Providence Washington Insurance Company v. Lynn

• Decision Date: 21 February 1974
• Docket Number: No. 73-1330.,73-1330.
• Citation: 492 F.2d 979
• Parties: PROVIDENCE WASHINGTON INSURANCE COMPANY, Plaintiff-Appellant, v. James T. LYNN, in his capacity as the Secretary of Housing and Urban Development, Defendant-Appellee.
• Court: U.S. Court of Appeals — First Circuit

492 F.2d 979 (1974)

PROVIDENCE WASHINGTON INSURANCE COMPANY, Plaintiff-Appellant, v. James T. LYNN, in his capacity as the Secretary of Housing and Urban Development, Defendant-Appellee.

No. 73-1330.

United States Court of Appeals, First Circuit.

Argued January 8, 1974.

Decided February 21, 1974.

John W. Kershaw, Providence, R. I., for plaintiff-appellant.

Anthony J. Steinmeyer, Atty., Dept. of Justice, with whom Irving Jaffe, Acting Asst. Atty. Gen., Lincoln C. Almond, U. S. Atty., and Morton Hollander, Atty., Dept. of Justice, were on brief, for defendant-appellee.

Before COFFIN, Chief Judge, ALDRICH and McENTEE, Circuit Judges

COFFIN, Chief Judge.

This is an appeal by a private insurance company, insurer of a state prison, from an adverse judgment in its suit against its federal reinsurer, the Department of Housing and Urban Development (HUD). The question for review is whether the district court erred in concluding that the fire loss, under the circumstances described below, was not caused by a "riot" or a "civil disorder" within the meaning of the policy issued pursuant to the Urban Property Protection and Reinsurance Act of 1968, 12 U.S.C. §§ 1749bbb-1749bbb-21.

At about 10:30 in the morning of May 23, 1969, three inmates of the maximum security section of the Adult Correctional Institution (ACI), Cranston, Rhode Island, set fire to the facility by pushing a burning mop through a tiled roof. The resulting conflagration caused physical damage to the building exceeding $300,000. During the fire prisoners in the maximum security section, some of whom were locked in their cells at the time, had to be evacuated, and transferred to other portions of the ACI or to other institutions. Local firefighters and state and local police were called in to control the blaze and assist in maintaining security. No disturbances occurred among the prison population during this time, nor was the arson linked to any other incidents, either prior to or subsequent to this event.

The three perpetrators apparently thought that they were carrying out their deed secretly. Unhappily for them they were seen by other inmates, and after an investigation of the cause of the fire, were indicted, tried, and convicted of arson. Throughout the criminal proceedings the accused prisoners maintained their innocence and no motive for the burning was ever established. Their appeals to the state supreme court were denied, State v. Carsetti, 306 A.2d 166 (R.I. June 1973). The present action is not concerned with criminal responsibility, but seeks to determine, in a dollars and cents meaning, who shall "pay" for the consequences of the crime.

The Adult Correctional Facility was insured by a consortium of companies, including plaintiff Providence Washington Insurance Company. Providence Washington paid out to the state as its share of the loss $69,214. Plaintiff then filed a claim for $37,408.88 under its reinsurance contract with HUD. Under this reinsurance contract, which is the Standard Reinsurance Contract (1969-1970), the government engaged to reimburse the insurance carrier for a set portion of any payments made by the carrier to its insured under certain lines of property insurance so long as the property losses were caused by "riot or civil disorder". The reinsurance was made available by HUD pursuant to 12 U.S.C. § 1749bbb, the National Insurance Development Program, which was part of a package of remedial housing legislation passed by the Congress in the wake of the urban disorders of the mid-1960's.

The plaintiff's reinsurance claim was rejected by HUD on the basis of its finding that the loss was not the result of a riot or civil disorder as defined in the contract. The reasoning of the agency was set forth in a letter dated August 26, 1971 from the Federal Insurance Administrator to plaintiff which letter constitutes the final denial of plaintiff's claim:

"To warrant payment of the Cranston loss it would be necessary to establish either that this loss occurred as a result of a common law riot as defined in paragraph (A) of Section XV(2) of the Contract or else that it occurred in a `terroristic\' manner with `civil disruption or civil disobedience as a primary motivation\' as required by the alternative (B) and (C) definitions of that section.

