In re San Juan Dupont Plaza Hotel Fire Litigation

• Decision Date: 15 April 1992
• Docket Number: No. MDL-721 (RLA).,MDL-721 (RLA).
• Citation: 789 F. Supp. 1212
• Parties: In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.
• Court: U.S. District Court — District of Puerto Rico

789 F. Supp. 1212

In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.

No. MDL-721 (RLA).

United States District Court, D. Puerto Rico.

April 15, 1992.

Monita Sterling, Liaison, Hato Rey, P.R., for plaintiffs' Steering Committee.

Luis A. Meléndez-Albizu, Sanchez-Betances & Sifre, Hato Rey, P.R., for Wausau Underwriters Ins. Co.

Elisa A. Fumero, Guaynabo, P.R., for American Mfrs. Mut. Ins. Co.

ORDER NO. 453

IN THE MATTER OF DISMISSAL OF CLAIMS AGAINST WAUSAU AND AMERICAN MANUFACTURERS

ACOSTA, District Judge.

Before the Court are several motions filed by Wausau Underwriters Insurance Co. (Wausau)¹ and American Manufacturers Mutual Insurance Co. (American)² for dismissal of direct claims pursued by the PSC, as well as assigned claims of Norman C. Obrow and Milton F. Fillius, Jr.

I. INTRODUCTION

Wausau and American are co-defendants in the second subphase³ of the Phase III Insurance Trials involving coverage of insurance policies issued to the limited partners of the Grand Hotel Associates.⁴ There is no dispute that defendants issued insurance policies to Messrs. Obrow⁵ and Fillius⁶ which were in effect on December 31, 1986, the day of the fire at the San Juan Dupont Plaza Hotel (Hotel). There is also no dispute that the claims held by Mr. Obrow against Wausau and Mr. Fillius against American were assigned to the PSC.

Messrs. Obrow and Fillius were defendants⁷ in the Phase I Trial in their capacity as limited partners in the Grand Hotel Associates.⁸ Pursuant to the terms of the Settlement Agreement reached after approximately nine weeks of the Phase I Trial,⁹ claims held by Messrs. Obrow and Fillius against these insurers were assigned to the PSC.¹⁰

The PSC amended the Master Complaint on September 5, 1989¹¹ to include the newly assigned claims against these insurers as well as its claims pursuant to the Puerto Rico direct action statute, 26 L.P.R.A. §§ 2001 and 2003.

Wausau advances various arguments in its motions to support dismissal. After careful review and consideration, the Court finds as follows:

II. IN PERSONAM JURISDICTION

Co-defendant Wausau alleges that the Court lacks personal jurisdiction under the analysis of minimum contacts and that the Court's exercise of personal jurisdiction would result in a violation of the Fourteenth Amendment, Due Process Clause of the United States Constitution.

The Court finds that traditional notions of fair play and substantial justice are not offended by the exercise of personal jurisdiction over these defendants within the context of this ongoing, complex litigation. See, e.g., In re Agent Orange Product Liability Litigation, 818 F.2d 145, 163 (2nd Cir.1987) (the transfer and consolidation of actions pursuant to 28 U.S.C. § 1407, the multidistrict litigation statute, are not impeded by problems of in personam jurisdiction and venue) (citing In re Sugar Industry Antitrust Litigation, 399 F.Supp. 1397, 1400 (J.P.M.L.1975) and In re FMC Corporation Patent Litigation, 422 F.Supp. 1163, 1165 (J.P.M.L.1976)).

The history of this multidistrict litigation supports this finding. Shortly after the filing of the initial actions, the Judicial Panel on Multidistrict Litigation found that all claims shared common questions of fact and that centralization would serve the convenience of parties and witnesses and promote a just and efficient resolution.¹² Consequently, all actions were transferred to this district for consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407.¹³ All transferred cases were later consolidated for all purposes, including trial, pursuant to 28 U.S.C. § 1404(a).¹⁴

Although the complexity of the case, the involvement of numerous parties and the plethora of issues necessitated several trial phases,¹⁵ the conglomerate of all proceedings is, in actuality, a single litigation. The current and final phase includes claims against insurers of the Dupont entities who were defendants in the Phase I Trial.¹⁶ Thus, judicial interests as well as the interests of the parties continue to be better served by resolving all matters in these proceedings in the forum most familiar with the issues.¹⁷

In light of the particular circumstances and complex nature of the multidistrict litigation, defendant's request for dismissal for lack of in personam jurisdiction is hereby DENIED.

