USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 95-2291

THE NEW PONCE SHOPPING CENTER, S.E.

AND AARON SOKOL,

Plaintiffs - Appellees,

v.

INTEGRAND ASSURANCE COMPANY,

Defendant - Appellant.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Daniel R. Dom nguez, U.S. District Judge]

___________________

____________________

Before

Lynch, Circuit Judge,

_____________

Coffin, Senior Circuit Judge,

____________________

and Cummings,* Circuit Judge.

_____________

_____________________

Jos E. Otero Matos,

___________________

with whom Irizarry, Otero & L pez was

________________________

on brief for appellant.

Enrique Peral,
______________

with

whom

Mu oz Boneta Gonz lez Arbona

_______________________________

Ben tez & Peral was on brief for appellees.

_______________

____________________

June 25, 1996

____________________

____________________

Of the Seventh Circuit, sitting by designation.

CUMMINGS, Circuit Judge.

_____________

Fire destroyed a building in

Ponce, Puerto Rico, that likely would have been demolished at the

owner's behest absent the fire.

The insurance company refused to

pay the policy amount, arguing that the owner lacked an insurable

interest

The

by virtue of

district court

the almost certain

rejected that

basis that the owner

plans for demolition.

argument.

We affirm

had not abandoned the building

on the

pursuant to

an "irrevocable commitment" to demolish it.

I.

Plaintiff The New

is

partnership that

Ponce, Puerto Rico.

several

Ponce")

commercial properties

in

In 1985, New Ponce purchased the Santa Mar a

Shopping Center, all of

Building:

owns

Ponce Shopping Center ("New

La Bolera

which it renovated except for

was under

lease contract

Santos that would not expire until October 1992.

La Bolera

to Venancio

Although Santos

attempted

to

renew

managing

partner,

intended

to

building on

intent

to

the

contract,

refused

construct

the site.

demolish

--

apparently

high

rise

There is

La

Aaron

Bolera

Sokol,

New

because

New

agency

quotations

from

Engineer

Lombardo

since

four

condominium

other evidence of

New Ponce's

at

the

September

persons

P rez

the

1992;

to demolish

was engaged

additional necessary permits.

-2-

Ponce

residential

end

of

preliminary permits had been sought and obtained from

government

Ponce's

by

La

the

New

Bolera

lease:

the proper

obtained

building;

Ponce

and

to obtain

After Santos'

Building was not

broken

into

put to

several

"undesirables."

lease ended

in October 1992,

La Bolera

any purpose; rather,

the building

was

times

became

for

General

Manager

Wigberto

and

Morales,

shopping center, testified that he

hangout

of

did not increase security

the building because he knew it was to be demolished.

the

at

On January

15, 1993, P rez submitted documents for permission to demolish La

Bolera,

including

letter

signed

by

Sokol

stating

that

demolition was

urgent to avoid

also mentioned

New Ponce's intent to

Four days later on

vandalism and crime;

the letter

construct the condominium.

January 19, La Bolera was destroyed

by fire.

There is no question that prior to the fire New Ponce intended to

proceed with its plans to demolish the building.

La Bolera Building was

insured by Defendant

Integrand

Assurance Company ("Integrand") for up to $699,750 against, among

other things, loss by fire.

Acosta to investigate and

of

the demolition

Morales

and

subsequent

Integrand immediately hired Benjam n

adjust the fire loss.

plans through

Engineer

P rez.

correspondence with

meetings with

It

is

New Ponce

Ponce could change its demolition plans.

he

stated that if "you

decide to repair

Acosta learned

General Manager

apparent

that he

from Acosta's

believed New

In a letter to Morales,

and/or reconstruct the

affected structure,

demolishing or

would

[Integrand] requires

removing any part

opt to order

of the same

that the affected

same or better conditions than

that you

refrain from

since [Integrand]

property be

it was at the time of

put into the

the fire."

-3-

The letter continued:

projected

"If you decide to proceed with the already

demolition . . . , [Integrand] will understand that it

will

be free

Ponce's

of responsibility

. .

. ."

insurance broker is to like effect.

that, should New

send the

Ponce decide

necessary plans and

to repair or

fax sent

to New

The fax also stated

rebuild, it

specifications in order

should

to obtain

construction permits.

Managing Partner

1993.

Sokol met with Acosta

on February 3,

During that meeting, Sokol confirmed the demolition plans,

but said that

in light of the option exercised by Integrand, New

Ponce had decided to reconstruct La Bolera Building.

9,

Sokol sent the necessary plans

Engineer P rez and Integrand's

On February

and specifications to Acosta.

contractor discussed the scope of

the reconstruction and agreed on the work that needed to be done;

the

parties

exchanged

correspondence

regarding

La

Bolera's

reconstruction.

