Ferrara & DiMercurio, Inc. v. St. Paul Mercury Ins. Co.

• Citation: 169 F.3d 43
• Decision Date: 08 October 1998
• Docket Number: Nos. 98-1094,98-1095,s. 98-1094
• Parties: FERRARA & DiMERCURIO, INC., Plaintiff, Appellee, v. ST. PAUL MERCURY INSURANCE CO., Defendant, Appellant. Ferrara & DiMercurio, Inc., Plaintiff, Appellant, v. St. Paul Mercury Insurance Co., Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 43

169 F.3d 43

FERRARA & DiMERCURIO, INC., Plaintiff, Appellee, v. ST. PAUL MERCURY INSURANCE CO., Defendant, Appellant.

Ferrara & DiMercurio, Inc., Plaintiff, Appellant, v. St. Paul Mercury Insurance Co., Defendant, Appellee.

Nos. 98-1094, 98-1095.

United States Court of Appeals, First Circuit.

Heard Oct. 8, 1998.

March 4, 1999.

Richard H. Pettingell, with whom Davis, White & Pettingell, LLC, Anthony R. Zelle and Zelle & Larson were on brief for St. Paul Mercury Insurance Co.

Joseph M. Orlando, with whom David S. Smith, Vita A. Palazzolo and Orlando and Associates, were on brief for Ferrara & DiMercurio, Inc.

Before SELYA, Circuit Judge, COFFIN and CAMPBELL, Senior Circuit Judges.

LEVIN H. CAMPBELL, Senior Circuit Judge.

The commercial fishing vessel F/V TWO FRIENDS was destroyed by fire on July 3, 1993, while berthed in Gloucester, Massachusetts. Ferrara & DiMercurio, Inc. ("F & D"), the owner of the vessel, sought to recover insurance under a Hull policy issued by St. Paul Mercury Insurance Company ("St.Paul"). St. Paul refused to pay, on the alternative grounds that either a third party had burned the vessel, an event that, in St. Paul's view, was expressly excluded from policy coverage, or else F & D had committed fraud by intentionally burning its own vessel. F & D brought this action in the district court, under the diversity jurisdiction, claiming that St. Paul's refusal to pay was a breach of the insurance contract and constituted "bad faith" in violation of Massachusetts consumer protection laws (Mass. Gen. Laws ch. 93A). Prior to trial, the district court ruled that the Hull policy covered losses caused by fires intentionally set by third parties. After St. Paul presented its arson-by-the-insured defense at trial, the district court granted judgment as a matter of law for F & D. The Chapter 93A claim was subsequently dismissed on summary judgment.

On appeal, St. Paul contends that the district court erred in ruling that losses caused by fires intentionally set by third parties are covered under the Hull policy. St. Paul also appeals from the district court's grant of F & D's motion for judgment as a matter of law. F & D cross-appeals from the district court's grant of St. Paul's motion for summary judgment on F & D's Chapter 93A claim. ¹ For the reasons that follow, we reverse the district court's ruling that the Hull policy covers losses caused by third-party arson and reverse the directed verdict granted in favor of F & D. We affirm the dismissal of the Chapter 93A claim.

I. BACKGROUND ²

F & D was a closely-held, family corporation engaged in the commercial fishing trade. The corporation had four officers: Leonardo Ferrara, Sr., Vito Ferrara, Ambrose Ferrara, and Francesco DiMercurio. Six individuals, all family members, owned shares in the company: Leonardo Ferrara, Sr., Vito Ferrara, Ambrose Ferrara, Francesco DiMercurio, Vincenza Ferrara, and Enza DiMercurio.

In 1987, F & D purchased the commercial fishing vessel F/V TWO FRIENDS for $375,000 with the proceeds of a loan from the Gloucester Bank & Trust Company. As a condition of the loan, members of the Ferrara family agreed to act as personal guarantors of F & D's note. In addition, Vincenza Ferrara and Francesco DiMercurio pledged their homes as additional security. The TWO FRIENDS was the sole physical asset owned by F & D. It was insured for $350,000 under a Marine Hull and Machinery policy issued to F & D in 1992 by St. Paul. The Hull policy that was issued by St. Paul was an American Institute AHAB Form policy, revised as of July 1, 1962. The TWO FRIENDS was also insured for $350,000 under a War Risk policy issued to F & D by Underwriters at Lloyd's, London. ³

At trial, ⁴ James Carey, St. Paul's accounting and financial expert, testified that F & D had operated at a loss from the moment of its formation. Carey testified that F & D had considerable difficulty in making timely loan payments to Gloucester Bank & Trust Company. Because F & D was habitually late in making its payments, the bank made demand in July, 1991, for payment in full of the outstanding loan, an amount in excess of $290,000. In November 1991, the bank made demand upon the personal guarantors of F & D's note for payment in full of the outstanding loan. Also in November 1991, the bank filed a lawsuit to foreclose on the residence of Vincenza Ferrara. After a period of negotiation, the bank, F & D, and the personal guarantors reached an agreement in January 1992, whereby the bank would forebear from proceeding to judgment in the foreclosure action so long as $15,000 was paid to the bank and monthly payments were kept current thereafter.