III. SUBJECT MATTER JURISDICTION

Co-defendant Wausau alleges that subject matter jurisdiction is lacking. To support this contention, it refers the Court to the arguments presented in a previously submitted motion by Pacific Employers Insurance Company and First State Insurance Co. (docket No. 16506) filed on April 8, 1991, pp. 7-10. In the motion incorporated therein, the insurers allege that realignment of the parties is warranted and if effected, diversity jurisdiction would be destroyed. Assuming, arguendo, that realignment is proper, the facts clearly show that diversity between the parties exists as Mr. Obrow is a resident of California and Wausau's place of incorporation and principal place of business is Wisconsin. There is no basis for Wausau's mere conclusive statement¹⁸ that subject matter jurisdiction is lost once the parties are realigned. Therefore, Wausau's motion is hereby DENIED.

Furthermore, pursuant to the principles of ancillary jurisdiction, the Court has jurisdiction to review all other related cross-claims where subject matter jurisdiction existed in the original action. See Zurn Industries, Inc. v. Acton Construction Co., Inc., 847 F.2d 234, 236 (5th Cir. 1988) (the Court determines diversity jurisdiction at the beginning of the action and, thereafter, the Court may have ancillary jurisdiction over parties for cross-claims and counterclaims even where diversity ceases to exist).

IV. STANDING/NON-ASSIGNABILITY CLAUSE

Wausau contends that the PSC lacks standing to pursue the assigned claims of Messrs. Obrow and Fillius because the policy contains a non-assignability clause which reads:

Assignment of this policy shall not be valid unless we Wausau give our written consent.

The Court finds that the non-assignability clause is not enforceable under these specific circumstances. Since the purpose of the non-assignability clause is for the "benefit and protection of the insurer" by "preventing an increase of risk and hazard of loss by a change of ownership without the knowledge of the insurer," 16 George J. Couch et al., Couch on Insurance 2d, § 63.31 at 757 (1983), many Courts have found this provision inapposite where the insured in actuality assigns the right of action on the policy after the loss has occurred or assigns a claim to the proceeds once the policy has lapsed. 16 id. §§ 63.36 & 63.40. Given the circumstances here, i.e., assignment after the loss, the assignment does not operate to increase the risk and/or hazard of loss under the policy. Furthermore, restrictive provisions in insurance contracts prohibiting assignment after loss are often found contrary to public policy and, consequently, unenforceable. 16 id. § 63.41.

A review of the California case law cited by defendants to support the opposite conclusion shows such reliance to be misplaced. For example, in Greco v. Oregon Mutual Fire Insurance Co., 191 Cal. App.2d 674, 12 Cal.Rptr. 802, 806 (1961), the Court stated that although the policy, by its own terms, prevents the substitution of the insured with another, it is settled law that the right to recover on a policy after the loss has occurred is assignable without company consent. Also, in University of Judaism, West Coast Branch of Jewish Theological Seminary of America v. Transamerica Insurance Co., 61 Cal. App.3d 937, 132 Cal.Rptr. 907, 909-10 (1976), the Court refused to dismiss an action assigned in violation of the non-assignability clause even though the assignment of the policy occurred prior to the loss and without the consent of the insurance company because no additional risks attached to the insurer.

Based on the foregoing, Wausau's motion to dismiss on the ground that Mr. Obrow's claim was assigned to the PSC without its consent is hereby DENIED.

V. DIRECT ACTION STATUTE

Co-defendant Wausau alleges that the terms of the policy preclude the PSC from pursuing a claim under the direct action statute, 26 L.P.R.A. sections 2001 and 2003 which read as follows:

Sec. 2001:

The insurer issuing a policy insuring any person against loss or damage through legal liability for the bodily injury, death, or damage to property of a third person, shall become absolutely liable whenever the loss covered by the policy occurs and payment of such loss by the insurer to the extent of its liability therefor under the policy shall not depend upon payment by the insured or upon any final judgment against him arising out of such occurrence.

Sec. 2003:

1) Any individual sustaining damages and losses shall have, at his option, a direct action against the insurer under the terms and limitations of the policy, which action he may exercise against the insurer only or against the insurer and the insured jointly. The direct action against the insurer may only be exercised in Puerto Rico. The liability of the insurer shall not exceed that provided for in the policy, and the court shall determine, not only the liability of the insurer, but also the amount of the loss. Any action brought under this section shall be subject to the conditions of the policy or contract and to the defenses that may be pleaded by the insurer to the direct action instituted by the insured.

2) If the plaintiff in such an action brings suit against the insured alone, such shall not be deemed to deprive him of the right, by subrogation to the rights of the insured under the policy, to maintain action against and recover from the insurer after securing final judgment against the insured.

Wausau, relying on a portion of the section 2003 which provides that a direct action claim is subject to "the terms and limitations of the policy," argues that the PSC is precluded from...