Integrand's

cost at $1,265,766 if

plus $250,000

salvage and

contractor initially estimated

the entire structure required replacement,

to bring the structure

demolition expenses.

contractor said

up to code

In a

he could reconstruct for

for

code compliance.

pay

$283,790

of

the

the

Acosta

revised estimate,

$83,790

the

$350,000 plus $200,000

then stated that

cost:

and $55,000 in

as

New Ponce should

penalty

for

underinsurance and $200,000 for code compliance.

Sokol again

figures.

met with Acosta

and objected to

the cost

Unwavering, Acosta referred Sokol to Joaqu n Castrillo,

senior vice-president at Integrand.

-4-

Castrillo told Sokol that

Integrand

never exercised an option to rebuild La Bolera and did

not intend

to do

so.

He instead

which

Sokol immediately

Sokol,

Castrillo said

under

the

insurance

offered New Ponce

rejected.

In

that

Integrand

policy

because

$200,000,

a subsequent

rejected

Sokol

letter to

responsibility

misrepresented New

Ponce's plans to demolish La Bolera and withheld the existence of

contract

for

demolition

and

of

permits

for

future

condominium.

New Ponce filed suit in district court on May 25, 1993,

seeking

trial

compensation for

was

held in

magistrate

entered

against

Integrand

80% of the amount

for

loss and

March of

of New Ponce,

$594,787.50.

of the insurance

it is not responsible

committed to

damages.

1995.

to a vacancy clause in the policy.

appeal that

was

January and

judge found in favor

represents

pursuant

the fire

demolishing the

A bench

The presiding

and judgment was

That

amount

policy, less 15%

Integrand argues on

for the loss since

New Ponce

property

the fire.

prior to

Integrand also contests the amount of damages.

II.

Both the district court and the parties fail to specify

the jurisdiction that supplies the applicable legal rules to this

case.

It is important to do

so because a federal court sitting

in

diversity is not creating

where the

state or territory

federal court's task

court of that state

general federal common

has no controlling

is limited to

law.

authority, the

predicting what the

or territory would decide if

Even

highest

presented with

-5-

the question.

274-75

Nieves v. University of Puerto Rico, 7 F.3d 270,

______
__________________________

(1st Cir.

1993).

Generally, where

the parties

ignore

choice

of law issues on appeal, we indulge their assumption that

a particular jurisdiction's law

applies.

v. Six Consignments of Frozen Scallops,

____________________________________

Cir. 1993).

4 F.3d 90, 95

n.5 (1st

But here nothing in the briefs or the record reveals

any assumption other

some

Evergreen Marine Corp.

______________________

general

law

than that

of

the district

insurance

court would

unconnected

to

apply

particular

jurisdiction.

Thus

law.

our first

task is

to determine

the controlling

A federal court sitting in a diversity case must apply the

choice of

law rules of the

Elec. Mfg. Co., 313

________________

forum state.

U.S. 487,

496.

Klaxon Co. v. Stentor

___________
_______

Puerto

Rico,

the forum

territory in this case, has approved the "dominant or significant

contacts" test for contract

and tort actions.

v. American Trading & Prod. Corp., 74

________________________________

A.M. Capen's Co.

_________________

F.3d 317, 320

(1st Cir.

1996); In re San Juan DuPont Plaza Hotel Fire Litig.,

________________________________________________

569,

576 (1st

Cir. 1995).

jurisdiction with

issues will

concluding

Under

that test,

the laws

the most significant contacts

apply.

74 F.3d

at 320.

We

45 F.3d

of the

to the disputed

have little difficulty

that a Puerto Rico court would apply Puerto Rico law:

the insured property is located in Puerto Rico, all of the events

surrounding the issues presented in this case

Rico, including

(from what we can

all of

the meetings

between

discern in the record) the

-6-

occurred in Puerto

the parties,

and

insurance contract

was

entered into

in Puerto Rico.

We

also have

not located a

choice-of-law provision in any of the record insurance policies.

Integrand's principal argument

not have

fire

an insurable interest in

is that

New Ponce

La Bolera at the

did

time of the

because it planned to demolish the building and construct a

condominium in

parties

its place.

cited to

us,

We have not uncovered,

any applicable

Puerto

nor have the

Rico law

on

the

question of insurable interest

uniform

approach

addressed

taken in

the question,

in a similar context.

the

few

reported cases

we conclude that

Given the

that

the Supreme

have

Court of

Puerto Rico would adopt the approach of those courts.

The

insured

property before he

must

have

an insurable

Chicago Title & Trust Co.

_________________________

United States Fidelity & Guar. Co., 511 F.2d 241,

___________________________________

The

in

may recover damages under an insurance policy

for destruction of that property.