After the January 1992 agreement, Carey testified that F & D continued to have difficulty making timely payments to the bank. At a meeting in April 1993, F & D and representatives of Gloucester Bank & Trust Company agreed that F & D would attempt to sell the TWO FRIENDS for $225,000. On April 15, 1993, F & D entered into an exclusive brokerage agreement with Ahern Marine Agency, Inc. in an effort to sell the TWO FRIENDS.

On July 2, 1993, the TWO FRIENDS returned to Gloucester from a five-day fishing trip with Leo Ferrara, Jr. and three crew members aboard. Leo Ferrara, Jr., the ship's engineer, testified that he left the TWO FRIENDS at approximately 4:30 p.m., and that he was the last crew member to leave the vessel. He further testified that prior to leaving the vessel, he had locked all of the doors both upstairs and downstairs. He testified that the only way to gain access to the TWO FRIENDS once these doors were locked was through the door on the crew quarters level, which he had secured with a padlock.

On July 3, 1993, at approximately 2:30 a.m., the TWO FRIENDS caught fire while tied to her berth at the Frontiero Brothers, Inc. wharf. When the Gloucester Fire Department arrived, firefighters discovered that the only door through which they could gain entry to the TWO FRIENDS was located on the crew quarters level and was padlocked. The firefighters cut the padlock in order to enter. The Gloucester Fire Department's preliminary report, which was prepared on July 4, 1993, indicated that the cause of the fire was electrical in nature, but the origin uncertain.

Leo Ferrara, Jr. and Vito Ferrara both testified that at the time of the fire, there were only four keys to the padlock used to secure the door on the crew quarters level. One of the keys was in the possession of Leonardo Ferrara, Sr., the president of F & D, one was in the possession of his son, Vito Ferrara, the vice-president of the corporation, one was in the possession of Leo Ferrara, Jr., and the final key was hanging, along with the keys to other vessels, inside a warehouse on the Frontiero Brothers, Inc. wharf. Pasquale Frontiero, the owner of the wharf, testified that on the night of the fire he had locked the warehouse prior to going home for the evening. He testified that a few days after the fire, he noticed that the key to the TWO FRIENDS was still hanging in its usual location inside the warehouse.

After receiving notification of the fire aboard the TWO FRIENDS, St. Paul retained Fred O'Donnell, a fire scene analyst, and John Malcolm, a forensic electrical fire consultant, to investigate the cause and origin of the fire. O'Donnell and Malcolm first visited the fire scene on July 8, 1993. They were accompanied by David DuBois, a marine surveyor who had also been retained by St. Paul. On this initial visit, Malcolm, DuBois, and O'Donnell conducted a visual inspection of the TWO FRIENDS and O'Donnell took samples from the crew quarters and galley areas to determine whether an accelerant was present.

Malcolm and O'Donnell returned to the vessel on August 3, 1993, to obtain the electrical panels, ostensibly for inspection and possible subrogation claims. At the request of counsel for St. Paul, but without obtaining authorization from F & D, O'Donnell and Malcolm removed the electrical panels from the TWO FRIENDS. The panels were placed in an evidence storage locker at Malcolm's laboratory and were provided to counsel for F & D upon his request. O'Donnell testified that based upon his examination of burn patterns, he was able to identify points of origin for at least three, and possibly four, separate fires aboard the TWO FRIENDS. He testified that one point of origin was located adjacent to a bunk in the port side crew quarters bunkroom, and another point of origin was located one deck below the crew quarters in the engine room at an electrical panel on the forward starboard side bulkhead. O'Donnell testified that a third point of origin was also located in the engine room, on the port side next to the main hydraulic tank. Finally, O'Donnell testified that there was an area of "heavy burn" in the galley area.

O'Donnell testified that two of the three samples he had taken from the crew's quarters contained traces of diesel fuel, but that none of the samples taken from the galley area contained evidence of an accelerant. He further testified that, in his opinion, the fire on the port side of the engine room was set by someone placing a container filled with accelerant in the forward port corner of the engine room next to the hydraulic tank hoses.

Malcolm investigated the vessel's electrical system to determine whether it played any part in the fire. He testified that based upon his interview of Leo Ferrara, Jr. on July 8, 1993, it did not appear that the TWO FRIENDS had experienced any electrical difficulties on the July 2, 1993 fishing trip. Malcolm testified that he found no evidence that the electrical system had played any role in the fires in the bunkroom or in the fire that originated in the engine room on the port side. He testified, however, that he did find evidence of the escape of electricity, or "arcing," in the electrical panel on the forward starboard side bulkhead in the engine room. Malcolm testified that, based upon his...