San Juan Dupont Plaza Hotel Fire Litigation, In re, No. 92-2216

• Decision Date: 02 March 1993
• Docket Number: No. 92-2216
• Citation: 989 F.2d 36
• Parties: In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION. HOLDERS CAPITAL CORPORATION, et al., Cross-Claimants, Appellants, v. CALIFORNIA UNION INSURANCE COMPANY, et al., Cross-Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 36

989 F.2d 36

61 USLW 2602

In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.

HOLDERS CAPITAL CORPORATION, et al., Cross-Claimants, Appellants, v. CALIFORNIA UNION INSURANCE COMPANY, et al.,

Cross-Defendants, Appellees.

No. 92-2216.

United States Court of Appeals, First Circuit.

Heard March 2, 1993.

Decided March 29, 1993.

Gary L. Bostwick, with whom R. Lance Belsome was on brief, for cross-claimants, appellants.

Ralph W. Dau and Andrew K. Epting, Jr., with whom Peter B. Ackerman, Jeffrey W. Kilduff, O'Melveny & Myers, Raul E. Gonzalez-Diaz, A.J. Bennazar-Zequeira, Gonzalez & Bennazar, G. Trenholm Walker, Wise & Cole, Homer L. Marlow, William G. Liston, Marlow, Shofi, Connelly, Velerius, Abrams, Lowe & Adler, Paul K. Connolly, Jr., Damian R. LaPlaca, LeBoeuf, Lamb, Leiby & MacRae, Deborah A. Pitts, Hancock, Rothert & Bunshoft, Lon Harris, Harris & Green, Bethany K. Culp, Patrick McCoy, Oppenheimer Wolff & Donnelly, Stuart W. Axe, Lester, Schwab, Katz & Dwyer, Francisco J. Colon-Pagan, Adrian Mercado, Mercado & Soto, Marcos Perez Cruz, Virgilio Mendez Cuesta, Ernesto Rodriguez-Suris, and Latimer, Biaggi, Rachid, Rodriguez-Suris & Godreau were on brief, for cross-defendants, appellees.

Before SELYA and CYR, Circuit Judges, and FUSTE, ^* District Judge.

SELYA, Circuit Judge.

We approach once more the lair of the fabled "litigatory monster," In re Recticel Foam Corp., 859 F.2d 1000, 1001 (1st Cir.1988), spawned by the deadly fire which engulfed the San Juan Dupont Plaza Hotel on December 31, 1986. In this appeal, three entities interested in the ownership and operation of the hotel contest the district court's entry of summary judgment in favor of a group of seventeen insurers (the pre-fire insurers) whose comprehensive general liability (CGL) and excess insurance policies had expired before the fire occurred. ¹ Finding no error of law, we affirm.

We recently traced the six-year procedural history of this gargantuan litigation, see In re Nineteen Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire Litig., 982 F.2d 603, 605-08 (1st Cir.1992), and it would be pleonastic to repeat that exercise. We remind the reader, however, that the district court segmented the liability inquiry into three phases. See id. at 606. This appeal concerns the third, and final, phase--a phase designed to "determin[e] the contractual liability of various insurers." Id. at 606 n. 3.

The district court wrote a lengthy opinion that describes the mechanics of Phase III and we refer those who thirst for greater detail to that rescript. See In re San Juan Dupont Plaza Hotel Fire Litig., 802 F.Supp. 624, 629-30 (D.P.R.1992); see also id. at 652-57 (chronicling partial history of the insurance-related litigation). To put this appeal into workable perspective, it suffices to relate that, during Phase III, a covey of cross-claimants, comprising forty-eight entities who allegedly owned, operated, or managed the hotel, sought to recoup from the pre-fire insurers some $78,000,000 which the entities, collectively, had contributed to settlement of victims' claims. Finding an absence of coverage, the district court denied the cross-claimants' requests for indemnification. See id. at 651.

