Allstate Ins. Co. v. Occidental Intern., Inc.

• Decision Date: 05 January 1998
• Docket Number: No. 97-1882,97-1882
• Parties: 72 Empl. Prac. Dec. P 45,252 ALLSTATE INSURANCE COMPANY, Plaintiff--Appellee, v. OCCIDENTAL INTERNATIONAL, INC. and Omar Chavez, Defendants--Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

140 F.3d 1

72 Empl. Prac. Dec. P 45,252

ALLSTATE INSURANCE COMPANY, Plaintiff--Appellee, v. OCCIDENTAL INTERNATIONAL, INC. and Omar Chavez,

Defendants--Appellants.

No. 97-1882.

United States Court of Appeals, First Circuit.

Heard Jan. 5, 1998.

Decided March 25, 1998.

Eugene F. Hestres, San Juan, PR, with whom Bird Bird & Hestres was on brief, for appellants.

Ronald L. Kammer, Eric G. Belsky, Hinshaw & Culbertson, Miami, FL, Francisco E. Coln-Ramrez and Law Offices of Francisco Coln-Pagan, San Juan, Pr, were on brief, for appellee.

Before BOUDIN, Circuit Judge, COFFIN, Senior Circuit Judge, and SHADUR, ^* Senior District Judge.

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 ¹

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). ²

In November 1992 Sandra Rodrguez Hernandez ("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, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (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 ³

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, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941)). New Ponce Shopping 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:

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). ⁴

(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....