Connecticut General Life Ins. Co. v. Universal Ins. Co.

• Decision Date: 07 December 1987
• Docket Number: Nos. 87-1521,s. 87-1521
• Citation: 838 F.2d 612
• Parties: CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellee, v. UNIVERSAL INSURANCE COMPANY, et al., Defendants, Appellees. Hector Manuel Rodriguez-Estrada, Defendant, Appellant. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellant, v. UNIVERSAL INSURANCE COMPANY, et al., Defendants, Appellees. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellee, v. UNIVERSAL INSURANCE COMPANY, Defendant, Appellant. to 87-1523. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 612

838 F.2d 612

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellee, v. UNIVERSAL INSURANCE COMPANY, et al., Defendants, Appellees.

Hector Manuel Rodriguez-Estrada, Defendant, Appellant.

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellant, v. UNIVERSAL INSURANCE COMPANY, et al., Defendants, Appellees.

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, Appellee, v. UNIVERSAL INSURANCE COMPANY, Defendant, Appellant.

Nos. 87-1521 to 87-1523.

United States Court of Appeals First Circuit.

Heard Dec. 7, 1987.

Decided Feb. 9, 1988.

Guillermo Silva Janer with whom Silva Janer & Rodriguez Suris, Hato Rey, P.R., was on briefs, for Universal Ins. Co.

Letvia M. Arza-Goderich, with whom Abelardo Ruiz-Suria, Jose R. Gonzalez-Irizarry and McConnell Valdes Kelley Sifre Griggs & Ruiz-Suria, Hato Rey, P.R., were on briefs, for Connecticut General Life Ins. Co.

Jose Luis Gonzalez Castaner, with whom Marcos A. Ramirez Irizarry and Ramirez & Ramirez, Hato Rey, P.R., were on briefs, for Hector Manuel Rodriguez-Estrada.

Luis M. Angelet Frau, with whom Jose M. Calderon Bartolomei and Vazquez Vizcarrondo Alvarez Angelet Lee & Gonzalez Hato Rey, P.R., were on brief, for appellee Hans Lopez Stubbe.

Before CAMPBELL, Chief Judge, and BOWNES and SELYA, Circuit Judges.

BOWNES, Circuit Judge.

This case involves a dispute over the proper distribution of insurance proceeds following a fire at the El San Juan Hotel in Isla Verde, Puerto Rico. Connecticut General Life Insurance Company (CG), the mortgagee of the hotel, claims that it was the appropriate beneficiary under a special multi-peril insurance policy issued by Universal Insurance Company (Universal). Universal had paid all the policy proceeds to Hector M. Rodriguez Estrada (Rodriguez) as court-appointed trustee for the hotel corporation, then in chapter 11 reorganization proceedings. CG sued Universal, Rodriguez and Hans Lopez Stubbe (Lopez), a successor trustee for the hotel corporation, now in chapter 7 liquidation proceedings. Universal filed cross-claims against the two trustees. Lopez, in turn, cross-claimed against Rodriguez. The district court found Universal liable to CG in an amount equal to the insurance covering structural damage to the hotel, but not liable for insurance covering loss of contents. The court also upheld Universal's cross-claim against Rodriguez in a like amount; all other claims were dismissed. CG, Universal and Rodriguez all appealed. We affirm in part and reverse in part.

I. BACKGROUND

Following years of financial difficulty and facing some $40 million in outstanding debts, the San Juan Hotel Corporation (hotel corporation or corporation) on May 20, 1980, filed a petition for reorganization under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Secs. 1101-46. On June 18 of the same year, CG, the holder of first, second and third real estate mortgages plus two chattel mortgages encumbering the hotel property, filed an action to foreclose. In order to avoid a foreclosure sale during the period of reorganization, CG and Rodriguez, as trustee for the bankrupt corporation, entered into a stipulation of settlement. Under the stipulation, dated January 8, 1981, Rodriguez consented to the entry of a $13,673,899.75 judgment for CG against the corporation. In return, CG agreed not to initiate a foreclosure sale of the hotel property so long as a number of conditions were met. The particular condition relevant to this case appears in paragraph 3(c):

Debtor shall maintain in full force and effect and provide CG with a duplicate original of an insurance policy with an "agreed amount" endorsement, having no coinsurance provisions and naming CG as loss payee and requiring 30 days' notice to CG of any cancellation or modification, insuring the Property in an amount equal to the full amount stated in the Judgment or actual cash value whichever is greater except that if Debtor does not have such policy on the date hereof, it shall comply with this provision on or before January 1, 1981; Debtor shall further provide CG with evidence of payment of the premium for the inital policy and, at least 15 days prior to any expiration date, for each renewal thereof[.]

On February 19, 1981, judgment pursuant to the stipulation was entered by the United States Bankruptcy Court in Puerto Rico.

