Fajardo Shopping Center, S.E. v. Sun Alliance Ins. Co. of Puerto Rico, Inc.

• Decision Date: 04 November 1998
• Docket Number: No. 98-1649,98-1649
• Citation: 167 F.3d 1
• Parties: FAJARDO SHOPPING CENTER, S.E., A New Jersey Partnership, Plaintiff, Appellee, v. SUN ALLIANCE INSURANCE COMPANY OF PUERTO RICO, INC., Subsidiary of Alliance Assurance Company Limited, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

167 F.3d 1

FAJARDO SHOPPING CENTER, S.E., A New Jersey Partnership Plaintiff, Appellee, v. SUN ALLIANCE INSURANCE COMPANY OF PUERTO RICO, INC. Subsidiary of Alliance Assurance Company Limited Defendant, Appellant.

No. 98-1649.

United States Court of Appeals First Circuit.

Heard Nov. 4, 1998.

Decided Feb. 3, 1999.

Luis A. Gonzalez, with whom L.A. Gonzalez Law Offices, P.A. was on brief, for appellant.

Edward M. Borges, with whom David Rive-Power and O'Neill & Borges were on brief, for appellee.

Before TORRUELLA, Chief Judge, HALL, ^* Senior Circuit Judge, and LYNCH, Circuit Judge.

TORRUELLA, Chief Judge.

Plaintiff Fajardo Shopping Center, S.E. ("FSC") filed this action against Defendant Sun Alliance Insurance Company of Puerto Rico, Inc. ("SAIC") to recover insurance policy benefits in connection with damage to commercial leasehold property allegedly sustained during Hurricane Hugo. After approximately five years of discovery, the district court granted summary judgment in favor of FSC on the issues of liability and damages and ordered SAIC to pay FSC $1,301,856.77. The district judge also awarded FSC prejudgment interest in the amount of $868,826.60 plus attorneys' fees. SAIC appeals both the district court's grant of summary judgment and its award of prejudgment interest and attorneys' fees.

I. BACKGROUND

The Fajardo Shopping Center ("Shopping Center" or "FSC") is a three-building structure located in the northeastern municipality of Fajardo, Puerto Rico. For the past twelve years, it has been owned by an entity known as the Fajardo Partnership, a partnership organized under the laws of the state of New Jersey. Its principal building, Building I, is an L-shaped structure, units of which are leased to more than a dozen retail merchants, including Pueblo Supermarkets, its main tenant. The remaining two structures, Buildings II and III, have throughout the relevant time period been rented to a Firestone and a Kentucky Fried Chicken franchise, respectively.

On December 19, 1988, the Fajardo Partnership obtained a special multi-peril insurance policy from SAIC for the period of December 19, 1988 through April 22, 1991. (See J.A. at 778). The policy insured the Shopping Center against "all risks of direct physical loss subject to the provisions and stipulations herein and in the policy of which this form is made a part." (Id. at 785). The policy also insured against the loss of rents by the Fajardo Partnership caused by a covered risk. (See id. at 779). One of the pertinent exclusions included in the policy excepted from coverage losses caused by "faulty design, specifications, workmanship, construction, or materials if a peril excluded by this policy contributed to the loss at any time." (Id. at 786). ¹ None of the provisions or stipulations made a part of the policy excluded losses caused by a hurricane or windstorm. ²

On September 18, 1989, Hurricane Hugo struck the island of Puerto Rico. At maximum sustained winds of 125 miles per hour, the western part of Hurricane Hugo's eyewall passed directly through the municipalities of Ceiba, Fajardo and Luquillo. The intense winds did not, however, translate into unusually heavy rainstorms. San Juan reported only 1.4 inches of rain while Fajardo reported approximately 6.25 inches. ³

During Hurricane Hugo, the FSC property suffered extensive damages. Specifically, structural double-tee beams ("DT beams") supporting the roof of the Shopping Center deflected, losing their structural integrity. As a result of this deflection, portions of the FSC roof collapsed. Other portions of the roof, although not collapsed, were rendered structurally unsound and posed a risk of collapse.

Upon plaintiff's request, SAIC advanced FSC $150,000 to cover emergency repairs and to prevent further damage to the Shopping Center property. Shortly thereafter, FSC engaged an engineering firm, Izquierdo, Rueda & Associates ("IR & A"), to prepare an estimate of damages. The firm concluded that approximately 75,000 square feet of roof would have to be replaced because of structural damage. IR & A estimated the total cost of repairs to be $1,496,218. In early 1991, FSC submitted the firm's report and estimate to SAIC.

On May 7, 1991, a meeting was held at the SAIC offices to discuss FSC's claim. SAIC followed up the meeting with a letter to FSC dated July 1, 1991. In its letter, SAIC requested additional information and permission to carry out inspections of the property. The letter also stated that, despite its advance of $150,000, SAIC was reserving all of its rights under the policy because it had concluded that most of the damage to the roof was caused by preexisting structural defects in the DT beams, and not by Hurricane Hugo.

