litigation; at most, pre-judgment interest has  been awarded,            for  different purposes, in a  case where the  debtor may not            have been obstinate.   Since Puerto Rico's interests are  not            threatened,  there  is  no   reason  to  engage  in  whatever            balancing  might be  required if  California and  Puerto Rico            interests actually  conflicted.  See, e.g.,  Fojo v. American                                             ___  ____   ____    ________            Express Co., 554 F. Supp. 1199, 1201 (D.P.R. 1983).              ___________                 Affirmed.                  _________                                         -19-                                         -19-