"We have consistently taken the position that the (B) and (C) definitions, which are in effect extensions of riot coverage under the discretionary authority conferred by the Congress in enacting reinsurance protection against the 1965-1968 type of mass urban riot, require some showing of racial or other political or quasi-political motivation, rather than merely an unknown motivation or a motive of gain, animosity, diversion (for escape or to cover some other crime) or the like, for essentially personal reasons.

"The transcript of the trial . . . does not sufficiently establish the required quasi-political motivation of the perpetrators . . . nor does it establish that a mass riot (defined as a `tumultuous disturbance of the public peace\') took place. The motivation for the setting of the fire is still essentially unknown.

"Consequently, we do not believe that the motivation test has been met, and the claim is therefore again denied."

After the denial of its claim plaintiff brought this action in the United States District Court for the District of Rhode Island pursuant to the provisions for judicial review of such denials set out in 12 U.S.C. § 1749bbb-11. The district court agreed with the agency that plaintiff had failed to establish that the loss met the definition of "riot or civil disorder" set forth in the reinsurance contract and gave judgment for defendant, Providence Washington Insurance Co. v. Romney, 361 F.Supp 427 (D.R.I.1973).

The reinsurance contract contains three definitions of riot or civil disorder, which are set out in section XV(2), paragraphs (A), (B), and (C).¹ Paragraph (B) requires, inter alia, "three or more unlawful and terroristic acts or occurrences" and plaintiff concedes that it is inapplicable here. The two remaining paragraphs require analysis in order to evaluate plaintiff's contention that both the agency and the court below erred in finding the ACI fire encompassed by neither of them. Paragraph (A) contains the following definition:

"(2) `riot' or `civil disorder' means:

(A) any tumultuous disturbance of the public peace by three or more persons mutually assisting one another, or otherwise acting in concert, in the execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind."

It is clear that this definition corresponds with the common law concept of riot. We can find no case dealing with common law riot which would extend that concept so far as to encompass this incident. We therefore agree with the court below that the arson at ACI was not a riot as defined in paragraph (A) of the reinsurance contract.

Plaintiffs primarily rely on the consequences flowing from the arson, rather than the act of setting the fire itself, to establish a paragraph (A) riot. These consequences include the evacuation and transport of displaced prisoners, the need for increased security, the necessary excitement and activity occasioned by a major fire, and the presumed fear and confusion caused by a blaze in a prison, particularly among those prisoners who were in lockup when the fire broke out. Whether this and other results of the arson at ACI might together constitute a "tumultuous disturbance of the public peace" we need not determine. It is a clear doctrine of the common law that a stealthy act of destruction is not transformed into an act of riot because upon later discovery of the damage there is a public disturbance. 11 G. Couch, Cyclopedia of Insurance Law § 42.472 (2d ed. 1963).² International Wire Works v. Hanover Fire Ins. Co., 230 Wis. 72, 283 N.W. 292 (1939).

To show that a riot occurred, therefore, plaintiff must show that the act of setting the fire was a tumultuous disturbance of the peace. Plaintiff attempts to demonstrate that it has met this requirement by pointing out that in the indictment of the three accused arsonists is the standard statement that the illegal conduct was "Against the form of the statute in such case made and provided, and against the peace and dignity of the state". But the fact that a felony like arson offends the peace and dignity of the state cannot be construed to be a finding that a riot has occurred. Presumably three undetected nighttime burglars would be similarly charged. Moreover, a riot has a number of additional characteristics, including being "tumultuous". The quiet and stealthy manner in which the ACI fire was set cannot possibly be interpreted as a "tumultuous disturbance of the public peace" unless common sense, as well as common law, be discarded in the process of defining the words. Plaintiff has failed to establish this part of the definition of riot as set out in paragraph (A).

Paragraph (A) also requires that there be "unlawful use of force or violence". In a similar context these terms have been construed as follows:

"The question comes, then on the construction of the terms `force\' or `violence.\' Do they mean merely the manual force necessary to accomplish the act, or do they mean something more? There is no doubt that under the common law `force or violence\' meant a concerted intent of the perpetrators to mutually assist one another against all who should oppose them in the doing of an unlawful act. 3 Green-leaf on Evidence, 16th ed., sec. 216." Walter v. Northern Insurance Co. of New York, 370 Ill. 283, 18 N.E.2d 906, 908 (1939).

The cases wherein destructive activity has been found to be riotous have been ones where the illegal act was accompanied by the use of force, or the threat of use of force, against anyone who might interfere with the criminal enterprise. See e. g., Insurance Co. of North American v. Rosenberg, 25 F.2d 635 (2d Cir....