In a subsequent letter dated August 19, 1991, SAIC informed FSC of the results of an inspection of the FSC property performed by its engineer, Emiliano Ruiz ("Ruiz"). According to Ruiz, the deflections of the DT beams were not caused by windstorm but rather by the ponding of water due to a faulty and inadequate drainage system. SAIC further stated that such water ponding, "plus other factors such as inherent or latent defect of the beams ... construction and design deficiencies, and the fact that the building was not built according to the best engineering practices indicate that the damages claimed ... are excluded under Part VIII, Items 2 and 4C of the above policy." (J.A. at 2797). ⁴ As a result, SAIC agreed to pay exclusively for: (1) the removal and replacement of built-up roofing and hung ceiling; (2) the removal of debris and clean-up; (3) repair to air conditioning and electrical systems; and, (4) the replacement of store front glass, flashings, paint work, and parking illumination. SAIC calculated its liability under the policy to be $96,584.46, after subtracting the advanced amount ($150,000), the coinsurance penalty ($127,292), and the deductible ($3,000). SAIC submitted this amount to FSC as a proposed proof of loss.

Upon examining SAIC's proposal, FSC conducted further investigations to prove that the damages suffered resulted from the hurricane and not from inherent or latent design defects. FSC's investigation included: (1) a survey of the damage performed by Sousa Surveying Services; (2) an opinion as to the cause of the damage from structural expert Jose M. Izquierdo ("Izquierdo"); (3) an accountant's report prepared by CPA Rafael Perez-Villarini ("Perez-Villarini") detailing the amount of rent lost; and (4) a second cost estimate rendered by the late Engineer Jose Carbia. As a result of this investigation, FSC submitted its own proof of loss to SAIC on October 27, 1992, claiming damages in the amount of $1,944,356.73. SAIC promptly rejected FSC's proof of loss, reasserted its theory of causation, and resubmitted its previous offer of $96,584.46. Shortly thereafter, FSC filed the instant action. ⁵

II. THE APPOINTMENT OF A SPECIAL MASTER

On July 5, 1995, FSC moved for a jury trial. SAIC opposed the motion on the ground that the case was "extremely technical in nature and involve[d] construction issues ... which are beyond the knowledge of the common citizen." (J.A. at 135-36). In response, the court scheduled a conference for December 11, 1995, to address the issues raised by the parties and to explore settlement possibilities. After hearing arguments from both parties, the court denied FSC's motion for a jury trial. In addition, the court determined that "the appointment of a [Special] Master [would] be appropriate in this case." (Mins. of 12/11/95 Proceedings). ⁶ The court granted the parties until January 15, 1996 to submit three candidates for appointment as special master.

On March 18, 1996, FSC informed the court that, of all the candidates it contacted, only one--Engineer Efrahim Murati-Martnez ("Murati")--was willing to serve as a special master in an adversarial proceeding. SAIC never objected to FSC's motion proposing Murati's appointment. Nor did SAIC submit names of candidates for special master. Therefore, after considering his qualifications, the court appointed Murati to serve as special master.

Pursuant to Rule 53(c), the court's order of appointment enumerated Murati's rights, powers, and responsibilities as special master. Specifically, the court's order granted the special master "all the rights, powers, and duties as provided for a master under Rule 53 of the Federal Rules of Civil Procedure." (J.A. at 158). ⁷ On June 5, 1996, Murati accepted his appointment. The very next day, SAIC submitted--for the first time--its proposed candidate for special master. In its Motion Requesting Appointment of Special Master, SAIC never objected to the court's power to appoint a master. Nor did SAIC object to Murati's actual mandate. Rather, the essence of SAIC's objection was that Murati did not have sufficient formal training in structural problems to act as master in this case. (See id. at 162). In its order denying SAIC's motion, the court addressed this issue by stating: "Special Master Murati will remain as Master in this case. His performance so far belies any claims by defendant as to his suitability for the post." (Id. at 169).

SAIC now argues on appeal that the district court's appointment of a special master in this case violated Fed.R.Civ.P. 53 and Article III of the United States Constitution. Because we conclude that SAIC's failure to object to the district court's appointment of a special master amounts to consent, we do not reach the merits of this claim.

III. DISCUSSION

A. THE SPECIAL MASTER

As this court has recognized, "parties to a civil case may consent to the appointment of a master under any circumstances." See Stauble v. Warrob, 977 F.2d 690, 694 (1st Cir.1992); see also Peretz v. United States, 501 U.S. 923, 936, 111 S.Ct. 2661, 115 L.Ed.2d 808 (1991) ("litigants may waive their personal right to have an Article III judge preside over a civil trial"); Goldstein v. Kelleher, 728 F.2d 32, 35 (...