1975).

interest

insurable interest requirement

v.

246 (7th Cir.

may at first

glance

appear unfair to policyholders, because presumably a policyholder

would not

value to

three

pay premiums to insure a property that has no economic

him.

But

the insurable

policies that would not

interest requirement

be served by

serves

merely deferring to

the

policyholder's decision to pay for

insurable

interest

gambling

through

thereby

tempting

as

insurance

the

insurance.

prerequisite

polices,

destruction

insurance contracts to indemnity.

-7-

of

to

recovery

prevents

property,

Id. at 247.
___

Requiring an

prevents

rewarding

and

and

confines

Several

requirement

demolition.

496

courts have

in cases

where

The leading

applied

the

a building

is

the owner of

a seven-story

interest

destroyed prior

case is Garcy Corp.

___________

F.2d 479 (7th Cir.), cert. denied,

____________

Garcy,
_____

insurable

to

v. Home Ins. Co.,

_____________

419 U.S. 843 (1974).

building entered

In

a contract

with a wrecking company for demolition of the building.

Although

surrounding structures had been removed, demolition had not begun

on the main building when it was destroyed by fire.

presented was

whether the owner

had an insurable

The question

interest such

that he could recover under several fire insurance policies.

court adopted the

interest

to

standard that an insured

The

retains an insurable

so long as the building has not been abandoned pursuant

an "irrevocable commitment" to

demolition.

Id.

at 481; see

___

___

also Gendron v. Pawtucket Mut. Ins. Co., 384 A.2d 694, 697
____ _______
________________________

1978).

and

The court

awarded

building

found no irrevocable commitment to

damages

to

the

owner

because

"the

was not in the process of demolition"

_______________

(Me.

demolition

seven-story

when it burned.

496 F.2d at 481 (emphasis in original).

Garcy
_____

review of

will

the cases decided

demonstrate

that

requirement is not met in the

the

the

both before

"irrevocable

present case.

insured contemplated demolition and

and after

commitment"

Mere evidence

that

even took steps in that

direction prior to loss does not change his insurable interest in

the

property.

For example,

in American Ins. Co. v. Treasurer,

__________________
__________

Sch. Dist. No. 37, 273 F.2d 757 (10th

_________________

Cir. 1959) (Oklahoma law),

prior to partial destruction

by a tornado of a

school building,

-8-

the

insured had

received bids

begun construction

court

for demolition

on a replacement building.

found for the insured, refusing

and speculative

future events."

Id.
___

and had

in fact

Nonetheless, the

to rely on "unascertained

at

759.

In Knuppel
_______

v.

American Ins. Co., 269

_________________

the

court held

F.2d 163 (7th Cir. 1959)

that plaintiff's

building, which was later

affect his insurable

was undecided at

court

apparent decision to

have the

destroyed by fire, demolished

did not

interest where there was testimony

that he

the time of

the fire whether to

demolish; the

so held even though plaintiff had obtained a proposal from

a contractor who offered

166.

(Illinois law),

to demolish the building.

Id.
___

at 165-

Accord Godwin v. Iowa State Ins. Co. of Keokuk, Iowa, 27

______
_____________________________________

S.W.2d 464, 466-67

(Mo. Ct.

(1930); Gendron, supra.

_______ _____

App.), cert. denied,

____________

282 U.S.

880

In Leggio v. Millers Nat'l Ins. Co., 398

______
______________________

S.W.2d 607 (Tex. Ct. App. 1965), the court held that an insurable

interest existed despite plans

steps had not been taken

of demolition where all essential

prior to the fire.

The

lease required

the

lessee to submit specifications to the landlord prior to the

removal of existing structures, which had

not been done.

Id. at
___

611.

Even where a contract for demolition is fully executed,

an insurable interest

nothing

in the

property still exists

has been done pursuant

to the contract.

so long

as

American Home
_____________

Fire Assurance Co. of N.Y. v. Mid-West Enter. Co., 189 F.2d 528,
___________________________
___________________

534

(10th

Cir.

1951)

(Oklahoma

authority); accord Garcy, supra.

______ _____ _____

-9-

law)

(citing

This is so because

additional

"it cannot

be stated with certainty that [the demolition] would, in fact, be

commenced

. . . .

Performance of

delayed by a number of

the contract

other factors . . . .

may have

been

So too, plaintiff

could have chosen to repudiate the contract prior to demolition."

Tublitz v. Glens Falls Ins. Co., 431 A.2d 201,

_______
_____________________

Ct. Law Div. 1981).

Even where the insured is under a legal duty

to demolish a building, courts have

In

Bailey
______

(Oklahoma

v. Gulf Ins. Co.,

_______________

law), the

202 (N.J. Super.

building in

found an insurable interest.