At this juncture, forty-five cross-claimants threw in the towel. The remaining three, Holders Capital Corporation, Hotel Systems International, and Dupont Plaza Associates, were arguably made of sterner stuff. They appealed, hawking the theorem that defects in the hotel, apparent before the ustulation, gave rise to the liability upon which the settlements were based; and that, therefore, these payments reflect "property damage" of a kind covered under the insuring agreements of the policies underwritten by the pre-fire insurers. ²

We believe that appellants' theorem is utterly without merit. To say that damages for bodily injury and wrongful death are really "property damage" within the ambit of carefully written insurance policies, and then to argue that coverage attaches not when the harm-producing incident occurs but when alleged product defects first become visible, is to construct a pyramidal proposition more reminiscent of Lewis Carroll than of the lexicon of insurance law. ³ We cannot subscribe to so fanciful a reading of either the appellees' policies or the applicable precedents. And, moreover, because we find the district court's opinion on this point to be well-reasoned and clearly articulated, see id. at 643-48, we will be brief. Where, as here, a trial court has produced a first-rate work product, a reviewing tribunal should hesitate to wax longiloquence simply to hear its own words resonate. We therefore affirm the entry of summary judgment in this case substantially on the basis of the opinion below, embellishing our affirmance with a decurtate explanation of why two recently decided cases, not considered by the district court, fail to tip the scales in appellants' favor.

Relying heavily on Eljer Mfg., Inc. v. Liberty Mutual Ins. Co., 972 F.2d 805 (7th Cir.1992), appellants argue that the district court applied an incorrect rule of law. Eljer involved defective plumbing systems that had been installed in homes throughout the United States. Citing policy language identical to that contained in several of the CGL policies here at issue, the manufacturer of the systems sought a declaration that it was covered for damages flowing from leaks occurring after its policies had lapsed. A divided panel of the Seventh Circuit upheld the insured's right to coverage on the basis that the "physical injury" took place when the systems were implanted not when the leakage occurred and the latent harm materialized. Id. at 814.

We refuse to accord Eljer controlling weight for a myriad of reasons. In the first place, the Eljer court decided the coverage issue under Illinois law, see id. at 806, in part through the use of what it termed "first principles." Id. at 812. To the extent that Eljer is good law in Illinois, a matter about which Judge Cudahy disagreed, see id. at 814-17 (Cudahy, J., dissenting), and upon which we do not opine, we have no occasion to transplant its holding to a case, like this one, which is governed by state law requiring a different result. ⁴ See, e.g., Albany Ins. Co. v. Compania de Desarrollo Comercial, 90 JTS 19 (P.R.1990); Maples v. Aetna Casualty & Sur. Co., 83 Cal.App.3d 641, 148 Cal.Rptr. 80 (1978).

In the second place, insofar as Eljer purports to claim nationwide application, we decline the invitation, whether proffered by appellants or by the Eljer majority, to supplant a state's body of contract law with "federal general common law." Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938).

In the third place, Eljer 's rule of law evolved in connection with, and was applied to, a markedly different factual situation. The inherently defective plumbing system at issue there was installed in hundreds of thousands of homes nationwide. See Eljer, 972 F.2d at 807. It bore the risk of leaking, with a failure rate "sufficiently high to mark the product as defective," from the moment of installation, even when used as intended. Id. at 812. By contrast, the products found in the Dupont Plaza Hotel, although alleged to have created an unreasonable danger in this particular instance, were not generally defective. They functioned properly, with no risk of failure, upon normal use and became dangerous only upon the outbreak of the conflagration.

Fourth, and finally, the property damage caused by the defective plumbing systems was just that--property damage, e.g., claims for water damage to the victims' homes, diminution in property values, loss of use, costs of replacing the systems, etc. See id. at 807. Here, however, unlike in Eljer, the insureds' expenditures were made to recompense personal injury and wrongful death claims rather than property damage claims. While it is true, in a metaphysical sense, that any expenditure of funds from a party's estate can always be visualized as property damage,...