Approximately one year after the stipulation was signed, Special Multi-Peril Policy 60-04801 was issued by Universal on January 16, 1982. That policy provided for, inter alia, blanket coverage on all real and personal property at the El San Juan Hotel. The named insured under the policy was "San Juan Hotel Corporation and/or Lcdo. Hector Manuel Rodriguez Estrada, as Trustee as their interest may appear." While CG was listed as loss payee in a temporary binder of insurance, its interest under the actual policy derives solely from its inclusion as a mortgagee on the mortgagee schedule of the policy. Clause 19 of the general conditions of the policy, which defines the interest of a mortgagee, provides in pertinent part:

Mortgage Clause--Applicable Only to Buildings. This clause is effective if a mortgagee is named in the Declarations. The word "mortgagee" includes "trustee." Loss to the buildings shall be payable to the named mortgagee as interest may appear, under all present or future mortgages on the buildings described in the Declarations in order of precedence of mortgages on them.

On July 17, 1982, fire destroyed the discotheque at the El San Juan Hotel. Immediately thereafter, Rodriguez and Universal entered into negotiations concerning the claim for loss under the policy; neither party ever informed CG of the fire or the negotiations. Eventually, Rodriguez and Universal agreed to a claim for loss to property in the amount of $418,217, which Rodriguez filed on September 27, 1982. The following day Universal issued a check in that amount made payable to "Hector M. Rodriguez Estrada as Trustee of the El San Juan Hotel Corp." No effort was made to safeguard CG's interest in the insurance proceeds. The check was deposited in one of the trustee's operating accounts for the hotel corporation.

It was not until November or December of 1982 that CG learned, through a disgruntled former employee at the hotel, of the fire and the insurance payment. After investigating the matter, CG attempted to collect the insurance money from Universal and Rodriguez, as well as from Lopez, who had by then replaced Rodriguez as trustee. Meeting with no success, CG filed this diversity action on October 24, 1983.

CG's claim against Universal was for breach of contractual obligations under the insurance policy by failing to pay the loss proceeds to CG. CG also alleged that, by virtue of Rodriguez's breach of the stipulation in failing to notify CG of the fire and in accepting payment which rightly belonged to CG, the funds received by Rodriguez were impressed with a constructive trust. CG thus asserted a cause of action against Lopez in his official capacity for return of the entrusted funds. It also asserted a cause of action against Rodriguez in his personal capacity for "knowingly and wrongfully" collecting the proceeds and for breach of his fiduciary duties under the constructive trust.

Universal filed cross-claims against both Rodriguez and Lopez. In the event it was found liable to CG, Universal alleged that it had a right in restitution to recover from Lopez the money erroneously paid to the bankrupt corporation. Additionally, Universal alleged that Rodriguez was personally liable to Universal for any amounts Universal might have to pay CG, because of his knowing violation of the contractual and fiduciary duties owed to CG under the stipulation. Lopez, in turn, filed a cross-claim against Rodriguez, alleging that Rodriguez would be liable to the hotel corporation for any money it might have to pay out, because "any illegal use of [the insurance proceeds] is the personal responsibility of [Rodriguez] which cannot be imputed to [Lopez] nor to debtor's estate."

After a one day bench trial, the district court entered judgment for CG against Universal in the amount of $164,000. The court reasoned that Universal was obliged, through the mortgage clause of the policy, to pay CG for the loss "to buildings," but not for the loss to personal property, which comprised the remainder of the $418,217 payment Universal had made to trustee Rodriguez. Universal's payment of the same $164,000 to Rodriguez did not discharge its obligation to CG, the court held. While thus acknowledging that the bankrupt corporation had received money from Universal to which it was not entitled, the district court, "for equitable considerations," disallowed any claims against the corporation. The court found that Universal had been negligent in paying the loss proceeds directly to Rodriguez without safeguarding the interest of CG. Moreover, "the direct malfeasor in the eyes of Universal is Rodriguez," the court stated. As to CG's claim that the funds given to the corporation through Rodriguez were impressed with a constructive trust, the court held: "[E]vidence presented at trial leads us to find that the proceeds from the insurance were commingled with general funds of the estate and cannot be specifically identified."

The district court also ruled that Rodriguez could be held personally liable for his deliberate disregard of the stipulation:

While we see no error in Rodriguez Estrada filing the proof of loss form, we find his failure to report Connecticut General as a party in interest, and his later failure to forward to plaintiff the payment due to it which had been erroneously paid to him, to be a willful and intentional disregard of his obligation under the stipulation. There is no excuse for such behavior. Therefore, Rodriguez Estrada is ultimately responsible to Universal for that portion of proceeds to which the debtor's estate was not entitled. Art. 1795, Civil Code of...