406

F.2d

47 (10th

question had

Cir.

1969)

been declared

nuisance

by the

city

and

ordered

demolished, but

the

court

nonetheless concluded that the insurance company was not shielded

from liability.

Where

facts revealed

here.

Id. at 48-49 (citing additional authority).

___

courts

have found

no

insurable interest,

a stronger commitment to

In Woodruff v.
________

the

demolition than present

Southeastern Fire Ins. Co., 426 F.2d 555

___________________________

(5th Cir. 1970) (Alabama law), the insured property burned during

the process

of demolition.

insurable

interest

permanent

abandonment

building."

The court

where the

Id. at 562.
___

of

any

To

facts

use

held that

revealed

of

the

the same effect

Hartford Fire Ins. Co., 287 N.E.2d 38

_______________________

there was

a "complete

structure

of

are Lieberman
_________

(Ill. App. Ct.

no

and

the

v.

1972), in

which

the insured had not

but demolition had

only signed contracts for demolition,

begun three days prior to

the fire, and Deni

____

v. General Accident Ins. Co. of Am., 572 N.Y.S.2d 549 (N.Y. App.
_________________________________

Div.),

appeal
denied,
_______________

580

N.Y.S.2d

demolition had also commenced.

-10-

198

(1991),

in

which

Even the most permissive cases require that the insured

has entered a binding

contract under circumstances making escape

from the contract difficult

or unlikely.

For example,

in Royal
_____

Ins. Co. v. Sisters of Presentation, 430 F.2d 759 (9th Cir. 1970)
________
_______________________

(California

law), the owners

of an

old convent

building moved

into a new building subsequent to signing contracts that included

demolition

of the

destroyed by

fire,

insured.

The Ninth

insurable

interest

enforceable:

old

the

building.

trial

judge

the old

awarded

building

damages

Circuit reversed, holding that there

since the

in no event would

reinhabit the old building.

enforceable

When

contract for

Id.
___

contracts

were

demolition was

the

was no

all specifically

the owners have had

at 761-62.

to

was

a right to

The existence of an

held to

eliminate the

insurable

interest in a property

destroyed by fire

in Board of
________

Educ. of Hancock County v. Hartford Fire Ins. Co., 19 S.E.2d 448

________________________
______________________

(W. Va. 1942).

litigation

The

court stated its

by allowing evidence

reluctance to

of an intent

complicate

to demolish where

demolition had not begun, but concluded:

[I]f the

settled policy of

education, that
execute
had

the board of

it was legally

and the performance

bound to

of which it

definitely entered upon, by the acts

of the

board itself, had

possible use of the

should
loss

not
to

the

be

eliminated the

. . . building, they

indemnified against
extent

of

being

its

paid by

insurer its actual going value.

Id. at
___

contract

450.

and

The

board of education

begun to

perform that

had both signed

contract by

a binding

notifying the

builder when it would surrender possession of the property.

Id.
___

-11-

In the

Ponce

present case, there is ample

intended to

substantial

demolish La

steps in that

Bolera.

evidence that New

The company

direction prior to the

had taken

fire:

it had

obtained preliminary permits from local authorities

and obtained

quotations

actions

for

demolition.

uncontested evidence

But

neither

these

nor

of New Ponce's actual intent to demolish La

Bolera

was

constitute an irrevocable commitment to do so.

certainly

destroyed it,

contract

not

in

the

and New Ponce had not

for demolition.

above, New Ponce retained

January

process

19, 1993,

when

of

demolition

La Bolera

when

fire

even entered into a binding

Under the reasoning of the cases cited

an insurable interest in La

it burned.

Thus the

Bolera on

district

court

properly awarded damages to New Ponce under the insurance policy.

Integrand

awarded

also

argues

that

the

amount

of

damages

by the district court was not supported by the evidence.

Integrand

has

not

pointed

to

any

evidence

other

than

its

assertion that New Ponce had no insurable interest to contest the

court's award, and

As the

we have already disposed

district court

fully

explained, it

of that contention.

was presented

with

numerous

rebuilding

appraisals

as

high

as $1,265,700

and repairing La Bolera.

for

the

cost

of

It reasonably decided that

the most objective figure, given the range of appraisals, was the

amount of

the

insurance policy,

$699,750,

represent 80% of the value of the building.

pursuant to a vacancy

for

$594,787.50.

which it

no error

-12-

to

It then deducted 15%

clause in the policy and

We find

found

with the

entered judgment

district court's

assessment of damages and Integrand has failed to demonstrate

to

this Court that the award was not supported by the evidence.

III.

Integrand's

discussion.

For

remaining

the foregoing

district court is AFFIRMED.

________

arguments

reasons,

do

not

the decision

merit

of

the

-13-